Yellow Corporation ($YELL) is the parent holding company of less-than-truckload (LTL) carrier brands including Holland, New Penn, Reddaway, and YRC Freight with operations in 70 countries after 99 years in business. It is the third largest LTL carrier by revenue behind FedEx and Old Dominion but is slated to announce the largest trucking company bankruptcy in U.S. history sometime today. The last major LTL to file bankruptcy was Consolidated Freightways in 2002. Earlier this month, Yellow barely avoided bankruptcy for the fifth time since 2009 as its demise was “two decades in the making” with a “$10 billion acquisition buying spree.”

The company was blessed with a final Hail Mary during the pandemic lockdown when its festering financial problems allowed a $700 million bailout relief loan under the CARES Act, which provided some breathing room to buy new equipment and refinance debt. The government scored a 30% stake in the company in lieu of higher market-based interest rates, but the deal came under scrutiny due to uncertainty about its stock shares during a restructuring process. When the government gave Yellow the loan, it was facing charges for defrauding the government by overbilling on shipments to the U.S. military and was fined $6.85 million. A congressional oversight report released last month concluded that the U.S. Treasury “made missteps” in their decision to give Yellow a loan that exposed taxpayers to a significant loss.

Yellow Transit Freight Lines 1930s Truck

Before acquiring the emergency loan, Yellow’s market cap was $220 million with a debt load of $1.2 billion and provided nearly 30,000 jobs. The company was known for offering customers like Walmart and Amazon cut-rate shipping compared to its freight transportation competitors. Unfortunately, it was a money-losing operation long before the pandemic panic, and its credit was junk-rated for over a decade, so it was questionable if Yellow could even survive by doubling down on more debt. A collapse in its share price began in July 2013 when shares traded for $37 and was followed by 10 years of lower lows and bouts of wicked volatility. After news over the weekend that Yellow advised its customers and 22,000 Teamsters union employees that it was ceasing operations, $YELL is trading at $1.64 in after-hours today following a low of $0.43 last Thursday. At the end of the first quarter of this year, the company reported about $1.47 billion in total debt vs. $806 million in assets.

Trucking Giant Yellow Shuts Down Operations… “In 2003, Yellow bought Roadway, another LTL trucking firm for around $1 billion in cash and stock. Both companies were unionized, while many other LTL competitors weren’t. The two companies had ‘been trying to kill each other for 100 years,’ said Bill Zollars, who was Yellow’s chief executive from 1999 to 2011. Executives believed a merger would give each a chance to be more competitive with nonunion rivals… In 2005 Yellow bought another large competitor, USF, for $1.37 billion, again combining back-office functions but not the broader company… Then the 2008 recession hit, trucking demand evaporated and executives wished they had integrated faster… Executives negotiated with the Teamsters and creditors to avoid bankruptcy and fend off investors. In 2010, they reached a deal that largely wiped out shareholders and that required the union to agree to cuts in benefits and pay. Debt from the mergers and the operational complexity of running disparate brands continued to haunt the company. The company said bankruptcy loomed again in 2014 and 2020… ‘We were just taking on too much debt and overpaid,’ said Welch, whom lenders had brought back in 2011 after an earlier stint at the company. Digesting the debt ‘has been a slog for 20 years,’ the former CEO said.” – WSJ, Jul. 30

The shutdown arrived days after a Teamsters strike was averted at the company. A week ago, a pension fund agreed to extend health benefits at two Yellow operating companies after the carrier missed its $50 million payment to the fund on Jul. 15. An agreement at the urging of the Teamsters gave Yellow 30 days to pay its bills with the understanding that the company will do so within the next two weeks. The International Brotherhood of Teamsters represents 1.2 million union members in the U.S., Canada, and Puerto Rico. Yellow and business analysts are blaming the Teamsters for threatening to strike, which “induced a high level of variability and uncertainty in the market for customers, and Yellow lost substantial and much needed volume.” Yellow’s May 2023 tonnage was down 16.3% YoY, and reports circulated that the company lost 80% of freight volume to competitors such as FedEx and ABF Freight due to the Teamsters’ strike threat.

Yellow Corp trucking shuts down, 30k fired amid trucker shortage – NewsNation, Jul. 31

The Yellow trucking company meltdown… “Yellow sued the union for blocking the restructuring plan it said was ‘essential to the company’s survival.’ The Teamsters in turn called the lawsuit ‘baseless,’ instead blaming Yellow for ‘decades of gross mismanagement,’ that included its alleged exhaustion of the $700 million bailout loan. ‘Both sides bear fault,’ Atkins said. ‘Once that freight left, there was nothing left to really restructure. It was really too late to save the company.’ In its Sunday statement, the Teamsters union said was working to help ‘affected members get the assistance they need to find good union jobs throughout freight and other industries.’ Atkins doesn’t expect the federal government to come to the rescue this time. While there may be some slight disruptions, the analyst anticipates other freight carriers will have some capacity to absorb Yellow’s business because of a recent dent in freight volumes. ‘This is not going to create a supply-chain crisis,’ he said.” – NPR, Jul. 30

There’s a lot of zombie companies on the brink of failure, and corporate debt defaults have already exceeded last year’s total. That wave of defaults will continue amid higher borrowing rates due to the Fed’s unprecedented interest rate hikes since Mar. 2022, the subsequent regional banking crisis, and a credit crisis with tighter lending standards.

“The last decade of QE and low-interest rates globally has led to an explosion in the number of zombie companies. According to Swiss Re, zombie firms were estimated to make up 20% of the US stock market by the end of 2021 and according to Kearney make up 4.7% of all listed companies globally in 2022… With zombie companies only being able to afford borrowing significant sums of debt to just stay afloat during a low-interest rate environment, all it would take was an exogenous shock or change in the macroeconomic landscape e.g. inflation shocks, for central banks to have to begin rising interest rates and undertake quantitative tightening which would have a disastrous impact on zombie companies… The rapid rise in interest rates has already had an impact on default rates with notable large-cap companies such as Vice Media and this will only get worse with Fitch ratings estimating the US junk bond default rate tripling from 1.2% today to 2.5-3.5%.” 

Analysts are contemplating a Yellow bankruptcy and who stands to win. Consider the following watchlist that’s sorted by average daily trading volume:

• $FDX: FedEx
• $UPS: United Parcel Service, Inc.
• $XPO: XPO Logistics, Inc.
• $KNX: Knight-Swift Transportation Holdings Inc.
• $ODFL: Old Dominion Freight Line, Inc.
• $JBHT: J.B. Hunt Transport Services, Inc.
• $WERN: Werner Enterprises, Inc.
• $SNDR: Schneider National, Inc.
• $SAIA: Saia, Inc.
• $ARCB: ArcBest Corp. (aka ABF Freight)
• $MRTN: Marten Transport, Ltd.
• $TFII: TFI International, Inc.
• $DSKE: Daseke, Inc.
• $LSTR: Landstar System, Inc.
• $HTLD: Heartland Express, Inc.

The Fall and Rise of the Teamsters – FreightWaves, Jul. 31

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