Is It Too Early For Customer Defections At YRC?
After YRC's Teamsters shoot down management's proposal for further wage and benefits cuts, stakeholders wonder if and when customer defections could begin.
in the NewsState of Logistics 2016: Pursue mutual benefit Holiday season sparks retail import shipments, says Port Tracker Driver turnover rate declines, but challenges remain firmly intact AAR reports annual gains in November for U.S. carload and intermodal volumes CEMA reports October booked orders down 19.8% from October 2015 More News
When slightly more than 60 percent of less-than-truckload transportation service provider YRC Worldwide’s 26,000 Teamsters members shot down a five-year deal to continue 15 percent wage and benefit cuts, it is fair to say it came as a surprise to the financially ailing LTL giant.
Perhaps the reason was that its Teamsters had signed off on similar deals in recent years, when its union members approved a deal with 77 percent voting yes in January 2009, 58 percent in August 2009 and 62 percent in October 2010.
As reported in LM, YRC CEO James L. Welch made the continuation of those wage cuts until 2019 the linchpin of his efforts to refinance as much as $1 billion in long-term debt. Most of that debt was incurred by a pair of billion-dollar purchases, Roadway Express (in 2003) and USF Corp. (in 2005), engineered by then-CEO William Zollars, who left the company in 2011. What’s more, as LM’s John Schulz reported last week, YRC’s financial noose is tightening as it is facing about $953 million in debt coming due in the next 15 months. It has a $69.4 million bond issue that matures on Feb. 15. It has $325.5 million of loans due in September and $556.7 million of loans and bonds maturing in March 2015. All told, YRC is operating with more debt than all the other publicly held LTL carriers combined.
And when news of the vote came out, Welch said the following: “Despite the vote results, it is business as usual as we have approximately 15,000 trucks on the road today serving 250,000 customers. We will keep our customers, employees and stakeholders advised of our efforts.”
Fair enough, but is that alone going to be enough to quell the nerves of the customers whose freight is moving throughout the country in YRC trucks? Probably not would have to be the prevailing sentiment.
This has been made clear by various industry stakeholders, not to mention shippers that have stuck with YRC during the lean times in recent years.
Jason Seidl, a trucking analyst with Cowen and Co., wrote in a recent research note that if YRC is able to avoid bankruptcy, “the uncertainty surrounding [its] financial position is enough to make customers concerned,” adding that “[m]any of them may already be exploring the option of redirecting at least some freight to other carriers. Most carriers should have contingency plans for taking on additional freight.”
And BB&T Capital Markets analyst Thom Albrecht wrote that the current situation is not dire just yet for YRC but it could be getting there, noting that his firm does not get the sense that business is exiting YRC at this juncture although that could change in the coming weeks.
“We believe YRCW has a 60 to 90 day window by which to urgently act and put forth a cohesive approach to labor and its balance sheet,” the analyst explained. “If a plan is not intact by late winter or early spring, then the situation is likely to become more precarious. Business defections could accelerate in the spring if uncertainties linger. Obviously, the quicker labor and the balance sheet uncertainties are resolved, the quicker an operational turnaround can get reinvigorated.”
A high-level 3PL executive whose company has a large amount of freight moving with YRC and declined to be identified told LM he has received assurances from YRC sales reps in the wake of last week’s vote that there is nothing to worry about, but the executive made it clear that feedback is not good enough, stating “I need to be more sure than that.”
Like analysts Seidl and Albrecht said, the 3PL executive said his company has contingency plans in place, but before turning to them he wants to hear from upper management at YRC about where things are headed before having to act on the plans, as his company has a lot of freight exposure with YRC.
“Before we do anything, we need to hear more from them first,” he said. “As an aside, we will now be running Altman Z scores (which rates the likelihood of if a company will go out of business) for all of our carriers.”
It is not hard to see that the future is uncertain for YRC, coupled with the uncertainty that this situation creates for its customers. What happens next is anyone’s guess, but it stands to reason more twists and turns can be expected before the story is over.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
Warehouse & DC Operations Survey: Ready to confront complexity 2016 Quest for Quality Awards Dinner View More From this Issue