Last month, Teamsters claimed that Yellow (NASDAQ: YELL), one of the largest trucking companies in the United States, told the union that Yellow would run out of money in August. To avoid demise, Yellow’s management team said the Teamsters, which represents some 22,000 Yellow employees, must authorize operational changes the union previously approved.
Teamsters General Chairman Sean O’Brien’s response? Go ahead and close.
“It’s not up to the Teamsters to save this company; we’ve given enough,” O’Brien said in a June 12 video statement. “What happens next is out of our control.”
Twelve days later, O’Brien tweeted a photo of a headstone: Yellow, 1924 to 2023.
It is not uncommon for union leaders to bluff companies that claim they cannot afford certain benefits. But O’Brien’s proclamation is shocking to some trucking insiders. really yellow could go bankrupt, eliminating tens of thousands of union trucking jobs. (Heavy Duty Trucking called Yellow Corp. the “nine-life cat” in 2010 after it narrowly avoided closing. It’s nearly gone bankrupt three times since then.)
Nor is it like another union trucking company is going to pop up at any moment to pick up those 22,000 workers. The share of unionized jobs in LTL, the freight sector in which Yellow is the third largest, has declined sharply in recent decades.
On the face of it, it’s a mystery why O’Brien would just shut down the company instead of looking to keep 22,000 Teamsters jobs. Unionized trucking jobs are so rare that one would think that a relatively unionized job is better than no unionized job at all.
However, labor experts say the move is not surprising. Rather, it’s a sign that union leaders like O’Brien and Shawn Fain, president of the United Auto Workers, have changed dramatically from those of past decades. The rhetoric is now proudly militant and jobs that are not Teamsters standards will not be tolerated.
“There’s a generational shift happening in the workplace,” said labor and employment attorney Benjamin Dictor, whose clients include Teamsters Local 804, which represents UPS workers and others. in the New York area.
Dictor said truck fleets can accept fuel prices as a fixed cost. Now, he said, labor costs should also be considered non-negotiable.
“These companies for generations have treated labor as the cost they can profit from when other costs are stiffer and higher,” Dictor said. “When those costs go up, they rely on labor to go down, so they can keep their investors happy. One of the things you hear from Sean O’Brien is that it’s not. Some aspects of labor are a fixed cost. If you can’t afford gasoline, you better make the most of the trucking business. I think you’re hearing Sean O’Brien say that if you can’t afford the labor costs, you better get the best out of the trucking business.
Yellow isn’t the only freight company in a showdown with the Teamsters this summer. The union and UPS have been locked in months of negotiations for the next five-year contract. The current one expires on July 31, and UPS workers voted to authorize a strike if no new contract is reached.
A key difference between Yellow and UPS is the financial reality of each company. Teamsters is better able to secure a lucrative contract for its roughly 340,000 UPS workers because the parcel giant has a lot more cash on hand. In 2021 and 2022, UPS generated some $24.3 billion in net revenue. YELLOW lost approximately $87.3 million over the same period.
Union expert Michael Duff, a law professor at Saint Louis University, said O’Brien is unlikely to have that ‘what will, will be’ attitude if it wasn’t the will of the unit of negotiation.
“There’s a broad feeling among rank-and-file unionists that they’re just not going to put up with it anymore,” Duff said, speaking generally about union work. “Part of what’s happening here is you have people like O’Brien, who are unwilling to cooperate the old-fashioned way given the urgency of the moment.”
Why Yellow is struggling
Observers have blamed Yellow’s struggles on two major factors: its unionized workforce, which is inherently less flexible than non-unionized labor, and its inability to properly manage its acquisitions.
According to J. Bruce Chan, transportation analyst at investment bank Stifel, unionized labor has a cost disadvantage of about 30% compared to non-unionized labor. Unionized LTL carriers have fallen from 42% market share in 2002 to 22% in 2022, according to figures from SJ Consulting Group, which advises transport and logistics companies. Today, only three unionized LTL carriers remain: Yellow; ABF Freight; and TForce Freight.
