33,000 people across the country are now without a job this morning,
including around 22,000 members of the Teamsters union.
According to the Wall Street Journal,
Yellow's collapse is the biggest in the history of the American trucking industry.
>> Speaker 2: That's right, and it's unfortunate,
trucking giant yellow corp shut down over the weekend and
is planning to file for bankruptcy just shy of its 100 year anniversary.
And look, this is a pretty big deal, considering the company employed tens of
thousands of workers who operated 12,000 trucks, moving freight across the country.
The failure imperils nearly 30,000 jobs, including around 22,000 Teamsters members.
Hundreds of its nonunion employees were laid off Friday after the company
stopped taking in new shipments from customers.
Let's go through all the four decisions Yellow made through the decades that
eventually led to its demise, starting with its mergers, and acquisitions,
apparently mergers and acquisitions it couldn't afford.
So in an effort to stay competitive, the company engaged in several insanely
expensive mergers over the years, which honestly ended up screwing
over the entire business, saddling the company with unmanageable debt.
And while redundant positions are usually cut to save money following
an acquisition, Yellow didn't go in that direction.
For example, in 2003, Yellow bought Roadway,
another trucking firm, for around $1 billion in cash and stock.
The two companies combined back office functions, but
not networks, which of course limits cost savings.
And then soon after, Yellow purchased another trucking company for
more than a billion dollars.
In 2005, Yellow bought competitor USF for $1.37 billion,
again combining back office functions, but not the broader company.
So these decisions were pretty disastrous, although they were the result of
the 1980 Motor Carrier Act, which deregulated the trucking industry and
spurred the launch of many smaller trucking companies.
Now, many of the large trucking companies went under as a result, and
Yellow felt it needed to acquire smaller companies to stay afloat.
But taking out billions of dollars in debt to acquire those businesses clearly
became a problem, especially in the lead up to the 2008 economic collapse.
So when that recession hit, trucking demand obviously evaporated and
executives wished that they had integrated faster.
So business with Walmart, which was the largest customer,
dropped around 50% between 2008 and 2010,
which proved to be a financial fiasco for this company.
Debt from the mergers and the operational complexity of
running disparate brands continue to haunt the company.
The company said bankruptcy loomed again in 2014, and 2020.
By the way, you should keep that date 2020 in mind, because we're later gonna get
to how much the government tried to assist this company, and now they're failing.
Now, James Welch, who was CEO from 2011 to 2018,
said the company's deal making debt was its undoing.
Quote we were just taking on too much debt and overpaid, end quote.
Now, digesting the debt has been a slog for 20 years.
The Wall Street Journal reports that Yellow's pricing was also
irresponsibly low, if you can believe it.
So Yellow's revenue per shipment in 2022, for example, was $319.
While competitors were bringing in $400 per shipment.
The lower prices were likely meant to mitigate the impact of poor service and
mismanagement.
For example, Yellow's terrible reviews on consumer affairs
resulted in the company's 1.9 out of five stars.
All of this translated to a difficult financial situation for this company.
And to be sure, the Teamsters conceded to so
many things to help this company stay afloat.
So anyone who's trying to blame the Teamsters is just not really understanding
the situation, hasn't done the proper research into this story.
Now since 2009, Yellow's annual revenues have hovered close to $5 billion.
But the company has posted losses most years and
never a profit above $25 million.
But while they undercharged most customers, yellow allegedly
overcharged the Department of Defense and ended up getting sued for it.
The DoD sued Yellow for price gouging the government from 2005 to 2013.
The government alleged that Yellow operating companies YRC Freight,
Yellow Transportation and Roadway express inflated shipment
weights billed the Defense Department using improper rates and
falsified statements in efforts to conceal their actions.
Yellow was accused of reweighing thousands of shipments and not returning
the overpayments when the shipments were lighter than originally estimated.
So in the end, Yellow ended up paying a settlement.
Yellow paid about $6.8 million to the government and
2.1 million in settlements with investors to
basically settle the nearly 13 year old civil matter.
Yellow admitted no liability and denied the government's core allegations.
Now the company was already in serious financial peril when the COVID
pandemic hit.
Which begs the question why exactly did the Trump
administration agree to give this company a $700
million lifeline through a COVID rescue loan?
The company, remember, in 2020 noted that they're likely gonna file for bankruptcy.
So what was the Trump administration thinking?
The company had reported a whopping 100 million dollar loss in 2019 and the.
Trump administration still handed over the cash to this failing and
mismanaged company.
Congress actually investigated that decision and
found that Yellow didn't even meet the criteria for the government aid.
A congressional report in June of 2023 concluded that
the Treasury Department had skirted its own rules in giving out the loan and
that the Trump administration erred in lending the money to the troubled company.
The loan was supported by the Teamsters at the time as a job saving measure.
And look, I don't blame them at all for supporting that,
right their jobs were on the line.
But the Teamsters weren't the issue,
the issue was the mismanagement within this company.
The issue was that, the federal government really dropped the ball in allowing for
these mergers to take place in 2003, and 2005.
Now, so far, Yellow has paid only get a load of this,
$230 of that $700 million loan.
And now the US government is on the line for the rest.
The US Treasury now holds about 30% of Yellow's shares,
which have plunged and ended Friday at $0.71 apiece.
Now, Teamsters also needed to negotiate a new contract, since the current one
was set to expire in March of 2024, but clearly it was already too late.
In June, the company even sought to deter two pension fund payments,
putting it $50 million behind in its contributions.
Now, I'm unsure of what will happen with the pensions,
there has been no reporting on that, and it's infuriating.
It doesn't really seem like reporters care too much.
However, the Pension Benefit Guarantee Corporation, which is a federal
government agency, is likely gonna be on the line for those pensions.
While the details in this particular case are unclear,
pension payments will likely be reduced down to the maximum guaranteed benefit.
But the main point I wanna make about this story is that we keep hearing over and
over again from the Republican Party that they're concerned about government waste.
I mean, if there's ever an effort to invest in, let's say,
a renewable energy company, I remember there was a big brouhaha over Cylindra and
how the Obama administration provided some investment money for
that renewable energy company, and then they failed.
Republicans lost it, what a waste.
What a waste, they said.
Are you hearing from a single Republican lawmaker today who is
concerned about government waste?
Criticize the Trump administration for handing out $7 million
to this trucking company that had red flags all over it?
No, you're not hearing any criticism.
You will hear them try to pin this on the Teamsters as if it's their fault,
even though they engaged in multiple concessions in order to help this company
stay afloat.
But I wanna reiterate again, the Teamsters had nothing to do with this.
There was mismanagement, the willingness to take on unmanageable debt,
and in the end, that debt is what did them in, totally destroyed this company.
And now there are 33,000 workers across the country who have lost their jobs
as a result of that.
It is infuriating, to say the least, it would have been far better for
the federal government to seize the company, knowing full well that they were
likely gonna go under and 33,000 workers were going to lose their jobs.
That would have been a better solution as opposed to handing them 70 million,
$700 million that they were never going to return.