The Teamsters union has notified less-than-truckload carrier Yellow Corp. that it can no longer use outside transportation capacity to move its freight, according to a document obtained by FreightWaves.
Friday’s letter from John Murphy, Teamsters National Freight Industry Negotiating Committee co-chair and Teamsters national freight director, to Bryan Reifsnyder, Yellow’s head of trucker relations, said required 30-day notice was being given “that the use of purchased transportation is no longer permitted by any of the Yellow operating companies covered by the Yellow NMFA [National Master Freight Agreement].”
The letter follows the Teamsters’ Thursday 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 some union members. The same day the union also said it had canceled an upcoming meeting with Yellow regarding the matter.
Yellow (NASDAQ: YELL) and other LTL carriers use purchased transportation to solve for capacity shortfalls within their networks. The process is typically deployed in linehaul operations and involves the use of outside truckload fleets or intermodal rail service to move shipments longer distances.
Purchased transportation expense accounted for 14.3% of Yellow’s revenue last year. The expense line normally represents a mid-teen percentage of annual revenue for the carrier.
The labor contract says Yellow is allowed to use third-party capacity for up to 29% of total over-the-road miles, inclusive of intermodal rail miles, at YRC Freight. The threshold at regional carrier Holland is 8%.
The use of purchased transportation is permitted in the contract to “generate growth and additional job opportunities for bargaining unit personnel by enhancing YRC Freight’s ability to compete in the marketplace.”
There are no metrics provided by Yellow that show the actual miles purchased transportation represents. The carrier said it had “an internal focus of retaining the optimal freight mix relative to human capital availability throughout 2022” in its annual filing.
“Purchased transportation is a necessity at many trucking companies, including Yellow,” a spokesperson from Yellow told FreightWaves. “The use of PT allows us to move additional loads to better serve our customers, however, Yellow has been focused on reducing over-the-road purchased transportation due to slack demand over the last several months.”
Across the industry, carriers have been lowering exposure to third-party capacity, which is subject to market rates, following the recent freight boom. When the market tightened, carriers were forced to pay significantly higher rates for outside service and often found themselves at the mercy of other providers, which impacted service.
Yellow’s contract stipulates the use of purchased transportation can’t be at the expense of union employees and that it is not to be used in locations where road drivers have been “laid off for economic reasons.” It does clarify the term “layoff” to exclude drivers who have declined a transfer tied to a change of operations.
“Purchased transportation usage should be engineered to the fullest extent possible to minimize its use and to maximize the use of bargaining unit employees and to allow bargaining unit employees to perform preferential runs and maximize earning opportunity,” the NMFA states.
Purchased transportation is not to be used outside of linehaul operations, according to the NMFA. The exclusions include pickup and delivery, local cartage, drayage and shuttle operations.
The contract also has provisions for resolutions of disputes, which are referred to regional and national grievance committees.
Yellow maintains the network restructuring is vital to its survival as it struggles to maintain profitability and looks to minimize its debt burden ahead of maturities next year. A similar overhaul in the Western portion of the network at YRC Freight and Reddaway was recently completed.
“We have been working in good faith with the IBT to come to an agreement on proposed changes that would modernize Yellow and better enable us to compete in a marketplace that is populated by non-union carriers,” Yellow’s statement said. “We are disappointed that IBT leadership is unwilling to engage in mutual conversation about the future of our 22,000 union employees. We believe that respectful, constructive dialogue is always important.”
The allowance of purchased transportation is also outlined in other union-LTL carrier labor contracts, including ArcBest’s (NASDAQ: ARCB), which expires at the end of June. Whether the Teamsters will use the provision as a bargaining tactic in those negotiations remains to be seen.
Shares of YELL were off 11% midday Monday when compared to the Wednesday closing price of $2.19, the last close ahead of the announcement that Teamster’s had rejected the changes.
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