On Thursday, a group of investors who were hoping to save the shuttered trucking company Yellow (formerly YRC) suffered a setback when executives of the bankrupt company rejected a billion-dollar bid that would’ve scooped up most of what was still left. The group of investors, led by trucking executive Sarah Riggs Amico, vowed to keep going and hoped that the courts and Treasury Department would allow them to win.
Amico’s request for a restructure a CARES Act $700 million loan repayment has become a sticking point. This helped keep Amico afloat throughout the pandemic. The U.S. Department of Treasury claims that their hands are bound.
The loan was given during the previous administration, and Treasury is among the creditors involved in the bankruptcy proceedings. Ashley Schapitl told CNBC that the Treasury will continue to do its best to treat taxpayers and workers, as well as their families, fairly.
Treasury officials from other departments have stated that the loan could not be modified due to Yellow’s bankruptcy. They also said a new Congressional authorization would be required for a new loan since the CARES Act authority had expired. Yellow’s potential rescuers dispute Treasury’s legal opinion.
Eight senators from both parties, including Sen. Josh Hawley (R-Mo) and Elizabeth Warren (D-Ma), have publicly backed efforts to save Yellow and its 30,000 jobs and pressed the Treasury to restructure this loan.
What drove the iconic freight company near the edge?
Yellow, formerly YRC Worldwide, was a familiar sight on America’s roads for many generations until it abruptly closed in July. After six months and a Chapter 11 bankruptcy, it is clear that Yellow comes in many different shades. Others see the vibrant Yellow of an upcoming new beginning, while some see the yellowish hue of a sunset that is fading. Yet, other entities like the government or creditors are also caught in the middle.
Yellow closed its doors in 2008, leaving 12,000 trucks and 35,000 trailers idle. These vehicles could be used to start a new company. The Yellow Taxi Service, which began in Oklahoma in the 1920s, is the origin of the company.
Yellow has grown over the years into a giant freight carrier that touches almost every part of the American economy. It will be one of the ten largest freight carriers in America, with a gross of more than $6 billion by 2022.
A series of corporate incidents, ranging from mismanagement and malfeasance to mismanagement, brought the company to its knees. Yellow was able to receive the $700,000,000 lifeline loan from the CARES Act when Covid-19 brought the country’s supply chain to a halt. But even that wasn’t sufficient.
Many of the dire predictions about snarled supplies and higher freight costs in Yellow’s absence are yet to come true, say experts.
Michael Belzer is a professor of Economics at Wayne State University. He said: “There are many implications for individuals, but I don’t think there are any significant ones for the industry or industry segment.” Belzer worked as an OTR truck driver for 12 years before entering the academic world.
Belzer explained that “in a macro sense, when one company fails, others rise up to take its freight.”
The impact of trucking on the lives of truckers
On Thursday, December 31, 2009, drivers walk to their trucks at YRC Worldwide Inc. Carlstadt, New Jersey. YRC Worldwide Inc. bondholders swapped their debt for equity, allowing the company to avoid a possible bankruptcy filing. Bloomberg
Investors who hope to revive Yellow claim that the market has still not recovered and that the union jobs Yellow truckers held have created a void within the economy.
Nathan Skobodas, who worked as a terminal operations manager for YRC in Grand Rapids for five years, says that former coworkers are having difficulties.
Skobodas stated that “some coworkers who I’ve kept in touch haven’t found a similar placement and are taking pay decreases.”
Many other people’s lives have been disrupted.
Kenneth Cantley of Rosemont in Minnesota, spent nine years as a Yellow driver before he was injured at work. He had to quit his job and began collecting workers’ compensation shortly before the company closed its doors.
Cantley stated that the situation was “really messed up for a time.”
After his worker’s comp payments stopped, he had no income for eight weeks. Only after a bankruptcy filing was made did he receive payments again.
Cantley: “I struggled to make ends meet without a weekly income.”
Bradley Maroon is the assistant director at Hamrick Truck Driving School in Ohio. He said that Yellow Trucking provided “competitive pay” and a stable job for new drivers. He said that the union jobs offered by Yellow provided new truckers with protection and advocacy.
Maroon stated that Yellow was the only company he knew of in which truckers were never forced to sleep in the trucks. They would put them in hotel rooms, which is an important thing.
