Industry stakeholders remain leery about Yellow’s future

While it has yet to be confirmed by the company itself, the future of Nashville-based Yellow Corporation, the third-largest United Statesless-than-truckload (LTL)carrier, with about 8% of the national market, looks bleak, according to various reports.

AWall Street Journalarticle published this week indicated that Yellow “is preparing to file for bankruptcy,” citing “people familiar with the matter,” adding that it increases the possibility of Yellow shutting down, “as customers abandon it amid a cash crunch and union negotiations.”

Those negotiations have been front and center in trucking circles over the last several weeks as Yellow and the Teamsters have been haggling in what could be viewed as dueling press releases, to a certain extent, over its next contract, with roughly 22,000 Yellow employees being Teamsters members.

What’s more, earlier this week, as reported byLM, a potentially company-ending strike at Yellow was averted when the union said its Central States Health and Welfare Fund agreed Sunday to extend health care benefits for workers at Yellow subsidiariesYRC FreightandHolland.

And in a July 7 filing with the Securities and Exchange Commission (SEC), Yellow said it has won some easing of financial requirements from lenders as it tries to lower its debt while simultaneously obtaining Teamsters’ permission in a change of operations to its “One Yellow” super-regional trucking operation.

此前欧盟所谓的“强烈的pressure” from Teamsters General President Sean M. O’Brien and General Secretary-Treasurer Fred Zuckerman. The extension of health care benefits for Teamsters and their families averted a strike at the freight companies, which could have begun on Monday after Yellow failed to make contractually obligated benefit payments of $50 million to Central States on July 15. The agreement by Central States at the urging of the Teamsters gives Yellow 30 days to pay its bills. The Teamsters say it has an “understanding” the company will do so within the next two weeks.

But, to be sure, many industry stakeholders are indicating that the writing is on the wall for Yellow, with the company filing for bankruptcy as soon as Monday—but that is not confirmed.

A July 20 research note written by TD Cowen analyst Jason Seidl noted that on the heels of the threats of a strike at Yellow, there has been an increase in freight diversions, which stands to benefit its competitors.

“Major customers are reportedly taking all their freight off the network,” wrote Seidl. “These new diversions should place further stress on Yellow's weak liquidity position, materially raising the probability of bankruptcy. Competitors possess sufficient slack capacity and now tangibly stand to gain on both volumes and pricing. Industry contacts have suggested that some of Yellow's major customers pulled all their freight from the network in preemption of a strike following the company's delinquency on pension. Our discussions with industry contacts and reports indicate that a large national freight brokerage has withdrawn their business. Reports also suggest that a few big box retailers have pulled their freight off the Yellow network. This freight will likely find its way to LTL competitors.”

Seidl added that shippers have moved significantly beyond contingency planning that was in focus earlier, and we believe the exit of large customers could bring Yellow even closer to the brink of bankruptcy given the company's precarious cash position.

Mike Regan, Chief Relationship Officer for TranzAct Technologies said in his “2:00 Warning” update this week that Yellow said last week it would limit pickups and they were returning freight that they had previously picked up so that the freight would not be trapped in their system if there was a shutdown.

“事情不是黄色好看”,Reg说an. “We've talked about the fact that they've had numerous close calls. But no one knows exactly what's going to happen.”

But one thing that is not a total negative, for the company, the moment, observed Regan, is that Yellow’s terminal network has value, with one of their terminals having sold for $80 million in Compton, California. Regan said Yellow has noted that leaves 23 other terminals that they could close and sell and use to pay down the debt that's really crippling them.

“The second thing that's going on is that we think, along with some others, is that the Teamsters overplayed its hand,” he said. “When Yellow missed a $50 million payment to the Central States Pension and Welfare fund, the Teamsters said it would strike the company on July 24 if that $50 million payment is not made. They had to have known that it was unlikely that Yellow would be able to do that. But what that moves signaled to shippers out there was they induced a level of variability and uncertainty that was crippling to the company. They had erosion of their customer base, and they're trying to settle things down. But with things still up in the air, people are reluctant to reengage with Yellow.”

Even if Yellow is somehow able to evade bankruptcy and get back to business, the reluctance to reengage, as Regan said, represents a major obstacle. What happens over the rest of today and into next week remain wildcards, so the market waits and watches until there is some form of official word from Yellow.