With two big Teamsters-related issues grabbing the trucking headlines, it was no surprise that the focus of the State of Freight webinar for July was on Yellow Corp. and UPS.
Here’s are five takeaways from the more than one-hour chat Thursday between FreightWaves CEO Craig Fuller and Director of Freight Market Intelligence Zach Strickland. (You can register for it and view the archive here).
The history between Yellow and the Teamsters is key to the story
Fuller said understanding the back-to-back combination of a 2006 freight recession and the financial crisis that began in 2008 and dragged into 2009 is important in analyzing the current standoff. Yellow (NASDAQ: YELL) management led by Chairman, President and CEO Bill Zollars had brought several less-than-truckload carriers under the Yellow banner, including Roadway Corp., which it acquired in 2003. That left the company with significant debt when the freight market took those successive hits.
Jimmy Hoffa Jr., head of the Teamsters at the time and son of the legendary Teamsters leader, “worked diligently to rally to save Yellow,” Fuller said. “He really brought the Teamsters in on this process of saving the company. They actually took it on the chin because they gave up a lot to really help the company out and have done so over the last decade.” The end result, however, is “resentment” that its members at Yellow are facing yet another crisis, one that might be existential.
But Fuller also was critical of the Teamsters. He said the union has frustrated Yellow management’s so far unsuccessful efforts to consolidate Yellow, Roadway, USF Corp. and other acquired carriers into one integrated LTL carrier. “So there’s really a lot of arguments on both sides of the table,” Fuller said.
The end result is that the union structure — in part but not completely — has helped stick Yellow with a cost basis “that is much higher than its competitors.” Yellow also is not viewed as a high-quality carrier, he said.
The Teamsters have bigger fish to fry
As it is increasingly apparent that the Teamsters seem prepared to see Yellow disappear, the question becomes why, given that 30,000 jobs in total — not all of them unionized — will be lost.
Fuller noted that when the Teamsters came to Yellow’s rescue in 2009, economic conditions faced by a worker impacted by the collapse of the company were far harsher than they are today. “The Teamsters knew that there were no alternatives for them if Yellow shut down,” he said. But today, if the Yellow jobs disappeared, “while unfortunate, the majority of those folks will be able to find alternative employment, and that’s just because of the really tight employment market that exists.”
But alongside that is the desire of Teamsters President Sean O’Brien to be a transformative figure, like Hoffa Sr., and “the grand prize is Amazon,” where the Teamsters so far have been unsuccessful in unionization efforts. Also in debate is what will happen with current Teamsters negotiations on a new contract with UPS (NYSE: UPS), which is far bigger than Yellow and where the Teamsters is the largest private-sector union in the country. “If O’Brien can prove out that he has won concessions from UPS and that he is willing to let a company go under, that is costing me something, but I gave this up to achieve a higher goal, then that’s a different standard that he has in future negotiations.” With UPS and Amazon (NASDAQ: AMZN) at the top of the Teamsters’ priority list, “you really don’t want this laggard [Yellow], who is bringing you down,” Fuller said. “And that unfortunate reality is that they’ve written it off.”
The exodus of Yellow customers is in full swing
“Anyone who has ever been in a trucking shutdown knows the last thing you want is your freight on a truck or a dock,” Fuller said, explaining the dilemma that a Yellow customer faces.
When there’s a shutdown, the facilities are unmanned and the end result, according to Fuller, is that a shipper might see its freight show up on eBay, resold by people who stole it out of a shutdown network.
Various shippers and TMS systems have cut off Yellow this week, Fuller said. Bills of lading handled by Yellow totaled about 50,000 per day not all that long ago, he said; it’s below that now and might be in the high teens soon. If Yellow is struck by the Teamsters over the company’s failure to make contributions into the Central States pension fund, that is likely to be the end of the company, according to Fuller.
So while a looming strike at a company that is likely to survive might not result in customer exits, because there’s life at the other end of the walkout, getting freight stuck at a carrier that isn’t coming back is a completely different scenario.
As to why that shutdown hasn’t happened yet, Fuller said Yellow management still has its fiduciary responsibilities, “and your only goal as a fiduciary is to survive. So they are hoping that some white knight shows up.”
The market would mostly handle a shutdown of Yellow …
Fuller said Yellow’s share of the LTL market is about 10%. “What I understand in talking to other LTL carriers is they believe that there’s sufficient capacity right now in this market, across the freight economy, to handle the volume,” he added.
He cited one exception: cross-country freight for retail customers, which he said has been a “bread and butter” business at Yellow. That freight might end up moving in a contract truckload arrangement “or a national carrier like XPO (NYSE: XPO) or FedEx (NYSE: FDX) that combined with incremental purchased transportation services from the truckload market” will be able to fill the hole. Fuller did say he expects that short-term LTL rates could shoot up 9% to 12% quickly.
