Yellow settles with Defense Department for $6.85M

Dive Brief:

Yellow will pay $6.85 million to the U.S. Department of Defense to settle claims made by the Justice Department in 2018 that the LTL carrier systematically overcharged the federal government for shipments that came in lighter and cheaper than what was paid for.
Yellow, then known as YRC, had a Pentagon contract from September 2005 to October 2013. The Yellow defendants were paid based in part upon a shipment’s weight.
Yellow admitted no liability in the claims, which the Justice Department alleged went on for seven years. Both the company and the Pentagon agreed to a mutual release of certain claims against each other.

Dive Insight:

Yellow has been working since the onset of the COVID-19 pandemic to put the worst parts of the past behind it.

The LTL for-hire carrier, one of the largest fleets in North America, was on the brink of insolvency in May 2020, when it declined to take questions from analysts after a presentation on its Q1 2020 performance. At the time, Yellow was known as YRC and it had about $833 million in debt.

Yellow made a large sum of revenue in 2019, at $4.9 billion. But Yellow lost $104 million that year. Its trucks were not helping. They were older models, their fuel efficiency was poor and they needed constant repair. Yellow needed newer, more fuel-efficient models, but it couldn't afford them.

And Yellow was being sued by the Pentagon.

But in crisis came opportunity. The pandemic led Congress to pass the CARES Act, a bill aimed at pandemic relief. It contained a $17 billion fund that allowed businesses to take loans. Yellow did substantial business with the Pentagon and the federal government, and Yellow had a powerful and influential ally in the Teamsters, which represented many of its drivers.

Under the relief act, Yellow qualified for a $700 million loan to help it keep afloat during the pandemic. The U.S. Treasury took a 30% stake in Yellow for the loan. The loan brought congressional scrutiny, with U.S. Rep. French Hill (R-Ark.) calling the loan a mistake in April 2021.

The troubles were not new. The company was still scarred by the Great Recession of 2007-2009. Analysts had long thought Yellow would go under and file for bankruptcy, possibly selling off parts to competitors such as FedEx Freight and Old Dominion. But the loan allowed it to live for another day.

Yellow changed its name back to its original nomenclature, recalling the days when its branded tractors and trailers could be seen on Midwestern highways and along the streets of Manhattan. It consolidated all of its subsidiaries, including New Penn and Holland, under one name, in a strategy known as "One Yellow." And it bought a new fleet of Class 8 tractors. The century-old company was back in business.

Settling the case sooner instead of dragging out the litigation was in Yellow's favor. The federal government, with its numerous military bases, warehouses and office centers, is a key sales prospect for LTL carriers, and not an entity carriers want to alienate.

The Justice Department said Yellow erred when shipments were reweighed. If the reweighing showed a shipment weighed less than the original number, Yellow hid the lower weigh results from the Pentagon, charging them the higher weigh prices. The Justice Department also alleged Yellow declined to report the discrepancies to the Defense Department. The charges were originally brought to light by a Yellow employee, who will receive $1.3 million under the federal whistleblower law.