Yellow Sues Teamsters, Alleging Breach of Contract
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Less-than-truckload carrier Yellow Corp. filed suit June 27 against the International Brotherhood of Teamsters and certain affiliates in a Kansas court, alleging breach of contract, and accusing the union of causing more than $137 million in damages.
Yellow ranks No. 13 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
The suit in the U.S. District Court for the District of Kansas alleges breach of a binding contract, arguing the union caused the damages by “unjustifiably blocking” Yellow’s plan to modernize its operations for more than eight months. Yellow argues the restructuring plan “is necessary to compete against nonunion carriers that dominate the LTL business today.”
Known as “One Yellow,” the company believes the reorganization to be essential to its survival, arguing in a statement announcing the suit that failure to implement the plan would lead to 30,000 job losses, including 22,000 unionized positions. Yellow also argues the changes would see the company institute standard industry practices.
Yellow said June 27 it did not take the decision to go to court lightly, but “the union’s leadership has left us with no choice.” The company said the union would not meet with it, despite good-faith efforts to do so on Overland Park, Kan.-based Yellow’s part.
Bank of America Securities Research Analyst Ken Hoexter said in a June 27 note that Yellow’s latest travails — including the suit — were positive for nonunionized rivals including Saia Inc., Old Dominion Freight Line Inc. and XPO.
Were Yellow not to reorganize as planned and have to lay off all its workers, as the company’s leadership has warned could be the case, Hoexter said its business could be absorbed into existing capacity in the LTL marketplace. The company currently has a 9% market share of the $58 billion LTL market, down from a 26% share in 2007, he noted.
But the first step down that road, a Chapter 11 bankruptcy filing, currently has only a 50% chance of taking place, Stifel Director of Global Logistics & Future Mobility Bruce Chan told Transport Topics on June 28, noting it is not a certainty by any means. However, such a filing is more likely than at any point in the company’s past, he added.
Yellow’s suit is a normal part of the back-and-forth between the company and the union in negotiations, Chan said. Yellow is not the only major unionized LTL player, he added. ABF Freight, a unit of ArcBest Inc., as well as TForce Freight, the former UPS Freight arm now owned by Canada’s TFI International Inc., are also unionized.
Chan said the LTL sector is a relatively consolidated market, especially when compared with the truckload sector. The top seven LTL players account for around 70% of the market, he estimated, a factor of 10 times higher than that of the truckload market. That said, the LTL sector is going through a soft patch, he noted, and there is about 15% to 20% spare sectoral capacity should Yellow see its difficulties deepen.
As recently as early May, Yellow executives seemed confident a deal could be struck, noting during the company’s first-quarter 2023 earnings call they expected talks to conclude successfully. The company posted a loss of $54.6 million in the first quarter, or $1.06 a share, compared with a loss of $27.5 million, or 54 cents, in the same period a year ago.
Company leadership says it foresees a super-regional company with a countrywide footprint, focusing on next- and second-day service.
Phase one of the plan in 2022 saw Yellow integrate the linehaul networks of YRC Freight and Reddaway in the West to support regional and longhaul services. Yellow eliminated nine West Coast terminals, consolidated several others and created about 360 “utility driver” positions. Similar changes are taking place in the Midwest and on the East Coast in 2023.
Yellow’s share price tumbled as details of the suit became public June 27. The stock closed at 99 cents, down 21.75% compared with the previous day’s $1.27 close. On June 28, the stock resumed the previous day’s trajectory, sliding to an 83-cent low after a quiet opening.
Since February, the stock has shed nearly 75% of its value compared with its 2023 high as the fight between the carrier and the union dragged on, and the decline is even steeper when Yellow’s pandemic-induced peak above $12 a share is taken into account.
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The Teamsters union said in response to the suit June 27 it “categorically denies the baseless allegations” in what the union termed a “frivolous lawsuit.” The breach of contract allegations are “unfounded and without merit,” said Teamsters General President Sean O’Brien.
Yellow’s complaint alleges O’Brien orchestrated the breaches of contract and that the union endorsed the company’s modernization efforts “for several years” before reversing its stance.
In response, the union argues it has a collective bargaining agreement with Yellow that runs through March 2024 and intends to defend itself. The union has expressed concerns about the reorganization, fearing it would lead to job losses for its members. The suit, said Teamsters General Secretary-Treasurer Fred Zuckerman, was “a desperate, last-ditch attempt to save face.”
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