Yellow Freight and an economy on the margin
Yellow Freight, a massive, almost century-old LTL carrier, has gone out of business, and the “spin” of the business world will likely rival the spin of the political world in covering this news.
First, some background. LTL refers to “less than truckload freight,” so an LTL carrier is one that picks up relatively small loads, usually 1 to 5 pallets’ worth, and consolidates them at terminals with other such freight with similar destinations, in what is called a “cross-dock” operation. Through a network of base terminals across a metro area, a region, or even the entire country, the nation’s thousands of LTL carriers consolidate such loads and deliver goods so that shippers don’t have the unbearable expense of hiring an entire truck for a small order.
Many such LTL companies have a truckload division and other divisions as well, such as logistics management consultancies, international freight forwarders, and project cargo subsidiaries, as did Yellow, but at Yellow, the LTL aspect has always been the driving force.
Yellow was a union carrier, so, both members of the transportation industry and the general public at large have been treated to very public battles between the company and the Teamsters for generations.
As with any business closure, there will be debates over fault for years to come. Was it because the union was too vicious in fighting management? Was it because management made bad decisions or was unable to fulfill promises it made to the union? Was it because either side consciously cheated the other?
Or was it because at some point, Yellow Freight just chose a direction for itself that became ever more challenging as the economy changed over the decades?
Yellow has had multiple restructurings and acquisitions since the 1970s, each time hoping to emerge stronger, while arguably digging itself a deeper hole. Gradually, Yellow had to lower its prices to keep business, reducing opportunities for profits, bleeding cash year after year as a result.
By the end, Yellow was just an enormous, low-cost carrier, with a reputation for unacceptably slow transit times, attracting only the most cost-conscious of customers.
Could others have managed the company better? We will never know, but the business pages will be full of discussions for the next few weeks, and some will go so far as to say that just because it was expected, it’s not a big deal. “Yellow’s failure was already baked into our outlooks,” they will say. Odd, isn’t it, how many talking heads say that the worst problems in the world are not a big deal, just because they were expected.
Here’s what we know for sure:
Approximately 30,000 people are now unemployed, who had a job last week. That’s 30,000 experienced people - truck drivers, dock workers, mechanics, bookkeepers, sales reps, IT experts, customer service reps, and other employees in all levels of management and back-office clerical services.
They will now be competing with the millions of other jobseekers already in the marketplace. Hopefully they will find something better; they could hardly do worse.
But in the meantime, while they hunt, they will be filing for unemployment and/or other benefits, and/or burning up their savings, putting further strain on an already struggling economy.
This gives us an opportunity to analyze one of the painful misconceptions that leftist economists like to parrot when discussing tax policy: that corporations should pay more income taxes, because if a corporation doesn’t directly pay income taxes itself, then it’s not contributing anything to the economy.
Well, Yellow has been losing money for years, so it has rarely made a profit, and therefore hasn’t paid much in income taxes for its size.
But in the past, Yellow bought millions of dollars’ worth of diesel fuel every week, and half of that spend was in fuel taxes and fees.
While it was operating, Yellow owned or leased thousands of offices, terminals and truckyards, in every state of the union, all of which paid property taxes.
Until last week, Yellow contributed to the workmen’s comp and unemployment insurance programs of every state in which it operated. Yellow paid the employer’s matching amount of every employee’s FICA collection - that’s about 7 1/2% of all of those 30,000 salaries - paid to the federal government every week. That’s not chump change.
Until last week, Yellow employed an array of other local services and businesses, which both armchair economists and the ones on television never think about. Their sales reps took customers to lunch or dinner on sales calls. Their terminals hired local maid services, painters, parking lot repavers and landscapers. Their offices contracted with local utilities, buying cellphone service, internet coverage and land lines, and contributing to all the many other shared local expenses that utilities provide to a community.
It doesn’t end there. A company of 30,000 employees buys cars for its sales reps, and siding and roofing for terminal construction, and carpeting for its offices. It constantly invests in new trucks, new trailers, and new forklifts. When that company of 30,000 goes out of business, this steady spend in the local economy ends as well.
All the beneficiaries of those expenditures pay taxes. Even if Yellow itself wasn’t paying federal and state income taxes, because of its many years of losses, its employees paid income taxes, and its corporate spend enabled everyone else in the economy to pay income taxes.
You will see armchair economists report confidently that other trucking companies will pick up Yellow’s business, and Yellow’s equipment, and Yellow’s facilities. All true.
But with one less sales rep calling on customers, that’s one less automobile for the market to buy from Detroit, and one less sales lunch or dinner at local restaurants each day. With Saia, XPO or ABF buying Yellow’s used trucks, that’s that many fewer new trucks for Detroit to sell. This closure means less business for all of the service industries surrounding each terminal.
There’s more. We could go on for days, listing the multitude of other successful businesses that depend in part upon every other business. When one giant closes, everyone suffers.
