News / Bankruptcy looms as Yellow burns cash and tries to offload its 3PL

Struggling Yellow is slipping closer to the end of the road, with signs that bankruptcy could come as early as Monday.

Yellow is the third-largest less-than-truckload (LTL) carrier in the US, with 30,000 employees and operating revenues last year of $5.24bn.

According to a report in Freightwaves, Yellow’s EVP of sales, in a video call on Wednesday, told her staff management would proceed with a bankruptcy filing on Monday.

However, the publication reported this was retracted later that day in a statement that said: “In keeping with fiduciary responsibility of the company’s executives, the company continues to prepare for a range of contingencies.”

Yellow said it was exploring opportunities to sell its successful 3PL, Yellow Logistics, and was “actively” engaged in negotiations with multiple interested parties.

Meanwhile, there have been other reports of Yellow employees saying the company was “approaching the end of the road” and winding down operations.

Management further said on Wednesday that negotiations with the Teamsters union were continuing. The union had threatened a strike after revelations that Yellow had failed to make contributions for pension, welfare and health insurance benefits for its employees in June and July.

This had prompted insurance provider Central States to issue a delinquency notice and threaten termination of the firm’s participation in the pension plan.

The union called off the strike on Sunday, announcing that the insurer had agreed to continue to provide health care benefits, and was giving the company 30 days to reimburse it.

Lenders had given the ailing carrier a lifeline this month, when they agreed to waive several loan requirements in return for increased fiscal oversight. Yellow, which has struggled for years to integrate a collection of disjointed acquisitions into a coherent unit, is $1.3bn in debt, while revenues and financial reserves have dwindled.

A lingering dispute between management and the labour union over restructuring plans, which brought about the threat of a strike, accelerated an exodus of customers. According to a report by TD Cowen, from a slow beginning in early June, this snowballed dramatically after the news of Yellow’s non-payment for employee benefits.

The rapidly shrinking revenue stream is rapidly eroding the firm’s cash reserves. Under the agreement forged with lenders in early June, Yellow is obliged prevent liquidity from slipping below $30m. According to the company’s latest 8-K filing with the SEC, its liquidity was in excess of $100m last month, but financial services firm Stephens estimates the trucker burned $4m in cash every week in the second quarter, and that this has now ballooned to between $9m and $10m a day, based on a 70% drop in revenue.

Financial analysts see little or no hope for the carrier. Several have warned clients of an inevitable demise. According to Stifel, the only way for Yellow to emerge from its predicament without bankruptcy would be a major equity injection.

Satish Jindel, president of SJ Consulting, does not share the doomsday scenario, although he acknowledges that the situation is dire. He said: “There could be a white knight who steps in at the last moment.”

TForce Freight parent TFI International would be the most suitable candidate, he suggested, adding: “They know LTL, they work with the Teamsters and [TFI president and CEO] Alain Bedard is a master in taking a troubled company and turning it around.”

At the current stock price of 57 cents, the right suitor could buy the company for about $30m, strike an agreement with the union and revive the carrier to a size that generates $1bn in revenue, he reckons.

But a rescue mission would have to come quickly, as Yellow is likely to run out of money, given the loss of business, he noted. “If their shipment volume is half of what it was, it could happen next week,” said Mr Jindel.

His advice to shippers is to shift traffic with transit times of 3-5 days to other carriers. There should be clients that are willing to take short-term risk (with one-day transits) for the sake of competitive prices.

“Yellow’s attraction is that its rates are so much cheaper. That’s the reason people are using them. Not for the service, or the brand,” Mr Jindel added.

What would happen if Yellow did sink into bankruptcy in the next few days? In light of its financial situation, this would likely spell the end for the company. Its trucks and terminals would be snapped up by competitors – piecemeal.

“Nobody is going to buy the whole lot,” commented Mr Jindel.