Teamsters union calls for Yellow to end purchased transportation

Union to restrict carrier’s usage of outside capacity

Photo: Jim Allen

Teamsters Union Tells Yellow Corp. to Stop Using Outside Transportation Capacity

The Teamsters union has informed less-than-truckload carrier Yellow Corp. that it is no longer permitted to utilize outside transportation capacity to move its freight. The co-chair of the Teamsters National Freight Industry Negotiating Committee and the Teamsters national freight director have given the company a 30-day notice that the use of purchased transportation by any Yellow operating company covered by the Yellow NMFA (National Master Freight Agreement) is no longer permitted.

Yellow's Proposed Change of Operations Rejected by the Union

This letter is in response to the Teamsters' rejection of Yellow's proposed change of operations, which would consolidate terminals at regional carriers New Penn and Holland with YRC Freight locations and redefine work rules for certain union members. In addition, the union canceled an upcoming meeting with Yellow to discuss the matter.

Purchased Transportation Expense Accounts for 14.3% of Yellow's Revenue

Yellow (NASDAQ: YELL) and other LTL carriers utilize purchased transportation to address network capacity shortages. Yellow's purchased transportation expenses accounted for 14.3% of its revenue last year, and this expense typically accounts for a mid-teen percentage of the carrier's annual revenue.

Yellow's Contract Stipulates the Use of Purchased Transportation Can't Be at the Expense of Union Employees

YRC Freight's labor agreement permits Yellow to use third-party capacity for up to 29% of total over-the-road miles, including intermodal rail miles. At regional carrier Holland, the threshold is 8%. The contract permits the use of purchased transportation to generate growth and additional employment opportunities for bargaining unit employees by enhancing YRC Freight's market competitiveness.

Yellow Claims Purchased Transportation Is a Necessity

Yellow asserts that many trucking companies, including Yellow, are dependent on purchased transportation. Utilizing PT enables them to transport additional loads to better serve their clients. In recent months, Yellow has focused on reducing its reliance on purchased over-the-road transportation due to a lack of demand.

Carriers are decreasing their reliance on third-party capacity as a result of the recent freight boom

Following the recent freight boom, carriers have decreased their exposure to third-party capacity, which is subject to market rates. When the market contracted, carriers were compelled to pay significantly higher rates for outside service and frequently found themselves at the mercy of other service providers, which negatively impacted service.

Purchased Transportation Usage Should Be Engineered to Minimize Its Use

The NMFA states that the use of purchased transportation should be optimized to the greatest extent possible in order to minimize its use and maximize the use of bargaining unit employees, as well as to permit bargaining unit employees to perform preferential runs and maximize earning potential. According to the NMFA, purchased transportation cannot be used outside of linehaul operations.

Yellow's Network Restructuring is Vital to Its Survival

Yellow maintains that the network reorganization is essential to its survival as it struggles to maintain profitability and seeks to reduce its debt load prior to next year's maturities. YRC Freight and Reddaway have recently completed a similar overhaul of the western portion of their networks.

The Allowance of Purchased Transportation Is Also Outlined in Other Union-LTL Carrier Labor Contracts

Other union-LTL carrier labor contracts, such as ArcBest's (NASDAQ: ARCB), which expires at the end of June, also stipulate the allowance of purchased transportation. Uncertain is whether the Teamsters will use this provision as a negotiating tactic in these negotiations.

Yellow's Shares Drop 11% Midday Monday

Monday at midday, shares of YELL were down 11% from Wednesday's closing price of $2.19, the last close before the Teamsters' rejection of the proposed changes.

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