Three years after receiving a $700 million pandemic-era lifeline from the federal government, freight trucking company Yellow is filing for bankruptcy. The company shut down its operations last month and is seeking bankruptcy protection to wind down its business in an orderly manner.
According to Yellow’s CEO, Darren Hawkins, it is with deep disappointment that the company announces its closure after almost 100 years in business. Yellow has filed for Chapter 11 bankruptcy in Delaware federal court.
This bankruptcy filing will result in the loss of 30,000 jobs and could have a ripple effect on the nation’s supply chains. It also highlights the risks associated with government bailouts granted during times of economic panic.
Yellow, previously known as YRC Worldwide, received a $700 million loan in the summer of 2020 as part of the pandemic relief legislation passed by Congress. The loan was granted on the basis that Yellow’s business was critical to national security as it shipped supplies to military bases.
Since then, Yellow has undergone a restructuring plan, changing its name and consolidating its regional networks of trucking services. As of March, the company had outstanding debt of $1.5 billion, including $730 million owed to the federal government. Yellow has paid $66 million in interest on the loan but has only repaid $230 of the principal, which is due next year.
The fate of the loan is uncertain. With the government’s 30 percent equity stake in Yellow, they may assume or attempt to sell off a significant portion of the company’s fleet of trucks and terminals.
The bankruptcy was preceded by failed negotiations between Yellow’s management and the Teamsters union over wages and benefits. The labor fight, combined with rising interest rates and higher fuel costs, has put pressure on the industry known as “less than truckload” shipping.
Temporary disruptions and potential consolidation in the industry may result from Yellow’s bankruptcy. There could also be temporary price increases as businesses find new carriers for their freight.
Yellow’s financial troubles have raised concerns about the government’s decision to rescue the company. In 2019, Yellow lost over $100 million and was sued by the Justice Department for defrauding the federal government. The company settled the lawsuit by agreeing to pay $6.85 million.
Democratic lawmakers have criticized the Trump administration’s involvement with Yellow, noting that the company had close ties to administration officials and received objections from career officials at the Defense Department. Despite these concerns, the loan was defended by then-Treasury Secretary Steven T. Mnuchin, who argued that the company’s closure would have jeopardized jobs and disrupted the military’s supply chain.
Representative French Hill, a Republican from Arkansas, criticized the loan, stating that Yellow was not essential to national security and that years of poor financial management led to job losses.
Perspective: The bankruptcy filing of Yellow highlights the challenges faced by businesses that receive government bailouts during times of economic crisis. While such bailouts can provide temporary relief, they do not guarantee long-term stability. It is crucial for companies to effectively manage their finances and adapt to changing market conditions to avoid such situations. Additionally, careful consideration should be given to the criteria for awarding bailouts, ensuring that taxpayer funds are allocated wisely and to companies with a viable path to success.
