Uncertainty at Yellow sparks freight shift to other carriers

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Some shippers have begun diverting freight from Yellow Corp. over concerns about the company’s future, TD Cowen analysts reported in a research note last week.

Mired in a fight with the International Brotherhood of Teamsters over a network overhaul Yellow considers critical to its survival, the carrier resorted to the extraordinary step of suing the union on June 27. 

The bank published its report, “Tensions escalate at Yellow, freight diversions have started,” the next day. 

“Analysts are starting to see freight diversions to other carriers, with [ArcBest-owned ABF Freight] and [TFI International-owned TForce Freight] as potentially the biggest winners of diverted freight from Yellow,” the report said.

Yellow CEO Darren Hawkins, however, said the largest unionized U.S. LTL carrier has maintained its shipment count during an interview Monday with Fox Business.

“Our employees want the company to be here,” Hawkins said. “Our customers definitely want us to be here. Even with all the noise around the company, our shipment counts have held up, and that’s crucial for us to work through this period while we’re getting to negotiations.”

Still, uncertainty in the company’s future is unnerving shippers, which “could become a very slippery slope” for the carrier, according to the analysts.

A Yellow spokesperson argued the TD Cowen report did not accurately describe the One Yellow modernization plan to sell 28 terminals and combine its YRC Freight, Reddaway, New Penn and Holland subsidiaries.

While the company got the union’s go-ahead and implemented the first phase of the plan in the western region last year, the union has fought the second phase in the eastern region for more than 8 months.

The $137 million lawsuit, accusing the Teamsters of “unjustifiably blocking” One Yellow, noted the company had also requested White House intervention to bring the union back to the table.

The company has nearly $1.6 billion in debt payments and obligations due in the next three years. It has warned employees it is running out of money and its survival depends on lenders agreeing to provide financing, which will require a deal with the Teamsters on One Yellow.

TD Cowen analysts Jason Seidl, Matt Elkott, Elliot Alper and Uday Khanapurkar noted that they “are not predicting the demise/survival” of Yellow. But their report modeled the potential earnings gains to other publicly traded carriers in the event of a shutdown. 

Carriers like Old Dominion Freight Line are unlikely to absorb a high percentage of Yellow’s volumes given their strict pricing discipline and freight profile, the report said. 

“In our view, fellow unionized carriers such as [ABF Freight] (strong exposure to long haul lanes) and [TForce Freight] would likely experience gains … as they are more compatible with Yellow’s freight. We also would expect strong private carriers to compete for business.”

During the Fox Business appearance, Hawkins said Yellow wants to negotiate a deal that “allows the company to modernize and also increase wages over the period of the next few years.”

“The only part of the recipe we’re missing is a ratified union contract,” he said.

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