What bankrupt truck driver Yellow’s billion-dollar battle means for the economy

There was a group of investors who were hoping to rescue the trucking giant Yellow (formerly YRC). Deal with a setback on Thursday when executives from the bankrupt company rejected a $1 billion offer that would have netted much of what was left. But the investor group, led by trucking executive Sarah Riggs Amico, has vowed to press on, hoping the courts and Treasury Department will eventually let them prevail.

One sticking point was Amico’s request to restructure its $700 million CARES Act loan repayment, which helped keep the trucking giant afloat during the pandemic. The US Treasury says their hands are tied.

“The loan in question was made during the previous administration, and the Treasury Department is one of many creditors involved in the bankruptcy process. We will continue to work to ensure that taxpayers, affected workers, and their families are treated fairly.” Ashley Chapitel, a Treasury Department spokesperson, told CNBC:

Other Treasury officials said the loan could not be modified because Yellow is in bankruptcy and new congressional authority would be needed to issue a new loan since the CARES Act expired. Yellow’s potential rescuers question the Treasury Department’s legal opinion.

A bipartisan group of eight senators, including Senators Josh Hawley, Republican of Missouri, and Elizabeth Warren, Democrat of Massachusetts, have publicly supported attempts to save Yellow and its 30,000 jobs, and have pressured the Department of Treasury to restructure the loan.

What pushed the famous shipping company to the brink?

Yellow, formerly known as YRC Worldwide, was an iconic presence on America’s highways for generations until its abrupt closure in July. Six months later, after Chapter 11 was filed, it became clear that there were many shades of yellow. Some see the yellow of a fading sunset, while others see the bright yellow of a new beginning. However, more entities – such as the government and creditors – are caught in the middle.

When Yellow ceased operations, it left 12,000 trucks and 35,000 trailers idle, which could form the basis for a new company. Yellow traces its roots back to the Oklahoma taxi service of the same name that began in the 1920s.

Over generations, Yellow has grown into a shipping giant touching nearly every corner of the American economy, becoming one of the nation’s 10 largest shipping companies, with gross profits of more than $6 billion in 2022.

But a series of events, from mismanagement to irregularities, pushed the company to the brink. When the coronavirus brought the country’s supply chain to a halt, Yellow received a $700 million lifeline loan through the CARES Act. But even this was not enough.

Many of the dire predictions of faltering supply chains and rising shipping rates in Yellow’s absence have yet to come true, experts say.

“There are a lot of implications for individuals, but for manufacturing and industry, I don’t see anything significant,” said Michael Pelzer, an economics professor at Wayne State University. Before entering academia, Belzer spent 12 years as an OTR driver.

“In a macro sense, one company goes down, other companies go up and take their shipments,” Pelzer said.

How the lives of truck drivers have been disrupted

Investors hoping for a Yellow revival say the market has not recovered and that the well-paying union jobs held by yellow truck drivers have left a void in the economy.

Nathan Skopudas worked for five years as operations manager at the YRC station in Grand Rapids, and says former co-workers have had difficulties.

“Some of the co-workers I was in contact with could not find similar jobs and took pay cuts,” Skobudas said.

The lives of many others have been disrupted.

Kenneth Cantlay, of Rosemont, Minn., spent nine years driving for Yellow until he was injured on the job, so he had to leave his position and began collecting workers’ compensation just before the company closed its doors.

“I messed things up for a while,” Cantlay said.

His worker’s compensation payments stopped, and for eight weeks, he was without any income until a formal bankruptcy was declared, when payments resumed.

“I struggled without any weekly income,” Cantlay said.

Yellow Trucking offered “competitive” wages and a stable, safe job for new truck drivers, said Bradley Marrone, assistant principal at Hamrick Truck Driving School in Ohio. He says union jobs at Yellow provide protection and support for new truck drivers.

“And Yellow was the only trucking company I knew where the truck drivers never had to sleep in their trucks, they always put them in a hotel room, which was a big deal,” Marrone said.

However, overnight trips were relatively rare for yellow drivers, leaving job seekers for truck drivers who did not want to be gone for days at a time.

