What the multi-billion dollar battle over bankrupt freight company Yellow means for truckers and the economy

  • Executives at bankrupt trucking company Yellow on Thursday rejected a billion-dollar offer from investors that could have revived much of the iconic trucking company’s network.
  • When Yellow, founded in the 1920s, went out of business, it left 12,000 trucks, 35,000 trailers and 30,000 workers idle, which could form the basis for a new company.
  • A bipartisan group of senators, including Sens. Josh Hawley, R-Mo., and Elizabeth Warren, D-Ma., are supporting the investor rescue plan and urging the Treasury Department to restructure a $700 million CARES Act loan repayment plan.

Semi-truck trailers are pictured at freight transportation company Yellow’s terminal near the Otay Mesa border crossing between the U.S. and Mexico after the company filed for bankruptcy on August 7, 2023 in San Diego, California

Mike Blake | Portal

A group of investors hoping to rescue defunct trucking giant Yellow (formerly YRC) suffered a setback Thursday when executives at the bankrupt company rejected a billion-dollar offer that would have scooped up much of its remaining assets. But the group of investors led by trucking manager Sarah Riggs Amico vowed to press on, hoping that the courts and Treasury would eventually allow them to prevail.

One of the sticking points was Amico’s request to restructure the repayment of a $700 million CARES Act loan, which helped keep the trucking giant afloat during the pandemic. The US Treasury Department says their hands are tied.

“The loan in question was granted during the previous administration and the Treasury is one of several creditors involved in the insolvency process. “We will continue to work to ensure that taxpayers and affected workers and their families are treated fairly,” Treasury Department spokesperson Ashley Schapitl told CNBC.

Other Treasury officials said the loan could not be modified because Yellow was bankrupt and that new congressional authority was needed to make a new loan because the CARES Act authority had expired. Yellow’s potential rescuers dispute the Treasury Department’s legal opinion.

A bipartisan group of eight senators, including Sens. Josh Hawley, R-Mo., and Elizabeth Warren, D-Ma, have publicly supported attempts to save Yellow and its 30,000 jobs and urged the Treasury Department to restructure the loan.

What brought the legendary freight company to the brink

Yellow, formerly YRC Worldwide, was an iconic presence on America’s highways for generations until it suddenly closed in July. Six months and a Chapter 11 filing later, it’s clear that there are many shades of yellow. Some see the yellow of a fading sunset while others see the bright yellow of a new beginning. Yet more and more companies – like the government and creditors – are caught in the middle.

When Yellow ceased operations, it left 12,000 trucks and 35,000 trailers idle, which could form the basis of a new company. Yellow’s roots go back to an Oklahoma taxi service of the same name that was founded in the 1920s.

Over generations, Yellow grew into a freight giant that touched nearly every sector of the American economy, becoming one of the ten largest freight transportation companies in the country, generating over $6 billion in revenue in 2022.

But a series of corporate events, from mismanagement to misconduct, brought the company to the brink. When Covid-19 brought the country’s supply chain to a standstill, Yellow received the $700 million rescue loan through the CARES Act. But even that wasn’t enough.

Experts say many of the dire predictions about snarled supply chains and higher freight prices in Yellow’s absence have not yet come to pass.

“There are a lot of impacts on individuals, but on the industry and the industry segment I don’t see any significant impact,” said Michael Belzer, a professor of economics at Wayne State University. Before entering academia, Belzer worked as an OTR driver for 12 years.

“In a macroeconomic sense, one company goes under, other companies rise up and take their freight,” Belzer said.

How truckers’ lives were disrupted

Drivers walk to their trucks while working at YRC Worldwide Inc. in Carlstadt, New Jersey, USA, on Thursday, December 31, 2009. YRC Worldwide Inc.’s bondholders agreed to swap their debt for shares in the largest U.S. trucker, allowing the company to avoid a bankruptcy filing that might have led to liquidation. Photographer: Jin Lee/Bloomberg via Getty Images

Bloomberg | Bloomberg | Getty Images

Investors hoping for a Yellow revival say the market hasn’t recovered and the good-paying union jobs that Yellow truckers have filled have left a hole in the economy.

Nathan Skobodas worked as an operations manager at a YRC terminal in Grand Rapids for five years and says former colleagues encountered difficulties.

“Some colleagues I have stayed in touch with have not found comparable positions and have had to take pay cuts,” Skobodas said.

For many others, their lives were disrupted.

Kenneth Cantley of Rosemont, Minnesota, drove for Yellow for nine years until he was injured on the job. As a result, he was forced to resign from his position and began collecting workers’ compensation just before the company closed its doors.

“It really messed things up for a while,” Cantley said.

His workers’ compensation payments stopped arriving and he had no income for eight weeks until he officially filed for bankruptcy and then payments resumed.

“Without a weekly income, I struggled,” Cantley said.