Yellow drivers were relatively rare overnight travelers, so they were sought out by truckers who didn’t like to be away for long periods.
The importance of the LTL market
Yellow Trucking was a specialist in a segment of the trucking industry known as LTL (less-than-truckload). LTL trucking affects people in every way, whether or not they are aware of it.
The diversity of customers is what makes LTL different. With LTL, you will deliver to homes and hospitals as well as barbershops. You won’t see the same customer every day. Every day is different,” said Nick Burlingame. He is the school director at Sage Schools and a certified CDL instructor.
OTR is a long-distance driving option that requires drivers to spend days on the road. LTL offers variety and allows for same-day hauls. Burlingame stated that LTL is only for drivers who can fit their big rigs in tight spaces such as urban alleyways and small parking lots.
Ken Vieth of ACT Research, who monitors the market for freight, says that high shipping costs have not yet materialized in Yellow’s absence. Vieth claims that LTL rates have increased since Yellow’s closure, with a 4.4 percent increase in August over the previous month and another 09 in September. However, Vieth believes this was primarily due to a 49-cent increase in diesel prices between July and August, followed closely by a 19-cent increase from August to September. Since October, regular gasoline and diesel prices have been down.
The bankruptcy occurred during an economic recession in the freight industry, which has impacted the business models of many trucking companies and caused multiple rounds of layoffs.
Vieth stated that “Nobody misses Yellow.” “They closed their doors at the end of a cycle of freight when there was a significant overcapacity in the industry.”
Yellow’s exit from the LTL market has actually helped this sector.
Vieth stated that “with Yellow’s demise the LTL segment of the market went loose to snug within a weekend.” The third quarter saw the second-best-ever profit quarter for the publicly traded LTL carriers. With the weakest participant in the market and approximately 10% of LTL capacity closing down, they experienced their second-best quarterly profitability.
According to the data that Tank Transport provided to CNBC, in November, increasing fuel costs and falling rates of freight had led to a total of 31,278 trucking firms closing their doors or transferring their services to larger trucks.
Freightwaves reported that Georgia-based LTL carriers Saia and Yellow were the main beneficiaries of Yellow’s cargo. Both saw an increase in business of 11 percent in the third quarter.
Burlingame agrees that the market was able to absorb Yellow’s demise. Burlingame also says that the driver shortage is a major problem in the industry.
Burlingame says that with today’s driver shortage, almost all companies treat their drivers well. They have to provide them with health benefits and good wages if they wish to retain them.
ATLANTA, GA – NOVEMBER 02. Georgia Democratic candidate for Lieutenant Governor. Sarah Riggs Amico speaks to the crowd at a Morehouse College rally on November 2, 2018, in Atlanta, Georgia. Stacey Abrams, Georgia Gubernatorial Democratic Candidate, and former U.S. President Barack Obama attended a campaign event. Getty Images News
Sarah Riggs Amico does not agree with this assessment. She and a group of investors are trying to revive Yellow in a last-ditch attempt, but that’s semantically incorrect. The new company, if Amico’s offer is accepted, will be named Next Century Logistics. Amico is the President of Jack Cooper Trucking, which specializes in hauling cars.
Amico says that the Yellow brand is tarred but not the business.
Amico stated that the business could be fixed fundamentally and is still fixable. Amico was raised in a family of truckers and has saved struggling trucking companies before. Amico claims that for her, the issue is jobs. A Treasury official told Reuters that Amico’s bid would only restore half of the jobs lost. As the bankruptcy process moves forward, many former Yellow terminals have been sold at auction.
Vieth stated that “an LTL carrier with no terminal network cannot exist.”
Amico has worked with the Teamsters to try to get a deal through. The Teamsters have been vocal about the Yellow bankruptcy, as well as the government loan issue.
Amico states that “literally, the most important thing in the world is jobs.”
The Teamsters have not responded to our request for comment.
Amico and her investors must overcome a complex web involving auctions and regulations in order to achieve their billion-dollar rescue plan. They also need court and government approval, which is far from certain. Yellow’s creditors have unanswered questions that prevent the move forward. Private equity and asset management firms will receive the majority of Yellow’s assets, leaving Treasury, employees, and other claimants little collateral.
Yellow’s LTL business will shrink as more assets are sold at auction. Amico believes that some jobs saved are better than no jobs.
