Yellow Corp. (NASDAQ: YELL) has failed to make its required pension contributions for June and is planning to withhold payments for July. The pension funds, pension accruals and health care coverage for workers will suspend on Sunday, according to a statement by the Teamsters.
The Teamsters union has threatened to strike by Monday if this is not resolved and the pension contributions remain in default. The company owes $50 million, a large sum for a company in financial distress. Yellow currently has in excess of $100 million in cash reserves, according to an 8-K filed on July 7.
If a strike comes to pass, this would likely be the end for the storied less-than-truckload carrier.
While there is a lot of noise around the Yellow story, one thing is clear: Management is aware of the risks of not paying into the pension fund. They would have only missed a pension payment out of dire necessity, not convenience.
After all, this is not an Elon Musk-style default — “I am not going to pay this because I don’t want to” — but rather a decision that is borne out of a lack of sufficient funds to cover the payments.
Yellow’s management likely knew that not paying the funds would force the Teamsters’ hands. Perhaps they were hoping for a last-minute government bailout and decided that not paying the pension payment would allow for a few more weeks of liquidity until that bailout came.
Regardless of the reason for the company’s decision not to pay, it knew that defaulting would breach its contract with the Teamsters and that it would face retaliation from a battle-ready leader in Sean O’Brien.
O’Brien’s public statements and Twitter feed would suggest he is ready for a Yellow bankruptcy. On June 24, he posted a photo on Twitter — he goes by @TeamsterSOB — of a tombstone with Yellow’s name and the dates 1924-2023.
O’Brien, a regular Twitter poster, last tweeted about Yellow on June 27. Since then, his feed has been dedicated to UPS.
If O’Brien has written off the 22,000 Teamster jobs at Yellow, you can bet that there is little hope for the company’s future.
What Yellow customers can do
Yellow’s customers have options, however.
According to channel checks conducted by FreightWaves, many of Yellow’s shipping customers have been preparing for the prospect of a shutdown, but not all have not acted upon it as of yet. This will likely change this week.
Supply chain decision-makers would be wise to consider an alternative to Yellow as soon as possible. No shipping customer wants to be caught in a Yellow shutdown; there is a big chance that shippers won’t see their freight for months — if ever.
Once a strike takes place, Yellow’s revenue would drop to almost zero, as almost all of its revenue is dependent upon union labor. And it is unlikely that it could recover, short of an improbable government bailout. The cash burn would be insurmountable and the company would be forced into bankruptcy within days or weeks.
Freight tendered this week that is still in Yellow’s network would likely be abandoned at terminal locations across the country. These terminals would be unsecure and attractive locations for criminals to target, especially after a few weeks.
Yellow’s terminal real estate is pledged to the bondholders. They would be responsible for liquidating the real estate portfolio. It could take months. The agencies that are responsible for liquidation are not going to concern themselves with freight that is left behind in Yellow’s network.
Linehauls won’t be moving freight between terminals. There is a chance that outside contractors that are part of Yellow’s linehaul network would hold freight hostage, demanding some form of payment for services rendered.
For shipping customers, customer service jobs would likely be eliminated almost immediately and there would be no chance of getting in touch with anyone to help sort out where the freight is, much less recover it. And worst of all, there will be no one to file a claim at the carrier. Even if by some miracle you were able to do so, you would be an unsecured creditor with an infinitely small chance of recovering anything in a liquidation.
While no one likes to see a storied company shutter or 30,000 people lose their jobs, a Yellow shutdown would happen at a time when the trucking industry could absorb the volume. The trucking economy is very weak right now. Capacity is abundant and Yellow’s competitors have been preparing for its failure for the past few months.
Even if LTL networks get stretched (Yellow represents an estimated 10% of the total LTL volume), shippers will find plenty of linehaul capacity to purchase from the truckload industry. This could provide a welcome catalyst for Yellow’s competitors and the truckload sector.
Market volatility is likely to be a factor. Yellow largely relied upon its own Teamsters power to run linehaul services between terminals. The loss of this capacity could play havoc on the broader freight network for a few months as routing guides get reset.
State of Freight: What a Yellow bankruptcy means for the freight market
On Thursday, FreightWaves will be hosting a special State of Freight webinar to discuss what a Yellow shutdown likely means for the freight market and how shippers and carriers should prepare. It’s at 2 p.m. EDT and free to attend. Sign up here.
Mike
Sounds like maybe Tracy should leave the teamsters and join Yellow management.
Dawn
YRC is a terribly mismanaged company and has been for many years. These employees/Teamsters made huge concessions in 2010 to keep this company afloat, with no future of regaining what they have given this company, those losses affect their families for the rest of their lives. Now the company claims their financial duress is due to the very workers that have kept this company open. What a slap in the face to these hard working men and women. The truth is corporate is responsible for the downfall of this company.
Many are praying for all those needing to find a new job to provide for their family.
Tracy
Sean O’Brien needs to go! How he can be so cruel to think 22,000 people can just immediately find another job! What an ass!! We are just regular people trying to make a living and pay our bills! Sit down and negotiate!! That’s what negotiation is all about! Not the I don’t give a damn attitude let it go down. It makes me be ashamed to be a Teamster! What gives Sean O’Brien the right to judge other people’s lives when it has no effect on him.
Kenneth Dotsey
This is a scary situation for everyone Truck Drivers and Dock workers lose everything but can probably find work easily enough These people will have to adjust to a whole new work environment including much different rules and conditions especially pay, insurance, and any type of pension or retirement benefits Companies with freight in the system will really be the hardest hit. I would right now be worried about my merchandise being lost in the system if this company goes under. Yellow itself is just plain corrupt and crooked. They have horrible goals and scandalous ideas as how to run a company by jeopardizing everyone involved. They have the banks by the short hairs and now are betting on another bailout from the government. I don’t believe the government is in any financial position to pour money into this disaster of a company I’m hoping for the best out come and if the government can fix this well that would be great. Not to worry about supply chain issues all these other LTL companies are salivating for the chance at all this freight. The saddest thing here is many companies offer 401k plans and match or contribute to an employee’s benefit account as well as providing a good insurance program and at a profit in operating ratio Why Yellow can’t do this is very suspicious
mark janke
Alot of very loose speculation here bordering on irresponsible to say the least and BS at most. 30,000 jobs is nothing to cheer on and there is a Plan B here that has to include going non-union. Yellow has a national infrastructure that is difficult to duplicate. Non Asset 3PL is not an alternative. IBT has recklessly said they are AOK with Yellow going under so there should be no alliegance to IBT legally or otherwise.
Scott Turley
Again the Teamsters destroy a good company, Maybe it is best that Yellow goes under but that is alot of teamsters that wont be able to pay their dues anymore so wonder what O’Brien feels about that. The Union has sucked Yellow dry for many years, I know this to be a fact worked there and say it every day. Hopefully other trucking companies wont hire the teamsters that are about to be unemployed so that they cant bring that horrible outdated mindset to another company.
Dick Bischoff
22 thousand teamsters will lose their jobs, another 8 thousand non union will lose their jobs all because O’Brien is a POS thug trying to show he’s the boss. He’ll still be making his “half a million per year” salary while his teamsters will be in the Soup Line. Scumbag.