We should all shed a tear today for those affected most directly by the closure of this iconic brand. Should they not have bought USF a decade ago? Should they not have bought Roadway 20 years ago? Should Yellow employees have tried going nonunion, years ago, to free up the company to do what it needed to do? Should the federal government not have lit a match to $700 million in 2020 by purchasing 30% of an effectively bankrupt entity in a moment of wild desperation?
These questions are all worth asking. The history of Yellow Freight provides us with plenty of worthy material for studying management.
But it also provides us with a valuable opportunity to look at outside forces, beyond Yellow’s control, and imagine how things might have been different. Some years, the difference between profitability and unprofitability at Yellow was just a couple percent of revenues.
What if the government didn’t demand that 7 1/2% matching FICA contribution of all American employers? What if diesel fuel could be purchased for a fair price, instead of being doubled by this array of taxes? What if the government didn’t make their every truck cost ten or twenty percent more by loading it up with environmental-extremist technology? What if the Department of Transportation’s Hours of Service regulations didn’t meddle with dispatchers’ ability to staff up and serve their customers efficiently?
As we are seeing today, and as we will see in the months to come, as the ripples of this bankruptcy have their effects upon the economy at large, the Yellow Freight bankruptcy also provides us with a valuable lesson in the interconnectedness of a capitalist economy, and the dependence we all have on the enduring stability of a free market.
Perhaps, someday, we will learn the lesson that a crushing tax and regulatory burden doesn’t just hurt some unknown CEO in a Manhattan office somewhere. This burden makes everything harder for everyone, especially companies on the margin of survival.
If there was ever a time to learn that lesson, it’s now.
John F. Di Leo is a Chicagoland-based international transportation professional and consultant. A onetime Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009. His book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I and II) are available on Amazon.
Photo credit: Mark Collins CC BY 2.0 license
Economy Continues to Crash (And Why We’re Next)
The Yellow Corp. bankruptcy: A brutal attack on the working class
Yellow Corp., the fifth-largest trucking firm in the United States, has shut down its operations and laid off 30,000 drivers, yard workers and office staff across the US. The firm is expected to file for bankruptcy protection in federal court this week.
The Yellow bankruptcy and mass layoffs are intended as a ruthless act of intimidation against all workers. Confronting an increasingly militant movement of the working class, the Biden administration has decided to allow the company to go into bankruptcy as a warning, aimed particularly at the 340,000 United Parcel Service (UPS) workers who will begin voting on a sellout agreement backed by the Teamsters union apparatus this week.
While Teamsters General President Sean O’Brien has hailed the UPS agreement as “historic,” it has provoked a firestorm of rank-and-file opposition for maintaining the poverty wages of part-time workers, who make up two-thirds of the workforce, and including a de facto freeze in real wages for package delivery drivers, plus reduced pension payments in Western states.
More than 22,000 Yellow workers were prepared to strike on July 24 after the company reneged on its pension payments earlier this month. The Teamsters bureaucracy suddenly called off the strike, however, claiming it had reached a deal with Yellow to pay its $50 million pension obligation within two weeks.
It is now clear that the Teamsters leadership had no intention of calling a strike at Yellow, and its announcement justifying the decision was based on lies. The union bureaucracy was well aware that the company was headed towards bankruptcy, but was determined to prevent a strike lest it embolden UPS workers and other sections of the working class. Making clear the union bureaucracy would not conduct even the pretense of a fight against mass layoffs, Teamsters President O’Brien said over the weekend, “Today’s news is unfortunate but not surprising.”
In fact, the company has used the breathing room granted to it by the Teamsters to move freight off its docks and position its trucks and other equipment for auction. The bankruptcy courts will be used to allow Yellow’s owners to slash their liabilities to employees, smash up the company, and buy up the remaining assets at rock-bottom prices.
Tens of thousands of workers at Yellow are being abruptly thrown into joblessness, with devastating consequences. At the company’s headquarters in Overland Park, Kansas, where more than 4,000 office workers are being laid off, KCTV reported that employees with nine years or less will only get two weeks pay as a severance package. “It’s very tough” an office worker said, “there’s a lot of us here and we’re flooding the [job] market.”
Teamsters officials are still engaged in closed-door discussions with the corporation about further concessions. However, the overriding concern of Teamsters President O’Brien and the rest of the bureaucracy is to prevent any strike that would strengthen the position of 340,000 Teamsters members at UPS. Just two days after announcing the Yellow agreement, O’Brien announced that he had reached a deal with UPS, thus averting a strike set to begin at 11:59 Monday night.
The UPS deal was no doubt brokered by the Biden administration. Biden has relied on the trade union bureaucracy to keep wage increases below the rate of inflation and prevent strikes that would disrupt the prosecution of the US proxy war against Russia and plans for an even bigger war against China. While the White House and Congress are prepared to use anti-strike laws against workers in key industries—as they did against the rail workers last year—they prefer to use the services of the union bureaucracy to avoid a direct political clash with ever more militant sections of the working class.
