In response to its union’s unwillingness to negotiate and alleging it is blocking much-needed operational changes, the nation’s third-largest less-than-truckload (LTL) carrier Yellow Corp. (YELL) has filed a $137 million lawsuit against the International Brotherhood of Teamsters (IBT).
Back in March, IBT rejected Yellow’s proposals to consolidate operations at some of its terminals and eliminate duplicate drivers. Sales of the existing terminals would help Yellow pay off some of its $1.6 billion debt.
IBT indicated that Yellow’s push for changes “would subvert bargaining” and violate Article 7 of the union’s constitution, which involves the grievance process.
“IBT General Secretary-Treasurer Fred Zuckerman and I have been all over this country meeting with our freight members, who repeatedly tell us the company’s proposed changes to the contract are unacceptable,” said Sean O’Brien, Teamsters general president.
IBT also argued that it has already given enough concessions to the company and that even a $700 million government bailout in 2020 could not save the company from its own mismanagement.
With seeming gridlock between the two sides and Yellow close to bankruptcy, industry analysts are predicting which LTL carriers will pick up business. “YELL’s situation creates huge benefits for the remaining, stronger LTL players that are able to profitably handle the extra volumes,” said Deutsche Bank equity research analyst Amit Mehrotra in a recent call with investors.
The widely publicized problems for Yellow have sent many shippers to other carriers. Yellow’s tonnage was down 16% year over year in April and May and over 30% from two years ago.
“Based on all the developments over the last two weeks, we continue to think it’s more likely than not that a meaningful piece of Yellow’s business is diverted away to competitors,” said Mehrotra.
Mehrotra also noted that a congressional oversight commission with oversight over the 2020 COVID-relief lending program reported numerous mistakes made by government agencies during the approval process of the $700 million loan to Yellow. It advised the Treasury to unravel its debt and equity holdings in the company.
In the past, Yellow has staved off bankruptcy by gaining wage and benefit concessions from IBT along with last-minute debt restructuring. With the recent report and the Biden administration’s refusal to step in, Yellow may be out of options.
Analysts believe that ABF Freight and TForce Freight (part of TFI International) stand to pick up the lion’s share of Yellow’s LTL business if the company fails. Experts say ABF would gain about 32% of the earnings per share growth while TForce would benefit about 14%.
Other companies who would be likely benefactors in Yellow’s demise would be Old Dominion and Saia which could see upwards of 20% growth.
Shares of Yellow have consistently declined in the wake of the break-off in negotiations with IBT, off by as much as 22% in recent trading. In contrast, shares of other LTL carriers were up slightly by as much as 4%.
In its lawsuit, Yellow argues that O’Brien “has prevented Yellow from meeting with IBT leadership.” Yellow says that IBT has agreed with the restructuring plan but it’s O’Brien’s “militant approach” that has stalled further progress.