“Some of the stuff being thrown around now is shippers’ revenge,” Fuller said of the current market. “But if you’re an LTL carrier, there’s opportunity. I’m sure they will get it. The question is, how long will this happen?” Freight will be able to move, he said: “The fact that the freight market is incredibly soft means there should be ample capacity,” Fuller said, adding one caveat:
… Unless the Teamsters strike UPS
Measuring the impact of a UPS strike is challenging, Fuller said. The company is a $100 billion business, and about $70 billion of that is in the U.S. Regardless of the specific size, Fuller harkened back to the UPS strike of 1997. “Anyone who lived in trucking those days talks about just how chaotic it was,” he said. The strike was a “massive, massive gift” to trucking because it drove “volume and disruption.” And since e-commerce barely existed then — Amazon was just a fledgling company — the impact of a UPS strike this time would be far greater, Fuller said.
His projection of how a UPS strike would play out foresees that LTL carriers would be “flooded with freight opportunities.” Volume also would “show up” at FedEx, the U.S. Postal Service and parts of the DHL network. But the problem is that “they simply aren’t going to have the capacity” to handle the freight moving out of the UPS network.
These companies that would be the first choice of diverted UPS freight “are going to be buying a lot of linehaul capacity, and they won’t have the capacity on their docks to handle it.” The result: Some freight that would normally move on LTL carriers is going to get moved over to truckload carriers. In an odd twist, Fuller said, independent truckers might be rooting for the Teamsters now, because if there’s a UPS strike, there might be “unprecedented” volumes coming into the truckload market.
How does that impact capacity? The national Outbound Tender Reject Index (OTRI), a measurement of capacity, has lingered below 4% most of the year, reflecting a loose truckload market with plenty of capacity.
If there’s a UPS strike, OTRI will accelerate “across the board,” Fuller said. Tender rejections will rise and companies will be forced to “pay up” for capacity, he predicted. “The ballpark is going to be electric.”
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Jan Powell
As a former employee of USF Dugan, we were bought by Yellow Freight Lines and was immediately out of work due to closure of all the affiliates except USF Holland and USF Reddway. We were not grandfathered in and was left out in the cold. If you had years in at Dugan you were the loser! You had to go thru the hiring process and if you were hired you were treaded very badly. You landed at the bottom because we were not union. We were not like Roadway, that got to share the “Yellow” name. I do not have any sympathy for the whole mess that Yellow is in! As we were loading up the last trailers of office the assanine drivers would go by and and blow their horns and chant “we told you so”! That had been a sore spot for 16 years and it gives me great pleasure to see the ship going down!!!
George S.
And to reply to Jim May’s rather misinformed post, Consolidated Freightways did not “go non-union” nor did the union just allow it to happen.
What actually DID occur was upper management created a non-union regional subsidiary in the Con-Way group of companies and quietly diverted their best accounts to them over the course of years, until unionized Consolidated Freightways was bled quite literally dry. Then management shut the doors on Labor Day 2002, an obvious slap in the face to the working Teamsters who suddenly found themselves locked out of their place of business.
Even if the union had known totally what was going on, there would have been very little they could have done under federal labor to stop the diversion of freight. The union does not have a magical fairy wand to wave when greedy executives plot to destroy jobs for the sake of shareholder value. And let me be clear: NO union leader “got rich” off the shutdown of CF… many Teamster locals had to merge and consolidate after that closure and the net result to freight locals was disastrous.
But it is misinformation and innuendo like that peddled by Jim May that leads to many uneducated workers thinking that somehow unions wanted to undergo catastrophic downsizing in a sector they had once dominated and whose union-represented jobs become the envy of the middle class. Instead of gloating about the loss of union power in trucking, one should look at the facts: back before deregulation, a union truck driver could support an entire family on his income alone. He had excellent benefits and could look forward to retiring on a pension that would provide financial security in his retirement years.
Now in the non-union dominated industry, workers have to pay part of their medical premiums and fund at least part of their own retirements with 410(k)‘s that rarely deliver the retirement security they promised. If you look back at a time when the union had some real leverage in the sector, the workers benefited a lot more than they do now… and again, it’s all in the name of enhanced shareholder value.
But hey… that’s what’s REALLY important… RIGHT?
George S.
While Craig Fuller makes a SLIGHTLY more evenhanded approach in this opinion piece (he normally like to do his anti-union hatchet pieces under the guise of “news” articles he pens), he still likes to parrot the popular line that the union model is dead in LTL freight, because of “significantly higher labor costs and rigid work rules”. Yet he always seems to ignore what ABF Freight has accomplished in recent years, under the same work rules and significantly higher costs than Yellow… ABF has been quite profitable and is growing. And it just saw the ratification of a industry-topping labor agreement that can show non-union workers in freight just what union membership can buy them.
