With its future uncertain, Yellow addresses Teamsters’ comments on pension payments

With the possibility of Nashville-based Yellow Corporation, the third-largest United Statesless-than-truckload (LTL)carrier, with about 8% of the national market continue to gain traction, going on strike ostensibly gaining traction, the company yesterday addressed comments made by the Teamsters yesterday about the company’s employee pensions through the Central States Pension Fund.

As previously reported byLM, the Teamsters noted yesterday that the Central States Board of Trustees this week voted to suspend health care benefits and cease pension accruals for Yellow workers, after two Yellow operating companies, Holland and Yellow Freight, failed to fulfill their financial obligations. Teamsters are preparing for a possible strike as early as July 24, it said. The Teamsters added that benefit suspensions will go into effect July 23 if the company fails to make the critical payment to the Central States Health and Welfare Fund and the Central States Pension Fund for June 2023. The Teamsters also noted that Yellow owed Central States $50 million on July 15, a payment it missed and must still make by July 23 to avoid a work stoppage and interruption in benefits for Teamster families.

“Yellow has failed its workers once again and continues to neglect its responsibilities,” said Teamsters General President Sean M. O’Brien in a statement. “This corporation’s gross mismanagement is another affront to the livelihoods and well-being of 22,000 Teamsters nationwide. Following years of worker givebacks, federal loans, and other bailouts, this deadbeat company has only itself to blame for being in this embarrassing position.”

Yellow said in a statement provided toLMthat it advised Central States Funds that it would defer payment of health and pension contributions for June (due July 15) and July (due August 15) to preserve liquidity as it worked to obtain meetings with the IBT as well as secure additional financing.

“Two months’ of deferrals to Central States would represent approximately $50 million dollars. Only the first of those two monthly payments has been deferred to date,” said Yellow officials. “The company intends to repay the funds with interest immediately upon securing additional financing and has asked the funds to discuss acceptable terms.”

Yellow recentlyfiled a lawsuit for more than $137 million against the International Brotherhood of Teamsters (IBT), due to what Yellow called a breach of the Teamsters’ biding contract with Yellow.

The lawsuit, which was filed in the U.S. District Court for the District of Kansas, maintains that the Teamsters breached its binding union contract with Yellow. And Yellow officials said that the Teamsters have, for more than eight months, been “unjustifiably blocking” Yellow’s restructuring plan, which the company has stated is needed to modernize its business, in order to compete against non-union carriers that it said “dominate the LTL business.”

“These modernization efforts, known as One Yellow, are essential to the Company’s survival,” the company said. “Without these crucial reforms, which are standard practice in the industry today, Yellow likely will not survive, 30,000 jobs will be lost, including 22,000 union jobs, and its shareholders, including the federal government, which owns 30.1% of Yellow stock, will be severely damaged. Yellow remains a critical part of the domestic supply chain with hundreds of thousands of customers—large and small— relying on the Company to deliver freight coast-to-coast. Driving Yellow out of business will badly damage the supply chain, lessen competition and raise the price of shipped goods in the LTL market and feed inflation.”

What’s more, Yellow said that despite efforts to meet with the Teamsters to work on a path forward, the Teamsters have continually refused to meet. And the company also said in its lawsuit that IBT General President Sean O’Brien is responsible for the Teamsters not meeting with Yellow, adding that IBT previously supported Yellow’s restructuring efforts through its One Yellow plan, for several years, and also signed off on the first of its three phases before taking steps to block it.

Prior to filing its lawsuit against the Teamsters, Yellow said on June 20 that it is doing everything possible to meet with the IBT to discuss the future of One Yellow and the importance of its 22,000 union jobs.

“We have been clear with the IBT that meeting to discuss Yellow’s common sense, company-wide modernization effort is essential to preserving jobs and strengthening the future of Yellow,” the company said. “We stand ready to meet anytime and anyplace. As a consequence of the Company’s inability to proceed with One Yellow, combined with the challenging business conditions confronting the entire LTL industry, the Company recently has been operating at a loss, as it continues to serve its customers. A comprehensive refinancing of the Company’s debt is available when there is a clearer path forward with the IBT.”

Yellow’s request to Central States should not have any effect on the pension benefits of its union employees, it noted.

“We are asking the pension funds that there be no interruption in payments or coverage for our employees,” it said. “Our beneficiaries should see no impact to the contributions employees receive from the Pension Fund or the Health and Welfare Fund.”

TD Cowen analyst Jason Seidl wrote in a research note that given its weakened state, his firm believes it would be extremely difficult for Yellow to make it through a work action. Seidl observed that Yellow recently disclosed a cash balance greater than $100 million in a recent SEC filing, suggesting that the required contribution is a sizable proportion of the company’s liquidity, with Yellow’s term loan holders having first lien on all real estate sales, meaning that obsolete terminals are not as readily convertible to cash on balance sheet.

As for what could happen should a strike occur, Seidl wrote that a strike would significantly accelerate freight diversions to other LTL players.

“Recent discussions with industry contacts indicate that shippers are preemptively moving some freight to Yellow’s competitors in addition to formulating contingency plans, indicating tangible fears that Yellow is on the brink of failure,” stated Seidl. “Freight diversions have occurred at a greater magnitude compared to past bankruptcy scares and could be exacerbated further by the threat of a strike. We believe it would be extremely difficult for Yellow to recover from a full-blown strike given its precarious financial status.”

What’s more, in his firm’s discussions with a “major LTL player” in advance of second quarter earnings suggest that the LTLs have the capacity to absorb Yellow’s freight with some short-lived disruptions anticipated in the event of bankruptcy.

“Yellow’s competitors have also reportedly held off on locking in contract rates in anticipation that further freight diversions will facilitate more robust pricing gains going forward,” he wrote.