The American ruling class and its servants in the labor bureaucracy are using the shutdown of Yellow and the prospect of mass unemployment to beat back the demands of workers for major increases in wages to counter the impact of inflation and decades of declining real wages. Just two days before Yellow shut its doors, the US Federal Reserve raised interest rates to the highest level in two decades as part of a deliberate policy of driving up unemployment and countering the “tight labor market,” which the Wall Street Journal complained “allows workers to bargain for high pay, making it harder to get inflation down.”
It also coincides with threats by auto executives, including Stellantis CEO Carlos Tavares, that workers must accept deep wage and benefit concessions or face more plant closures and mass layoffs. With contracts expiring for 150,000 autoworkers in the US and another 20,000 in Canada in mid-September, Tavares said the number of plants and workers the company will retain in the US “relies on the total production costs that we can achieve in the US with our suppliers and within our own plants.”
The liquidation of Yellow is being driven by the most parasitic Wall Street interests. In 2019, private equity firm Apollo Global Management essentially took over control of the debt-ridden company by extending Yellow a $600 million line of credit. It then leveraged its connections with the Trump administration to obtain a $700 million pandemic aid loan from the United States Treasury on the dubious grounds that the company was essential for “national security.”
With nearly $600 billion in managed assets, Apollo has a long history of loading up struggling companies with even more debt and collaborating with the unions to attack workers’ jobs, wages and pensions before selling or liquidating the asset-stripped companies. In one of the most notorious cases, Apollo joined other private equity firms in squeezing massive concessions from Warrior Met coal miners in Alabama, who waged a heroic two-year strike until it was betrayed by the United Mine Workers.
Over the last four decades, the US bankruptcy courts have been used to strip workers of their livelihoods and ensure the continued enrichment of the financial oligarchy. The list of employers that have filed for bankruptcy includes Continental, Eastern, United, American and other airlines; countless steel, auto parts and coal companies; major auto firms such as GM, Chrysler, Delphi and Visteon; and the city of Detroit, where the pensions and retiree health benefits of city workers were gutted and public assets were sold off in the largest municipal bankruptcy in US history a decade ago.
The attack on Yellow workers can and must be stopped! But to do so, workers must take the struggle out of the hands of the Teamsters bureaucracy by organizing rank-and-file committees that will transfer decision-making power to the drivers and yard workers. These committees must establish direct lines of communication with workers in other trucking companies and at UPS to prepare joint strike action to demand secure and good-paying jobs for all workers.
These committees should advance demands to open Yellow’s financial books to public scrutiny, including full disclosure of all of the company’s assets and all of its payments to creditors, including the US Treasury Department. Securing the jobs, wages and pensions of all workers must take priority, and all resources wasted on the vast salaries and fees to corporate executives, Wall Street investors and union bureaucrats must be exposed and fully recovered.
Above all, private capitalist ownership of the trucking industry has proven to be a disaster for consumers and workers: from the massive loss of jobs after deregulation, to the recent trucking bloodbath that has seen thousands of companies disappear, to the ruthless cost-cutting and downward pressure on rates exerted by Amazon, to the unhealthy and exhausting schedules facing all drivers, including owner-operators. The trucking industry must be transformed into a public enterprise, collectively owned and democratically controlled by the working class as part of the socialist reorganization of economic life.
VIDEO: Yellow Trucking Company Shutdown Kills 30K American Jobs
The trucking company known as Yellow Corp. shut down on Sunday after 99 years, a move that has deeply affected tens of thousands of American workers.
The decision left 30,000 people across the nation jobless, KMBC reported Monday, noting operations stopped after the company’s dispute with a union.
“The shutdown comes after a federal judge denied Yellow’s attempt to block a unionized strike. The company had warned that a strike could cause it to plunge into bankruptcy,” the outlet said.
Yellow has been struggling financially and customers have been leaving in droves, the Associated Press (AP) reported Monday, adding non-union workers were laid off on Friday.
The Teamster’s Union said Monday it had received legal notice of the situation.
“Today’s news is unfortunate but not surprising. Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government,” Teamsters general president Sean O’Brien commented.
A sign placed outside a lot where Yellow trucks were parked informed customers and employees operations were halted Sunday:
It is possible Yellow may file for bankruptcy, the KMBC article said, adding, “In addition to the union disputes, a $700 million pandemic-era loan from the government and other bills have racked up over time for the company.”
Analysts predict the shutdown may mean higher delivery prices will trickle down to consumers as other companies grapple with the extra work coming their way, according to ABC News.
Yellow’s government loan came during the Chinese coronavirus pandemic when its role in the nation’s supply chain was deemed “essential to national security,” the outlet said.
The outlet also noted the trucking industry and civilian drivers are still struggling with high gas prices in President Joe Biden’s (D) America.
Yellow reportedly handled 49,000 daily shipments in 2022, but “That number was 15,000 daily shipments in its final week of handling freight,” the KMBC article stated.
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