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Check Call: Yellow and UPS falter; what comes next?
Welcome to Check Call, our corner of the internet for all things 3PL, freight broker and supply chain. Check Call the podcast comes out every Tuesday at 12:30 p.m. EDT. Catch up on previous episodes here. If this was forwarded to you, sign up for Check Call the newsletter here.
In this edition: What happens if Yellow and UPS stop delivering? And acquisition is Redwood’s game.
Yellow teeters at the brink of bankruptcy and UPS workers are about two weeks away from striking. We might be headed for a new supply chain crisis. Maybe it won’t be that dramatic, but it’s not going to be good. The effects will be felt for months and stand to mess up peak retail season.
Let’s look at Yellow first.
The big issue: Cash is more than a little tight. Yellow has failed to make the required pension contributions for June and isn’t planning on paying them for July — about $50 million — and the Teamsters union said it will strike Monday if pension contributions aren’t made, according to FreightWaves reports. The pension fund covers health care coverage for workers, who stand to lose that coverage on Sunday.
Yellow did get a waiver of covenants with a group of lenders that requires it to have in excess of $35 million cash on hand, which is great because it currently has $110 million on hand. That could help buy Yellow some time to come to an agreement with the Teamsters on labor issues and health care coverage.
While yellow has avoided bankruptcy for now, the question remains: What comes next?
Well, if a customer has contract-specific pricing with Yellow, it might be time to take that freight out to bid to see what other options are available. Backup plans need to be in place. The good news is that there is time to plan, unlike when New England Motor Freight filed for bankruptcy in the middle of the day, crippling supply chains in the Northeast. If Yellow does not pay the Teamsters’ health care or come to an agreement on the future of the company, not much freight is going to get delivered.
The time has come to seek new alternatives and shore up those backup plans. Any shipper that is dead set on Yellow as its only option needs to know the entire network could come to a screeching halt next week. Freight will be left at terminals and there’s no telling how long it will take to get it back or if it can even be reclaimed.
On to UPS.
This one is a little messier. Unlike the LTL sector, parcel doesn’t have a lot of other carriers that can pick up the volume that UPS handles. According to Reuters, should UPS drivers go on strike for 10 days, it could cost the economy $7 billion. It’s more than just e-commerce and Amazon packages. This will delay prescription drugs and other lifesaving goods and devices. NPR said UPS has 37% of the parcel delivery market by revenue, beating out FedEx. The Teamsters union already overwhelmingly voted to strike Aug. 1 if a deal is not reached. No carrier can absorb all UPS’ volume. It would be a struggle for everyone, including regional carriers, to pick up the pieces.
Negotiations have come to a halt. The union is asking for more full-time jobs, better working conditions for part-time drivers and better workplace health and safety conditions. NPR said that 55% of UPS drivers are classified as part time.
Teamsters General President Sean O’Brien has said, “These part-timers are working at poverty wages. They need to drive the starting wage rate up, reward the people that have been there a long time, and provide full-time opportunities for these folks.”
On a sidenote, the UPS walkout of 340,000 people would be the largest strike against a single employer in U.S. history.
In the calm before the storm, have a contingency plan. Start talking with FedEx, the Postal Service, regional carriers, expedited carriers, anyone that can move small parcels. It would be expensive for a while, but at least goods would stay moving to the people who need them.
TRAC Tuesday. This week’s TRAC lane is Nashville, Tennessee, to Jacksonville, Florida. Capacity is tightening in Nashville as the Outbound Tender Rejection Index has increased to 2.89% while outbound tender volumes have remained steady. On the flip side, Jacksonville’s outbound tender rejections have fallen 568 basis points week over week. This dramatic decrease of rejections in Jacksonville is the main culprit for the decline of spot rates. Although Nashville has tightening capacity, Jacksonville’s effect on the spot rates is stronger.
Who’s with whom? Redwood Logistics made a big acquisition move in the way of Rockfarm Supply Chain Solutions. Rockfarm has a strong Midwest presence, while Redwood is stronger in other markets. Rockfarm also brings international freight forwarding, trade compliance and customer brokerage capabilities, which helps with Redwood’s cross-border services with Mexico.
According to FreightWaves’ Mark Solomon’s article, Mark A. Yeager, Redwood’s CEO said, “Rockfarm will initially operate as a separate entity but eventually will be brought under the Redwood umbrella. Rockfarm’s ownership, key leadership, management teams will operate as Redwood employees. Rockfarm’s Dubuque operations center will continue as a Redwood logistics center.”
Double broker red flags
Got any favorite tips on avoiding the double broker? Let me know. I’d love to share them with everyone.
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Editor: Mary O'Connell