Yellow Corp., a trucking company that has grappled with financial challenges and mounting debt, has taken the step of declaring bankruptcy, marking a significant development within the U.S. transportation sector and impacting shippers across the country.
This Chapter 11 bankruptcy filing, submitted on Sunday, comes merely three years after Yellow secured $700 million in pandemic-related loans from the federal government. While Chapter 11 bankruptcy typically entails restructuring debt while operations continue, Yellow, like other trucking companies in recent times, will undergo liquidation, leaving creditors, including the U.S. government, with slim chances of reclaiming the extended funds.
Yellow’s financial woes can be traced back to a prolonged period of mismanagement and strategic missteps that span several decades.
The year 2019 saw two trucking firms, Celadon and New England Motor Freight, filing for bankruptcy protection and ultimately undergoing liquidation.
Experts anticipate that former customers and shippers of Yellow may experience elevated prices as they redirect their business to competitors such as FedEx or ABF Freight. Notably, Yellow was known for historically offering the most budget-friendly rates in the industry.
In a late Sunday news release, CEO Darren Hawkins expressed deep regret, stating, “It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business. For generations, Yellow provided hundreds of thousands of Americans with solid, good-paying jobs and fulfilling careers.”
Formerly known as YRC Worldwide Inc., Yellow stood as one of the United States’ largest less-than-truckload carriers. Headquartered in Nashville, Tennessee, the company employed around 30,000 individuals nationwide.
The Teamsters, representing Yellow’s 22,000 unionized workers, indicated that the company had given prior notice of the impending bankruptcy filing and ceased operations in late July, following layoffs involving hundreds of nonunion workers.
Sean O’Brien, the Teamsters’ general president, conveyed his response in a statement on July 31, describing the news as “unfortunate but not surprising,” attributing the situation to Yellow’s financial turmoil. He added, “This is a sad day for workers and the American freight industry.”
Reports from The Wall Street Journal and FreightWaves in late July had already foreseen the bankruptcy’s arrival, highlighting a substantial departure of customers from the carrier and the suspension of freight pickups.
This revelation emerged shortly after Yellow managed to avert a potential strike orchestrated by the Teamsters during intense contract negotiations. The company reached an agreement with a pension fund to extend health benefits for employees at two Yellow Corp. operating firms, thus avoiding a planned strike. This accord also granted Yellow a 30-day extension to settle outstanding bills, including a sum of $50 million owed to the Central States Health and Welfare Fund. However, the funds denied Yellow’s request for a short-term deferral of pension contributions with interest.
Yellow placed blame on the prolonged nine-month negotiation process for its eventual collapse, asserting that it was unable to implement a new business strategy aimed at modernizing operations and enhancing competitiveness during this period.
The company has formally requested permission from the U.S. Bankruptcy Court in Delaware to make essential payments, encompassing employee salaries and benefits, taxes, and payments to crucial vendors.
Yellow has accumulated substantial debt over time, with its outstanding debt amounting to approximately $1.5 billion by late March. Of this total, $729.2 million was owed to the federal government.
In 2020, during the Trump administration, the Treasury Department extended a pandemic-related loan of $700 million to Yellow based on national security considerations. The Teamsters initially supported this loan when it was announced.
A recent congressional investigation concluded that the Treasury and Defense departments had made errors in this decision. It highlighted Yellow’s vulnerable financial position at the time of the loan and ongoing struggles, which posed a significant risk of loss to taxpayers.
As of June 30, Yellow had already paid $67 million in cash interest on the loan, which is set to mature in 2024.
Stifel’s research director, Bruce Chan, reflected on Yellow’s financial turmoil, remarking that it had been decades in the making. He attributed this situation to persistent mismanagement and strategic misjudgments dating back to the early 2000s. He also emphasized that after multiple bailouts, there is now limited willingness to intervene further.