Yellow Trucking offered new truck drivers “competitive” wages and a stable, secure job, said Bradley Maroon, assistant director of the Hamrick Truck Driving School in Ohio. He says union jobs at Yellow provided protection and advocacy for new truckers.

“And Yellow was the only trucking company I know of that never had truckers sleep in their trucks; they always put her in a hotel room, which is a pretty big deal,” Maroon said.

However, night driving was a relative rarity for yellow drivers, making their jobs sought after by truckers who didn’t want to be away for days at a time.

The importance of the part load market

Yellow Trucking occupied a niche segment of the trucking market known as “less-than-truckload” (LTL). Margins are slim and LTL transportation touches every aspect of people’s lives, whether they realize it or not.

“The diversity of customers at LTL makes the difference. With LTL you deliver to private homes, hospitals and barbershops. You don’t have the same customers every day; “each day is a brand new day than the next,” said Nick Burlingame, principal and certified CDL teacher for Sage Schools in New York.

While LTL offers variety and same-day transportation, making it attractive to drivers who don’t want to be away for days, OTR requires days on the road. Burlingame said LTL requires a certain subset of drivers who are comfortable fitting their large trucks into tight spaces like urban alleys or small parking lots.

High shipping costs in the absence of Yellow have so far not occurred, says Ken Vieth, president of ACT Research, which monitors the freight market. Vieth says LTL rates have increased since Yellow closed, rising 4.4 percent month-over-month in August and another 0.09 percent in September, but Vieth says the increase is most likely related to an increase in Diesel prices are related to 49 cents gallons from July to August. followed by a 19 cent increase from August to September. Regular prices for petrol and diesel have fallen since October.

The bankruptcy also came amid a freight recession that has put pressure on the business models of many trucking players and led to several rounds of layoffs and failures.

“Nobody misses yellow,” Vieth said. “They went out of business at the bottom of the freight cycle when there was significant overcapacity in the industry.”

In fact, Yellow’s exit from the market actually helped the LTL sector.

“With the demise of Yellow, the LTL portion of the market went from loose to loose in a weekend,” Vieth said. With the market’s weakest player and approximately 10% of LTL market capacity shut down, listed LTL carriers (as a group) posted their second-best quarter of profitability ever in the third quarter.

According to data provided by Tank Transport to CNBC in November, rising fuel costs and falling freight rates had led a total of 31,278 trucking companies to either close their services or shift to larger fleets.

Freightwaves reports that the biggest beneficiary of Yellow’s freight is Georgia-based LTL carrier Saia, which reported an 11 percent increase in business in the third quarter.

Burlingame agrees that the market could handle Yellow’s demise. And given the industry’s driver shortage, Burlingame said, even if drivers move into non-union jobs, they typically still have strong protections.

“In today’s driver shortage market, almost all of these companies treat these drivers well and offer good pay and health benefits. They have to do this if they want to keep them,” Burlingame said.

ATLANTA, GA – NOVEMBER 2: Georgia Democratic candidate for Lieutenant Governor Sarah Riggs Amico speaks to the crowd gathered for a campaign rally at Morehouse College on November 2, 2018 in Atlanta, Georgia. Former US President Barack Obama meets with Georgia Democratic gubernatorial candidate Stacey Abrams during a campaign stop. (Photo by Jessica McGowan/Getty Images)

Jessica McGowan | Getty Images News | Getty Images

Sarah Riggs Amico disagrees with this assessment, which is why she and a group of investors are making a last-ditch attempt to revive Yellow, but even that is semantically incorrect. If Amico’s offer is accepted, the new company will be called Next Century Logistics. Amico is currently president of Jack Cooper Trucking, which specializes in transporting automobiles.

According to Amico, while the Yellow brand is tainted, the business is not.

“The business was fundamentally repairable and still is,” Amico said. Amico grew up in a trucking family and has already rescued trucking companies that got into trouble. Amico says for her it’s about jobs. But a Treasury official said on background that Amico’s offer would only bring back half of the jobs lost. Many former Yellow terminals were also auctioned off as part of the bankruptcy proceedings.

“An LTL carrier without a network of terminals cannot exist,” Vieth said.

But Amico, who ran unsuccessfully for a Georgia Senate seat in 2020, has worked with the Teamsters, who denounced the Yellowstone policy bankruptcy and government borrowing problems, to get a deal approved.

“In the truest sense of the word, jobs are the most important thing,” says Amico.

The Teamsters did not respond to a request for comment.

For Amico and its investors to succeed with their proposed multibillion-dollar rescue package, they will have to navigate a complex web of auctions, regulations, and obtaining court and regulatory approvals, which is far from certain. There are still outstanding questions from Yellow’s creditors, which represent an obstacle to further development. The terms of the deal mean that private equity and asset managers will end up leaving the bulk of Yellow’s assets to the Treasury, employees and other beneficiaries with little security.

However, as more and more yellow assets are auctioned off, any revived LTL business will be far smaller. For Amico, however, some saved jobs are better than none.


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