As Yellow and the Teamsters remain at odds, LTL market is left with a fair share of questions to answer

With yesterday’s news that Nashville-based Yellow Corporation, the third-largest United States less-than-truckload (LTL) carrier, has filed a lawsuit for more than $137 million against the International Brotherhood of Teamsters (IBT), due to what Yellow called a breach of the Teamsters’ biding contract with Yellow, it leaves a lot of questions unanswered about what happens next for Yellow, whom moves roughly 8%-to-10% of the total national LTL market, and, by extension, the market itself.

While Yellow and the Teamsters have butted heads before, this time around, it is fair to say that the situation feels different, with new Teamsters leadership in place, with General President Sean M. O’Brien leading the union, coupled with Yellow’s financial situation, which is facing challenges on various fronts, including needing to refinance $1.3 billion in debt—a $567.4 million term loan maturing on June 30, 2024; and a $729.4 million U.S. Treasury loan maturing on September 30, 2024.

For the first quarter, Yellow reported operating revenue came in at $1.159 billion, with an operating loss of $9.3 million, with CEO Darren Hawkins pointing to a soft demand environment, which lacked the “typical seasonal uplift in demand in the second half of the quarter. And he added that quarterly results with impacted by some remaining costs associated with the execution of Phase One of its One Yellow operating plan and planning and preparation for Phase Two of the network optimization and transition to a super-regional carrier.

Hawkins said at the time that Phase One was comprised of roughly 20% of the network and was successfully implemented in the western United States last year, with shipper customers seeing an uptick in the percentage of shipments going out for delivery before 9:00 a.m. and a reduction in missed pick-ups.

As for Phase Two, which is focused on legacy YRC Freight, Holland and New Penn terminals in the Midwest, Northeast and Southeast, and covers approximately 70% of the network, Hawkins said that its implementation would be contingent on how things were to progress with the Teamsters.

Based on the events of the last couple of days, though, it is fair to say the status of Phase Two is now in a holding pattern.

That was made clear in a video message posted by Yellow on its website, with Hawkins saying that Yellow’s roughly 30,000 union jobs are in serious jeopardy, due to actions taken by Teamsters’ leadership, in refusing to negotiate.

“For the past eight months, we have worked in good faith to come to an agreement with the union to strengthen our employees’ jobs, and the future of our company,” he said. “Yellow is just one of three major unionized companies remaining in the less-than- truckload business. Six other union companies have gone belly up in the last few decades, in large part because they couldn't compete with non-union carriers. Yellow is trying to stay in the game for our employees and customers. We're working to modernize our company to compete in a way that aligns with the union, but their leadership still refuses to meet, surely Teamsters’ leaders don't want their members, our employees, to lose their jobs.”

And he added that Yellow’s union employees want to earn a fair wage, noting that Yellow is raising wages twice this year, with its average driver earning more than $65,000 a year some making more than $100,000.

“We do not take this action lightly, but their leadership has left us with no choice,” he said. “We are now fighting for the livelihood of our 30,000 employees. We will do all we can to save these American jobs. While union leaders come and go. Yellow has been around a century. Responsible leaders work together to create opportunities and maintain jobs. We are ready and willing to talk even as we remain firm in our resolve. We simply cannot let these jobs in this company go without taking a stand.”

As for the broader LTL market, a research note written by TD Cowen analyst Jason Seidl observed that Yellow’s LTL competitors stand to gain volumes as Yellow’s customers move freight and seek contingencies.

Seidl looked back to 2009, when Yellow was also teetering on the edge of bankruptcy, and the Teamsters employees agreed to a 10% wage cut in January 2009 followed by a 5% wage cut the following October.

“Recent commentary from the IBT indicates that the union would likely not be amendable to similar solutions this time around,” wrote Seidl. “In 2009, the company was ultimately rescued by over 20 amendments to its debt covenants and a conversion of $470MM of bonds to equity.”

And Robert W. Baird analyst Garrett Holland wrote in a research note that while his firm’s industry checks had been skeptical that Yellow would liquidate, coupled with failure to negotiate that “would seem to secure mutual destruction…Nevertheless, shipper concern will only grow without a solution, and shipper deflection compounds a precarious situation.”

While Yellow is in a very tight spot, Mike Regan, Co-Founder and Chief Relationship Officer, at TranzAct Technologies, made the case that the company has a large amount of collateral, in the form of assets, given that LTL network assets are worth much more today than they were two-to-three years ago.

What’s more, Regan observed that with respect to the One Yellow initiative, Yellow is a different carrier today than it was three-to-five or even seven-to-10 years ago, in that it has morphed from being primarily an over-the-road carrier to a super regional carrier that has over-the-road capability.

“It's a different Yellow…and Yellow is intent upon getting this restructuring done so that they can reduce costs become more efficient, and survive well into the future,” he said.

From a shipper perspective, Regan said that there is a lot to consider, when it comes to this situation going forward.

“If you're a shipper, and you're the praying type, you better pray that Yellow stays in business,” he said. “Now the reason for that is as the third-largest LTL carrier with about a 10% market share, Yellow’s exit from the market could result in your freight rates going much, much higher. And you don't want to see that, and a lot of people don't want to see it. So, that's why if there's this death spiral with [shippers] pulling freight, you need to understand in the super regional network, Yellow, overall, has a delivery time between three-to-four days. So, if you're worried about freight getting trapped in the network, that's a concern that may be overblown.”

With so many moving parts to this situation, it is obviously not easy to know what to expect. In many ways, it really depends on the two parties getting to the table and getting a deal done. We have seen it already with the railroad labor issues getting resolved late last year and (hopefully) as well with the West Coast port labor situation, too. Will a deal get done or is it getting too late? Stay tuned.