A Thursday report from the commission overseeing COVID-relief loans showed a request on Monday to U.S. Transportation Command seeking more information about correspondence it had with prime contractor Crowley Logistics regarding less-than-truckload subcontractor YRC Worldwide (NASDAQ: YRCW).
U.S. Transportation Command is tasked by the Department of Defense to provide the transportation required for national security.
The commission has had concerns with the $700 million relief loan made to YRC, which provides 68% of the Defense Department’s LTL services for the military. The commission’s focus has been on the Defense Department’s designation of YRC as “critical to maintaining national security” and the Treasury Department’s underwriting of the loan, which provided liquidity relief to a company in “precarious financial condition” prior to the pandemic.
In a recent response to requests from the commission, a Defense Department official stated that U.S. Transportation Command had contacted Crowley “regarding the anticipated effect of YRC ceasing LTL services.”
A sticking point with the commission was the Defense Department’s lack of a search for alternative LTL services should YRC fail. Based on the Defense Department official’s statement, it appears that a conversation took place between U.S. Transportation Command and Crowley regarding that potential scenario.
The commission wants to see the correspondence between U.S. Transportation Command and Crowley. Specifically, they are interested in Crowley’s response regarding the potential for a YRC failure and whether U.S. Transportation Command asked Crowley “if YRC should be designated as critical to national security.”
The letter is also requesting Crowley’s reports showing the metrics — on-time response, pickup and delivery and claims damage — for not just YRC but all subcontracted carriers for the period of 2018 to 2020. The commission wants to see monthly freight price information, including total freight prices and costs on a per-mile, per-hundredweight and per-pound basis.
A 2018 lawsuit filed by the Defense Department alleges YRC overcharged for freight services. YRC has maintained it engaged in no wrongdoing in the matter.
The letter seeks more information on the services Crowley provides for the Defense Department as well.
“The Commission has been doing extensive oversight of the YRC loan as it believes the loan may be hurtful to taxpayers,” the report read.
In a December hearing, former Treasury Secretary Steven Mnuchin said, “If my bank had been underwriting this loan, we would not have made this loan.” Mnuchin also said that the loan has been profitable to taxpayers and recommended the government sell the loan and liquidate its equity position in the company. As part of the terms of the deal, the Treasury Department received a near-30% equity stake in YRC.
Shares of YRCW have increased nearly three times in value since the Treasury loan was announced on July 1. The stock closed at $5.20 on Friday.
The “national security” carveout provided up to $17 billion in funds for companies with “losses incurred as a result of coronavirus.” The program has ended, issuing only $736 million in loans, of which YRC received 95%.
“We are proud of our work on behalf of not only our men and women in uniform but all Americans,” stated a YRC spokesperson in an email to FreightWaves. “YRC is a critical part of America’s supply chain. As Americans sheltered in place, our 24,000 drivers and dock workers transported essential goods including PPE and other items to keep store shelves filled in the thousands of communities we serve.
“Transporting goods for the federal government is highly complex. Not all carriers can do it. We provide a highly specialized service that enables our equipment to access Department of Defense facilities. This requires drivers to have specific credentials and training. In addition, our more than 300 terminals positioned across the United States enables YRC to quickly and efficiently access Department of Defense distribution hubs and bases.”
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