What a trucking company’s bankruptcy tells us about labor tensions in America

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Stories about the supply chain growls has made headlines since the pandemic began. They have caused delays, driven up the price of goods and led to high-profile confrontations between the industry and its trade unions. Now, the closure of a major US freight shipping giant is the latest sign of the shipping sector’s long-haul woes.

Yellow, a 99-year-old trucking company based in Nashville, Tenn., filed for bankruptcy this week, just a few years after it received a $700 million government loan through the CARES Act for pandemic relief during President Trump, and months into heated contract negotiations with the Teamsters, the union that represents the majority of Yellow’s workforce. The bankruptcy has sparked a blame game over why the once-thriving trucking company folded, with some politicians finding fault with government bailouts that only delay the inevitable demise of struggling companies, and others — including Yellow — pointing the finger at organized labor.

Yellow’s fall raises many questions about what it means for its 30,000 employees, for taxpayers and for consumers who have already seen the price of everyday items rise in the middle of the supply chain. Sorting out their assets and managing shipping that remains to be delivered will take some time, resulting in bonds. Some customers in the supply chain expected this and had already gone there more expensive competitors — which means that consumer prices may rise.

While the closure of a shipping industry leader doesn’t mean the average consumer will suddenly see emptier store shelves, Yellow’s bankruptcy is a sign that the industry’s woes aren’t going away anytime soon: It’s a hyper-competitive landscape with high operating costs, including expensive fuel and wages for an army of human drivers. Trucking needs a substantial workforce to avoid disruption to its always-on-the-go business, but for years it has been besieged by driver shortage.

With Yellow’s shutter, consumers could eventually see the ripple effects in the cost of buying goods and getting them delivered — even more than they already have — as the push-and-pull between shipping companies trying to make a profit and workers asking to be adequately paid for their work plays out over and over again.

Yellow’s full shipping history

Yellow, formerly known as YRC Freight, was one of the largest less-than-load (LTL) carriers in the United States. These are companies that deliver smaller quantities of freight, somewhere between full trailer loads and individual package freight (like the kind that transports your Amazon package). Yellow make-up approx 9 percent of the LTL market, according to industry magazine FreightWaves. It was third largest LTL company in the country – other top LTL shippers include FedEx Freight, XPO and Old Dominion Freight Line – delivering industrial, commercial and retail goods in a wide range of sectors, including defense and aerospace, automotive manufacturers, oil and gas companies, and healthcare, according to it website.

Its size and history are partly why its Chapter 11 bankruptcy filing is big news — but the bankruptcy may not have come as a surprise to anyone who has watched the logistics industry, or Yellow specifically, over the past decade and a half. The company made some expensive acquisitions in the early 2000s; then the 2008 financial crisis hit and customers fled, and it reported a net loss of nearly $1 billion that year. Yellow almost filed for bankruptcy the following year and only avoided it after that employees received pay cuts. It considered bankruptcy again in 2014 and 2020, according to The Wall Street Journal.

“There aren’t too many companies out there that have a 99-year history and 30,000 employees,” said Ryan Patel, a senior fellow at Claremont Graduate University’s Drucker School of Management with expertise in challenges facing global supply chain. “This less-than-truckload concept was what they initially pioneered, but over time a lot more players came into it.”

In recent months, particularly during union contract negotiations, there have been signs that Yellow was on the verge of cracking again. Its creditors are over 100,000 and include Amazon, according to one The New York Times reports. It failed to make recent payments to the employee pension fund, owed about $50 million – which almost resulted in a strike, before the union agreed to give the company more time to make the payments. The looming strike set off alarm bells and Yellow’s supply volume fell by 80 percent when customers fled. Then, last week, were the Teamsters be notified that the company would be closed down.

Much of the public discussion surrounding Yellow’s closure has centered not on the bankruptcy itself, but on the $700 million loan the federal government extended to it in 2020 — a bailout that has been noticed for several years. A recent one Report of the Congressional Oversight Commission found that Yellow did not qualify for the CARES Act loan as a business vital to the United States national security interests, as the legislation stated—Yellow was often delivered to military bases around the country, but the congressional committee’s final report determined that other shipping companies could have provided these delivery services. Actually, almost all money set aside in the CARES Act for companies important to “national security” went to Yellow. It should also have been inappropriate because it was already in poor financial shape before the pandemic.

At the time of the bankruptcy filing, it had just repaid $230 of the loan amount. The loan came with a low interest rate in exchange for a close to 30 percent of the shares for the US Treasury Department. Yellow says it intends to repay the CARES Act loan in full.

How Yellow’s labor disputes escalated

Despite the lifelines it had been thrown, Yellow remained in dire financial straits. As the debts increased and Yellow became increasingly cash-strapped, labor negotiations became tense. About 22,000 of its 30,000 total workforce are union members. In recent months, the company has begun negotiations over its next contract, with the current contract expiring in March 2024, but the two sides stood firm far apart on key issuesincluding an $11 hourly wage increase over the next five years, pension fund payments and certain operational changes at the company.

In June, Yellow filed a lawsuit against the union for blocking the company’s restructuring, claiming its obstruction had cost the company $137 million. The Teamsters denied the claim. “After decades of gross mismanagement, Yellow blew through a $700 million bailout from the federal government, and now it wants workers to foot the bill,” Teamsters General President Sean O’Brien said in a news release. statement. The union, for its part, has sued Yellow, claiming that it did not leave the required notice for mass redundancies.

Yellow CEO Darren Hawkins, who the company paid a total of $1.27 million last year according to public filings, was also quick to blame the Teamsters during the bankruptcy filing, saying in a statement that “all workers and employers should learn from our experience.” with the Teamsters and “worry”. “A company has the right to manage its own business, but as we have experienced, [union] leadership was able to stop our business plan, literally bankrupt our company, despite all efforts to work with them,” he continued.

Labor has long been an important presence in the logistics industry—there are about 340,000 unionized UPS workers, for example—but unionized drivers and dock workers have become less common since deregulation of the haulage industry in the 1980’s. “There’s a lot more competition now,” Patel says — competition that often uses cheaper, non-union labor. Gult, like many in the industry, had failed to be “nimble,” adds Patel. “Time has caught up with this company, and the economy has caught up with this company.”

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