Last month, Teamsters claimed Yellow (NASDAQ: YELL), one of the largest trucking companies in the United States, told the union that Yellow would run out of money in August. To avoid a sinking, Yellow's leadership team said the Teamsters, which represents some 22,000 Yellow workers, must allow operational changes previously approved by the union.
Teamsters President Sean O'Brien's Response? Go ahead and switch off.
“It's not up to the Teamsters to save this company; we've given enough,” O'Brien said in a video statement June 12. “What happens next is beyond our control.”
Twelve days later, O'Brien tweeted a picture of a headstone: yellow, 1924 to 2023.
It is not uncommon for union leaders to flaunt the bluff of companies claiming they cannot afford certain services. But O'Brien's announcement shocked some trucking industry insiders. Actually yellow could go bankrupt, wiping out tens of thousands of unionized truck jobs. (Heavy Duty Trucking dubbed Yellow Corp. the “cat with nine lives” in 2010 after the company narrowly escaped closure. Since then, the company has nearly gone bankrupt three times.)
It's also not like another union trucking company will ever show up to pick up those 22,000 workers. The share of union jobs in less-than-truckload shipping, the freight sector in which Yellow is the third largest, has declined sharply in recent decades.
On the surface, it's puzzling why O'Brien settled for closing the company instead of trying to preserve 22,000 Teamsters jobs. Unionized trucking jobs are so rare that you'd think a mediocre union job would be better than no union job at all.
However, labor experts say the move is not surprising. Rather, it is a sign that union leaders like O'Brien and Shawn Fain, president of the United Auto Workers, have changed a lot from those of the last few decades. The rhetoric has now become proudly militant and jobs that don't meet Teamsters standards will not be tolerated.
“There's a generational shift happening in the workplace,” said employment attorney Benjamin Dictor, who counts among his clients Teamsters Local 804, which represents UPS workers and others in the New York City area.
Dictor said truck fleets could accept fuel prices as a fixed cost. Now, he said, labor costs should also be considered non-negotiable.
“These companies have viewed labor as a cost from which they can turn a profit for generations, while other costs are more rigid and higher,” said Dictor. “As those costs go up, they try to cut back on the workforce so they can keep their investors happy. One of the things you hear from Sean O'Brien is that's not the case. Some aspects of the work are fixed costs. If you can't afford gas, you'd better get out of the trucking business. I think you hear Sean O'Brien say, “If you can't afford the labor costs, you'd better get out of the trucking business.”
Yellow isn't the only freighter to have a showdown with the Teamsters this summer. The union and UPS have been locked in months of negotiations over the next five-year deal. The current contract expires on July 31 and UPS workers have voted to authorize a strike if a new contract is not struck.
A key difference between Yellow and UPS is the financial reality of each company. Teamsters is in a better position to snag a lucrative contract for its roughly 340,000 UPS workers because the package giant has a lot more cash. In 2021 and 2022, UPS generated approximately $24.3 billion in net income. Yellow lost around $87.3 million in the same period.
Labor expert Michael Duff, a law professor at Saint Louis University, said it was unlikely O'Brien would have this “que sera, sera” attitude unless that was the will of the negotiating entity.
“There's a broad sense among grassroots workers that they're just not going to take it anymore,” Duff said, speaking about unionized workers in general. “Part of what's going on here is that there are people like O'Brien who, given the urgency of the moment, are not willing to cooperate in the old way.”
Why yellow has problems
Observers attribute Yellow's struggles to two main factors: the unionized workforce, which is inherently less flexible than the non-union workforce, and a failure to properly manage the acquisitions.
According to J. Bruce Chan, a transportation analyst at investment bank Stifel, unionized workers have a cost disadvantage of about 30% compared to non-union workers. According to figures from SJ Consulting Group, which advises transport and logistics companies, the market share of unionized LTL hauliers has fallen from 42% in 2002 to 22% in 2022. Today only three unionized LTL hauliers remain: Yellow; ABF freight; and Force Freight.
However, Chan said that Yellow's problems were not due to Teamsters. Satish Jindel, the founder of SJ Consulting Group, agreed. “You can't put the risk of Yellow going out of business on Teamsters,” Jindel said.
Both Jindel and Chan highlighted ABF, the LTL fleet at ArcBest (NASDAQ:ARCB), as an example of a successful union operation in the same sector as Yellow. ABF's revenue per shipment, including fuel surcharge, was approximately $529 in the first quarter of 2023 — approximately 56.2% more than Yellow's for the same period. Additionally, on May 30, ABF announced that its Teamsters employees had ratified a five-year collective bargaining agreement.
Yellow has said that Teamsters must allow the network changes or the company will go bankrupt. Yellow's network is currently a hybrid of several truck fleets that the company acquired in the early 2000s. These networks were never fully integrated.
A 2019 employment contract allowed Yellow to consolidate these networks. Yellow integrated networks in western US over the past year. Now the Teamsters union is blocking further consolidation. Yellow filed a $137 million lawsuit against the Teamsters on June 27 for blocking the company's plans to consolidate terminals and change work rules for nearly 1,000 truck drivers.
“Yellow is simply asking that the IBT sit down at a table to negotiate a modernization plan that includes wage increases for Yellow employees,” a Yellow spokesman said in a statement to FreightWaves. “The company is open to negotiations anytime, anywhere.”
The Teamsters have left no comment on this article for FreightWaves.
A bankruptcy for the Yellows is not certain, but more likely without union support
Yellow has faced potential ruin several times over the past 15 years. It was most drastic in 2009, when the company managed to convert nearly $500 million in debt into equity. The Securities and Exchange Commission approved the debt-to-equity swap, and the Teamsters also helped get lenders to convert their debt.
During the Great Recession, the Teamsters gave Yellow a 15% pay cut and agreed to forego pension contributions for five years. Those wage concessions were extended in the 2014 contract to keep Yellow in business.
The Teamsters-represented employees at Yellow received an 18% pay increase in their 2019 contract, which is still in effect today.
Support from both Teamsters and the federal government was also instrumental in the US Treasury Department's $700 million loan to the company in 2020. Today, Yellow appears to have lost that union and government support, making the company more vulnerable to bankruptcy.
Teamsters said in a fact sheet that Yellow “benefited from billions of dollars in concessions on wages, pensions and labor rules” dating back to 2010. A Yellow spokesman previously told FreightWaves that Yellow employees at Teamsters would receive a pay increase of $1.77 an hour after the network changes were approved.
Neither Jindel nor Chan believe the federal government will step in to save Yellow, nor has the trucking company asked for it. Yellow wrote a letter to the White House on June 30, urging President Joe Biden to bring Teamsters to the negotiating table.
“O'Brien is right — the Yellow Teamsters have given up a lot over time and consistently,” Chan said. “At a certain point it has to stop. But is a full shutdown the answer? It's probably not one that will ultimately work in the best interests of the membership.”
It's a question many in the trucking industry are asking: is an incomplete union job better than no union job? Dictor recommended reconsidering the request.
“It's like telling you the only way Yellow could stay in business was if they didn't have brake pads,” said Dictor. “If they couldn't have these things, should we give up all these trucking orders just because they couldn't work safely? Of course we would say no, we need trucks on the road that drive safely. It's for us, it's for everyone else; Certain costs apply.
“If that costs the brake pads, then so does the brake pads,” he added. “And if you can't afford the pad, get the money from the industry. The same applies to work. We need to stop thinking about work as if it's something that can be compromised. … If you can't afford the work at a price that allows those people behind the wheel of those trucks to live a life where they can value their families and their lives outside of work and be human, then get on with it on the path of the forwarding business.”
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