However, Chan said Yellow’s problems are not due to the Teamsters. Satish Jindel, the founder of SJ Consulting Group, agreed. “You can’t put the risk of Yellow going bankrupt at the feet of the Teamsters,” Jindel said.
Both Jindel and Chan cited ABF, the LTL fleet of ArcBest (NASDAQ: ARCB), as an example of a successful syndicate operation in the same industry as Yellow. ABF’s revenue per shipment, including fuel surcharge, was approximately $529 in the first quarter of 2023, about 56.2% higher than Yellow’s in the same period. Additionally, on May 30, ABF announced that its Teamsters employees had ratified a five-year collective agreement.
Yellow said the Teamsters must authorize network changes or it will go bankrupt. Yellow’s network is currently a hodgepodge of several trucking fleets acquired in the early 2000s. These networks have never been fully integrated.
A 2019 employment contract allowed Yellow to consolidate these networks. Yellow integrated networks in the western United States last year. Now the Teamsters union is blocking any further consolidation. Yellow filed a $137 million lawsuit against the Teamsters on June 27 for blocking company plans to consolidate terminals and change work rules for nearly 1,000 truckers.
“Yellow is simply asking the IBT to come to the table to negotiate a modernization plan that also includes salary increases for Yellow employees,” a Yellow spokesperson said in a statement to FreightWaves. “The company is open to trading anytime, anywhere.”
The Teamsters did not provide FreightWaves with a comment for this article.
A yellow bankruptcy is not final, but more likely without union support
Yellow has faced potential ruin several times over the past 15 years. The most drastic was in 2009, when the company managed to convert nearly $500 million of debt into equity. The Securities and Exchange Commission approved the debt-for-stock swap, and the Teamsters also helped push lenders to convert their debt.
During the Great Recession, the Teamsters gave Yellow a 15% pay cut and agreed to waive pension contributions for five years. These wage concessions were extended in the 2014 contract to keep Yellow in business.
Employees represented by the Teamsters at Yellow got an 18% wage increase in their 2019 contract, which is still in effect today.
Support from the Teamsters and the federal government was also essential for the company’s $700 million US Treasury loan in 2020. Today, Yellow no longer appears to have that union and government support, making the company more exposed to bankruptcy.
The Teamsters said in a fact sheet that Yellow was “reaping the benefits of billions of dollars in wage, pension and work rule concessions” dating back to 2010. A Yellow spokesperson previously told FreightWaves that Yellow employees would receive a $1.77 hourly wage increase if Teamsters approved the network changes.
Neither Jindel nor Chan believe the federal government will step in to bail out Yellow, nor has the trucking company asked. Yellow wrote a letter to the White House on June 30 asking President Joe Biden to bring the Teamsters to the negotiating table.
“O’Brien has a point — the Yellow Teamsters have gradually and steadily given up on a lot,” Chan said. “At some point, it has to stop. But is a full stop the answer? It’s probably not the one that ultimately works in the best interest of the members.
It’s a question many in the trucking industry are asking: is imperfect union work better than no union work? Dictor recommended redesigning the query.
“It’s like telling you that the only way for Yellow to stay in business is if you don’t have brake pads,” Dictor said. “If they couldn’t have these things, should we give up all these trucking jobs just because they couldn’t operate safely? We would say no, obviously we need trucks on the road that work safely. It’s for us, it’s for the good of everyone else; there are some fees.
“If that’s what brake pads cost, that’s what brake pads cost,” he added. “And if you can’t afford the brake pad, you know, get the f— out of the industry. The same is true for work. We need to stop thinking about work as something on which there could be a compromise. … If you can’t afford the labor at a cost that allows these human beings driving these trucks to live a life where they can enjoy their families and their lives in out of work and be human beings, so get the hell out of the trucking company.
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