Yellow customers see danger and opportunity in Teamsters fracas

On July 7, Yellow (NASDAQ: YELL) narrowly avoided bankruptcy for the fifth time since 2009.

The potential for collapse is still looming, though. That’s scaring some customers off, according to three brokers and two industry experts interviewed by FreightWaves. Recent notes from investment banks like Bank of America and Stifel have also pointed to customers quietly diverting freight. 

However, some shippers — particularly smaller ones who are more conscious of their freight spend — are A-OK with Yellow. The carrier has kept rates low to appeal to clients, brokers say. 

Yellow’s current struggles stem from its attempts to integrate its disparate trucking networks. The Teamsters union, which represents some 22,000 of Yellow’s 30,000 employees, has rejected Yellow’s recent proposals to change operations. It has previously said the moves would violate aspects of its 2019 collective bargaining agreement.

Yellow filed a $137 million lawsuit against the Teamsters on June 27 for blocking the company’s change of operations. In the suit, Yellow claimed it would run out of cash by mid-July if the Teamsters did not approve these plans. Yellow managed to stave off collapse through a waiver of covenants with a group of lenders, which was made effective retroactive to June 30. The waiver lasts for two quarters with the lenders’ group and one quarter for the U.S. Treasury.

A Yellow spokesperson said in an emailed statement it has remained in “constant contact” with customers and other stakeholders about developments with the Teamsters union and its lenders. 

“Over the past few months, union rhetoric targeting multiple union LTL carriers has caused industry-wide concern among customers who have become cautious about placing additional volume with union LTL carriers,” the spokesperson said in a statement. “This is unfortunate because it jeopardizes the amount of volume spread among all union carriers. Diverted business, inevitably, will benefit non-union carriers and may result in rate increases that would harm both customers and American consumers who are already feeling the pinch of inflation.”

Yellow is the third-largest carrier in the less-than-truckload space. Bruce Chan, a transportation analyst at the investment bank Stifel, said larger shippers have been more keen to ditch Yellow. However, there hasn’t been a major diversion, Chan said. 

“The customer on the dock is not that focused on what’s happening in the news media,” Chan said. “As long as their freight is still being picked up and delivered, they’re maybe not necessarily aware of the potential, impending calamity. That said, most larger sophisticated shippers are very aware of what’s happening. Of the channel checks that we’ve been doing, the large shippers that we’ve been talking to, they’re all looking at contingency plans.”

Most LTL carriers have seen declines in tonnage thus far in 2023 compared to the year prior amid the larger freight recession. However, as FreightWaves’ Todd Maiden reported in June, Yellow’s declines in revenue, shipments, tonnage and other metrics have been some of the steepest compared to others competitors. Here’s how May tonnage levels compared with the year prior for the largest carriers, as Maiden reported:

• ArcBest: 2%.
• Old Dominion: -14.4%.
• Saia: -2%.
• XPO: -2.3%.
• Yellow: -16.3%.

The Yellow spokesperson confirmed that revenue has declined. 

“While we are seeing some shrinkage in bill counts, we believe that is in large part due to the general freight recession that the industry is experiencing,” the spokesperson said. “Uncertainty with the IBT is not helpful, however, we have seen encouraging support from customers. In fact, some major customers have come up with solutions to ensure that Yellow does not lose market share, and we are pleased to see them recognize Yellow’s vital role in their supply chains.”

Customers balance saving cash with, well, wanting their freight to show up

Three brokers told FreightWaves that shippers haven’t ditched Yellow en masse at this point — but customers are arranging alternatives from Yellow.

Lance Roberts, chief operating officer of logistics firm Candor Expedite, said recent requests for proposals have clearly noted Yellow as a carrier to avoid.

“We’re seeing a lot more customers ask us for alternatives,” Roberts said.

Gabe Pankonin, CEO of LTL brokerage Rocket Shipping, said Yellow has offered “aggressive” pricing to his customers, who are mostly shippers with freight spends of $100 million or below. Pankonin said some customers have snatched up these low rates, but others are wary that Yellow could go bankrupt, which would then mean they would have to scramble for much pricier freight in the wake of that closure.

A broker from a publicly traded transportation company, who asked to not have his name or employer printed as he is not authorized to speak on behalf of the company, said several of his large clients have requested that Yellow not service their lanes. The broker said some clients were using Yellow previously because the carrier has the lowest rates on many lanes.

“Some companies are stepping away from them [because of] the concern they’re not going to get their product moved — it could be stuck somewhere,” the broker said. “They want to save money, obviously, but they can’t afford their goods not to get there.”

The Nashville, Tennessee-based trucking company has a reputation of spotty service, industry insiders previously told FreightWaves. Roberts said that’s partially because the company prices freight very cheaply to gain more market share — then finds that it’s unable to handle all the business it’s picked up.

“They just either have really low rates to get business — or they start having service failures and use the rates to get the customers back in,” Roberts said.

Yellow hopes to curb some of this instability with its One Yellow plan, under which Yellow’s myriad regional brands and network would be integrated. 

A strike becomes possible at Yellow

Ongoing developments at Yellow have further potential to spook customers. Teamsters told its members Monday that Yellow failed to pay into the Central States Funds. The memo advised local unions to demand Yellow pay into the fund, or risk a work stoppage on or after July 24. 

“This is perhaps the most tangible example of why we think it’s more likely than not YELL will go out of business, as we’ve said before,” wrote Amit Mehrotra, a transportation and shipping analyst at Deutsche Bank, in a note to investors on Monday. 

Insiders have already pondered which fleets may benefit from a Yellow shutdown. Roberts said the industry has been expecting Yellow to go bankrupt for years.

“Could they be the next Celadon? That very well could be,” Roberts said. “I do see them being more aggressive to secure volume and shipments, which may be a strategy that would keep them out of that hot water.”

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