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What Happened to Yellow Trucking?

Yellow Corp closed its doors after 99 years in business, the largest bankruptcy in the history of the trucking industry. In a strongly worded press release, Yellow’s Chief Executive Officer, Darren Hawkins accused the Teamsters of “nine months of union intransigence, bullying and deliberately destructive tactics . . . literally driving our company out of business.” On the other hand, Teamsters General President Sean O'Brien blamed the “dysfunctional, greedy C-suite” for mismanagement. Whoever you prefer to blame for ending 30,000 jobs, the bankruptcy certainly hasn’t come as a surprise.

The Wall Street Journal produced an eight-minute explainer video about the rise and fall of Yellow. Until recently, Yellow had provided low-cost LTL (less than truckload) shipping for Walmart, Home Depot, Amazon, and the federal government. Compared to “a cat with nine lives” back in 2010, Yellow has come close to bankruptcy several times. By 2023, the company had accumulated $1.5 billion in debt and financial obligations, including a controversial $700 million pandemic-era federal loan. It’s hard to ignore the role of the Teamsters in Yellow's final demise, but the longer history of the company gets a lot more complicated.

Source: “How Trucking Giant Yellow Collapsed: What Went Wrong” by Wall Street Journal

Consequences of a Strike That Didn’t Happen

In the wrong circumstances, a threatened strike can be just as damaging as the real thing. When Yellow missed its payments on worker benefits and pensions, the Teamsters mobilized to get ready for a potential strike. Many of the shippers who relied on Yellow went ahead and found other carriers to move their freight, rather than get caught unprepared during a strike.

Negotiations stalled and the pension fund administrator, Central States agreed to a 30-day extension, but the damage was already done. Yellow had already been short on cash (hence the missed pension payments), and a loss of customers meant a fatal drop in revenue. Workers found locked gates and a notice that the company was ceasing operations immediately. When Yellow asked the Whitehouse for help resolving the stalemate with Teamsters, the Biden administration refused to intervene.

Around the same time this summer, UPS workers picketed and threatened to strike for higher wages, a story that got more attention from the general public. UPS reached an agreement with the Teamsters union, avoiding a strike. If the strike had gone through, competitors like FedEx would have taken some of the UPS customers, but nobody was in a position to fully replace UPS.

The Long-Term Financial Struggle

Industry experts have been quick to emphasize that Yellow has been in dire financial straits for a long time. Yellow’s low shipping cost was great for their customers (and consumer shelf prices), but it meant narrow profit margins for negotiating big expenses like benefits and pay. Yellow was one of the few companies to survive deregulation with a union workforce. Over the years, Teamsters agreed to major concessions (like cuts to worker pay in 2009 and 2014) to help the company survive, but collective bargaining left Yellow less flexible than its non-union competitors.

graph of Yellow stock over decades with peak in 2005
Source: Yellow Corp Stock Price HistoryBy Google Finance

Although Yellow acquired several competitors over the years, like Reddaway, New Penn, and Holland, those fleets and properties weren’t fully integrated into the Yellow system, resulting in costly redundancy and inefficiency. Negotiating with the union may have made it harder to close warehouses and consolidate the fleet, but the long-term inefficiency looks like a failure of management. 2023 was not the first time that Yellow fell behind on paying employee benefits and pensions. In 2020, while they increased spending on lobbying in Washington, the company fell three months behind on pensions and employee healthcare payments.

During the pandemic, the CARES Act included a fund called the National Security Loan Program, intended to support companies vital for national security. 10 other companies received money through the National Security Loan Program, but Yellow received a whopping 95% of the available funds. The Congressional Oversight Commission has highlighted several problems with the way Yellow was granted funds against the recommendations of DOD officials. In 2020, Yellow had spent $570,000 on lobbying efforts, significantly more than previous years. Current and former executives served on Trump’s coronavirus economic task force and the Postal Service Board of Governors, according to The Kansas City Star.

On behalf of Yellow, lawyer Marc Kasowitz (of Kasowitz Benson Torres LLP) argued that the company’s ties to the Trump administration were overstated in the congressional report, writing “employees at Yellow remain truckers not politicians, which is why the company is pleased to work with whichever party is in the White House.” Ironically, Kasowitz had also worked extensively with Trump. During any administration, it’s normal for industry leaders to be invited onto committees on national issues from the pandemic response to Biden’s infrastructure and economic programs.

The Road Ahead

The Yellow’s debts are still being sorted out, but the company closed its doors with an impressive portfolio of valuable real estate. Warehouses and truck terminals across America have attracted eager bidders. Large competitors will have an opportunity to expand their footprint, and even the smaller, regional carriers should eventually have a shot at acquiring smaller properties and assets. Over half of the CARES Act loan ($400 million out of $700 million) was spent on buying trucks, trailers, and containers.

Consumer prices have increased with the downfall of one of the cheapest LTL transporters, but the rest of the trucking industry should benefit from the shakeup. Many business leaders will see Yellow’s demise as proof that unionized labor is incompatible with the trucking industry that exists today, but the longer history paints a more complicated picture. Even without unions, trucking companies fall behind when efficient innovation gives way to complacency. Yellow has had its own ups and downs.

A. J. Harrell, who founded Yellow Transit in 1924, had swapped his Yellow Cab franchise in Oklahoma City for trucks and freight. Yellow Transit expanded for two decades, but they fell behind as their competitors got more efficient and organized. Harrel sold the company in 1944, and it went bankrupt in 1951. A Kansas City banker and other investors bought the bankrupt company and streamlined operations, making it competitive again.

Quite a lot of trucking companies have failed in the past, including 85%-90% of startup trucking companies. None of the prior bankruptcies have been quite as massive as Yellow, but the parent company that folded in 2023 didn’t look much like the one that started in 1924. (From 2006 to 2021, the parent company name was YRC Worldwide.) Companies without unionized workers might be less vulnerable to strikes, but they need to be more pro-active about turnover and retention. Both for better and for worse, the trucking industry demands continual innovation.