Importance of the less-than-truckload market

Yellow Trucking inhabits a niche segment of the trucking market known as less-than-truckload (LTL). The margins are small, and LTL trucking touches every aspect of people’s lives, whether they realize it or not.

“The diversity of customers at LTL is what makes it different; with LTL, you will be delivering to homes, hospitals and barber shops; you don’t have the same customers every day; every day is a completely different new day,” said Nick Burlingame, principal and certified CDL trainer for Sage Schools in New York. : “who is next”.

While LTL has a variety of same-day transfers, making it attractive to a driver who doesn’t want to be away for days, OTR involves days on the road. Burlingame said LTL requires a certain subset of drivers who are okay with cramming their large rigs into tight spaces like urban alleys or small parking lots.

Higher shipping costs in Yellow’s absence have yet to materialize, says Ken Faith, president of ACT Research, which monitors the freight market. Vieth says LTL rates have increased since Yellow closed, jumping 4.4 percent month-over-month in August and another 0.09 percent in September, but Vieth says the increase was likely related to a 49-cent-per-gallon jump in diesel prices from July to August. Followed by a rise of 19 cents from August to September. Regular gasoline and diesel prices have fallen since October.

The bankruptcy also came amid a shipping recession that has squeezed the business models of many trucking players and led to multiple rounds of layoffs and failure.

“No one misses the color yellow,” Faith said. “They went out of business at the bottom of the shipping cycle when there was a significant surplus of industry production capacity.”

In fact, Yellow’s exit from the market actually helped the LTL sector.

“With the demise of Yellow, the LTL portion of the market went from loose to comfortable on the weekends,” Faith said. With the weakest market participant closed and nearly 10% of LTL market capacity, publicly traded LTL carriers (as a group) saw their second-best profitable quarter ever in Q3.

According to data provided to CNBC by Tank Transport in November, rising fuel costs and falling freight rates have led to 31,278 trucking companies closing or converting their services to larger fleets.

Freightwaves reports that the biggest beneficiary of Yellow freight is Georgia-based LTL carrier Saia, which saw an 11 percent increase in its business in the third quarter.

Burlingame agrees that the market has been able to absorb Yellow’s demise. With a driver shortage plaguing the industry, Burlingame says even if drivers move into non-union jobs, they usually enjoy strong protections.

“In today’s driver-shortage market, almost all of these companies treat these drivers well with good pay and health benefits, and they must if they want to keep them,” Burlingame says.

Sarah Riggs Amico disagrees with that assessment, which is why she and a group of investors are trying to make a last-ditch effort to revive Yellow, but even that is semantically incorrect. If Amico’s bid is accepted, the new company will be named Next Century Logistics. Amico is currently the president of Jack Cooper Trucking, which specializes in automobile transportation.

The yellow branding may be distorted, but the business is not, according to Amico.

“The business was basically salvageable and remains so,” Amico said. Amico grew up in a trucking family and has rescued struggling trucking companies before. Amiko tells her the issue is about jobs. But a Treasury official said that Amico’s offer would only restore half of the lost jobs. Several former yellow stations were also sold at auction as the bankruptcy process progressed.

“An LTL carrier cannot exist without a network of terminals,” Faith said.

However, Amico, who ran unsuccessfully for a Senate seat in Georgia in 2020, has been working with the Teamsters, who have criticized Yellow’s bankruptcy and government loan issues, to get some sort of deal approved.

“Literally, the most important thing is jobs,” Amico says.

The Teamsters did not respond to a request for comment.

For Amico and its investors to succeed in their proposed billion-dollar rescue package, they must navigate a complex web of auctions and regulations and gain court and government approval, something that remains far from certain. There are still outstanding questions from Yellow’s creditors that pose an obstacle to moving forward. The terms of the deal mean that private equity and asset managers will end up with the bulk of Yellow’s assets, leaving treasuries, employees and other claimants with little collateral.

As more yellow assets are snapped up at auctions, any revived LTL business will be much smaller. But for Amico, some saved jobs are better than none.