June 14, 2023

Teamsters not ‘bailing out’ Yellow again, unmoved by carrier’s finances


Teamsters brass said Monday that less-than-truckload carrier Yellow Corp. has informed them it will be out of money by August if a proposed change of operations isn’t approved. The union, however, says the company has been mismanaged for years and vows to not bail Yellow out again.

“Yellow has been unable to effectively manage itself for a long time,” said Sean O’Brien, Teamsters general president, in a video to members. “Now, the company says it’ll be out of money by August. Do not forget — Teamsters have already given back everything they possibly could to keep Yellow afloat.”

O’Brien said the union has given billions to the company in the form of wages, benefits and work rules concessions in the past. He also pointed to the $700 million the carrier received from the government in the form of a COVID-relief loan, which it used to catch up on delinquent health and pension payments and buy new equipment.

“It is not left for the Teamsters to save this company; we have given enough,” O’Brien said. “What happens next is out of our control.”

At the end of May, Yellow (NASDAQ: YELL) requested the Teamsters immediately approve a letter of agreement, allowing it to restructure operations in the East, Central and South regions. The company said the changes were similar to a change of operations previously approved by Teamsters and implemented in the West.

However, the new agreement seeks to further expand the use of purchased transportation as well as changes to work rules. A key sticking point has been the requirement that drivers work freight on the docks and potentially at locations other than their home terminals.

Teamsters contend the letter of agreement violates the current contract and would expand the use of these utility positions. A Monday letter from John Murphy, Teamsters freight division director, said the change of operations in the West was not similar to the current proposal as the utility role in that region was contractually permitted and “all affected road drivers had their earnings protected and were allowed to continue to perform traditional road work.”

Essentially Yellow is seeking to “assign employees to any job, anywhere, at any time across operating companies,” the letter asserted.

Yellow said in an internal memo to employees Thursday that only 1,000 drivers (20% of total road drivers) would be required to work the docks and that 400 are already performing these functions. The remaining 600 roles would be filled by employees with the least seniority. Those employees “would now be expected to handle freight at certain designated terminals, just like the hundreds of other Yellow drivers who have long been doing so, on a daily basis, throughout the entire term of the existing contract,” a spokesperson with Yellow told FreightWaves.

“Let’s be clear: If you were at a non-union company — a very realistic possibility for MOST of you if Yellow does not survive — ALL of you would be subject to potential dock work regardless of your time in the industry,” the internal memo read.

Yellow has offered to pull forward contractual wage increases (40 cents per hour and 1 cent per mile) slated for Oct. 1 and said it would seek to implement another pay hike (60 cents per hour and 1.5 cents per mile) to get a deal done quickly.

There is a catch. The carrier doesn’t have the ability to fund the latter increase currently and said it would need lender approval to do so, which it would seek when it refinances its $1.5 billion in debt at a future date.

“Yellow’s vague promise of small future increases that may or may not happen is insulting,” Murphy’s letter read. “Yellow wants to establish a one-way street that allows it to get everything it wants up front and early. The company wants our members to wait to see what happens down the road, even if it means workers are once again left holding the bag.”

“Sometimes a bad job isn’t worth it anymore,” O’Brien said.

The two parties had agreed to pull forward negotiations of their collective bargaining agreement, which expires March 31, 2024, and hash out the proposed operational changes at the same time. Yellow is saying time is of the essence, but the union maintained its stance that it will follow normal negotiating protocols and wouldn’t likely start meeting with Yellow until August.

The Teamsters are also negotiating labor contracts with UPS (NYSE: UPS) and TForce Freight, a TFI International (NYSE: TFII) subsidiary. It recently came to terms with ABF Freight, ArcBest’s (NASDAQ: ARCB) LTL unit.

Deteriorating market position, untenable financial condition

At the end of the first quarter, Yellow reported total liquidity of $168 million, which was $109 million lower year over year (y/y). However, over the same period it repaid $98 million in debt.

Cash flow from operations was $13 million in the first quarter.

However, the company continues to book net losses and teeters near breakeven on the operating income line (before interest expense and other items are considered). Yellow booked a 100.8% operating ratio (operating expenses expressed as a percentage of revenue) during the first quarter, meaning it spent slightly more than a dollar to generate each dollar of revenue.

An intraquarter update from the carrier released Friday after the market closed showed it has lost roughly one-third of its freight over the past two years. Tonnage declined 16% y/y in both April and May following similar y/y declines in the same two months of 2022.

The tonnage declines were previously explained as part of “One Yellow,” a multiyear overhaul of the organization, which includes the consolidation of its LTL brands and closure of redundant terminals. At the same time, the company has been taking yields higher on the freight it hauls. The operational changes and yield initiatives were reasons for the tonnage declines in the past, but it is now likely that some customers may be diverting freight to other providers to avoid service interruptions should labor actions occur.

The company’s lone debt covenant — adjusted earnings before interest, taxes, depreciation and amortization of at least $200 million over the past 12 months — was met in the first quarter. The company generated $325 million in adjusted EBITDA in the last year but just $89 million over the past six months.

The “company is running out of cash and is at risk of closure/liquidation,” the Yellow memo read. “Delays to Phase 2 and the One Yellow transformation has come with a serious cost. The company is unable to pay its bills and secure lender financing without showing to the market that we are able to implement on our One Yellow plans.”

Asked if Yellow would run out of cash in August and if customers have left due to the turmoil with labor, the spokesperson said, “We’re not giving up on that process. We have not seen evidence of customer changes.”

Yellow is encouraging full support of its proposed letter of agreement for its survival and the survival of 22,000 union jobs.

“Sean O’Brien’s baseless attacks are irresponsible when we have the jobs, lives and families of so many Teamsters and other employees on the line,” the Yellow spokesperson said. “Mr. O’Brien should come to the table so we and our employees can move on with their jobs and their lives.”

But O’Brien said the union will stand pat with the current deal in place for the time being.

“Yellow has shown that it doesn’t deserve and cannot be expected to continue under its current structure,” O’Brien said. “The Teamsters cannot and will not keep bailing out this company with concessions.”

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