The International Brotherhood of Teamsters said late Sunday that it had been notified that less-than-truckload carrier Yellow Corp. has ceased operations and will file for bankruptcy.
“Today’s news is unfortunate but not surprising,” stated Sean O’Brien, Teamsters general president. “Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government. This is a sad day for workers and the American freight industry.”
The 99-year-old company posted signs on locked gates at its terminals at noon on Sunday, saying it was ceasing all operations.
After a heated battle with Teamsters over the better part of the past year, Yellow (NASDAQ: YELL) was unable to push through a proposed change of operations it said was the linchpin to its survival. A breaking point occurred on July 15 when Yellow missed contractually required payments to Central States Funds, a multiemployer fund manager overseeing its health, welfare and pension benefits.
The debt-heavy, cash-strapped company had previously asked to defer the payments with interest, but that request was denied by Central States even though similar requests had been granted in the past. The company’s delinquent status with the group would have left employees at operating companies Holland and YRC Freight without health insurance. However, a last-minute extension provided by the fund allowed Yellow to avert a planned work stoppage.
Teamsters announced the same day that it had officially reentered negotiations with the company for the first time in weeks.
However, the damage was done. After weeks of customers and brokers pulling freight from its network over concerns it would ultimately be forced to close, time ran out on the clock before it could hatch out a contract with the union, which in turn was expected to produce a lifeline from its lenders.
No change of operations, no more Yellow
The company maintained all along that the Teamsters’ refusal to approve the change of operations would eventually lead to its closure.
Yellow embarked on a second phase of a multiyear restructuring called “One Yellow” nine months ago. The plan was to follow similar changes the union blessed across its western network (Reddaway) last year. Initiatives included consolidating redundant terminals, increasing the number of utility positions requiring drivers to move freight on the docks and upping the percentage of third-party capacity the carrier could use, among other changes.
The goal was to emerge from the overhaul as a super-regional carrier with a national service platform and a much leaner cost profile. Yellow was also hoping to use momentum from the turnaround to restructure $1.3 billion in debt that matures next year.
However, the second phase would involve consolidating operations at regional carriers New Penn and Holland with its national freight network — roughly 70% of the network. The proposal received pushback initially, was reworked by Yellow and then officially rejected by the union.
Months of bad blood and finger-pointing would ensue.
Some hope for a resolution was seen when both parties agreed to pull forward negotiations on the five-year collective bargaining agreement and negotiate those issues (including wages) in conjunction with the change of operations proposal. That plan would be short-lived, however. The Teamsters decided it would not give any more after years of wages, benefits and work rules concessions it estimates to be in the billions.
Running out of options, Yellow sued the Teamsters for breach of contract. In the $137 million lawsuit filed late last month, the company said the union didn’t have the authority to block the operational changes and that the Teamsters violated the collective bargaining agreement by backing out of a required hearing on the matter.
As the months-long back-and-forth continued, Yellow’s financial position weakened, with the carrier losing market share and booking losses. Its credit ratings would take another hit as well.
Calls to senators and the White House and last-minute negotiations with Teamsters would prove fruitless. Yellow’s lenders, which include the U.S. Treasury, didn’t offer much of a lifeline, only agreeing to temporarily waive debt covenants.
The company lost a hearing to block the strike in a federal court earlier this month, but was ultimately spared the work stoppage when Central States provided the extension. Legal counsel for Yellow was hopeful more time could save the carrier.
“Your Honor, the situation here for Yellow and the stakeholders is binary,” said Yellow attorney Marc Kasowitz in court on July 21. “If there’s a strike, the company is gone. If a strike is at least temporarily enjoined … then there’s some possibility for the company to survive.”
The bankruptcy leaves 30,000 Yellow employees, including 22,000 Teamsters, without jobs.
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