The difference between Yellow and ABF ultimately comes down to the quality of their respective management teams… and the proof is in the pudding, as they say.
Now, it’s obvious that a CEO-type like Craig Fuller had no love of labor unions and could care a less about the benefits an actual worker might enjoy under a union labor agreement… but those benefits are significant. Work rules set standards that both sides have to adhere to, like how long a dock worker can be forced to work a shift (10 hours at Yellow or ABF) or how many runs a road driver has to do before taking a couple of days off, beyond what is dictated by the HOS regulations. These rules provide some quality of life and some accountability from management… but we all know how the term “accountability” is anathema to management types like Mr. Fuller.
Fuller is correct about the many sacrifices made by Yellow Teamsters over the years. But he tries to blame the union in a backhanded way for at least some of Yellow’s troubles and the truth is, the union has gone WAY over the top over the years trying to keep Yellow afloat, to the point of hurting other union carriers and allowing Yellow to undercut rates on the market for well over a decade and a half, as they sacrificed yield for volume. That worked out well for them in the long run, eh? That decision was totally on Yellow management, as was every major business decision made all the way from the original acquisition of Roadway by Yellow, under Bill Zollers… undoubtedly one of the dumbest moves in trucking history. But it was far from the last dumb move made by a Zollers or his successors. A long, sad history of mismanagement that has culminated in the present crisis. And if the union has any fault here, it’s for allowing this situation to have dragged on and on for as long as it has.
Despite his characterization of Teamster president Sean O’Brien as a glory-seeking attention whore, O’Brien is showing himself to be a very effective negotiator and leader. The fact that he has drawn a line in the sand with Yellow is just another indicator of his intrinsic understanding of how badly the Yellow situation has hurt the reputation of the union in trucking. The non-unions point to Yellow, with their low wages and little to no pension as proof that the union is incapable of even matching non-union compensation packages, let alone leading the way as union carrier once did.
Yellow is the rotting gangrene at the heart of the LTL sector. Almost every union freight worker recognizes that. It takes a true leader like O’Brien to do what has to be done, cutting away the gangrene and leaving only healthy flesh behind. No one is happy about the thought of 22,000 Yellow workers losing their jobs but if Yellow is unwilling or unable to survive without unacceptable confession from a workforce weary of giving back, then they need to go away and let those workers find a new home. And maybe then, the union can point to the successes of ABF Freight and TForce and start building a foundation for a new future.
Because there IS a need for a union in freight… despite how the executives of the industry like Craig Fuller might try and convince us otherwise.
Mark
Yellow has been mismanaged for years and just keeps bleeding money , why would anyone want to bail them out or invest in them?
the company needs a Top Down restructuring , but it may be too late for that now.
Jason
As a former Reddaway/Yellow employee the failure of management (or lack there of) is squarely put on the company. Treating employees like human beings goes a very long way when asking for them to bail you out again and again.
In my 11 year tenure one thing was perfectly clear, management looked at their employees as the enemy while we gave up billions. If it were treated as a partnership things may have turned out differently but where is the incentive to the employee to give up more while being resented by the company?
Tom T
While the labor market is still strong, I worry the Teamsters are over-estimating how quickly these folks can find other employment. Most non-union carriers I talk to are very hesitant to bring in guys with a union background — especially after this latest episode.
Mike T
This article is fair for both sides. Sean O’Brien is a politician in the making. He’s already taking pictures in Hollywood, giving opponents on social media their own insulting nickname, and like any good politician, he has zeroed in on the heartbeat of angry voters. He takes the anger from past concessions or drivers who are mad that they now have to drive forklifts, and ironically focused it on the one CEO who is actually trying to modernize the company. He has convinced some of his members that the LTL Union glory days will return, even though he has publicly admitted he will let Yellow fail. The Yellow CEO even posted pictures today of O’Brien turning down $11/hr raises! Yellow is not blameless. They have their own share of dinosaurs. I only hope the hard working and earnest people who are actually trying to improve Yellow will find good jobs for their families if this falls apart. It’s obvious that the Teamsters have written them off as they look ahead to UPS, Hollywood and Amazon.
Jim May
They will not make it, let them go. The teamsters created a real problem years ago when they allowed CF Consolidated Freightways to go non union and did nothing. Eventually became XPO. The union put some 25,000 employes on the street then. O’Brien was not in power at the time. Many teamsters officials got rich. CF at the time was the largest ltl carrier in the country.