Is the US Treasury’s investment in YRC the first step back to Regulation?
Posted: July 21, 2020 |
In recent weeks the U.S. Treasury injected YRC Worldwide with $700 million for 30% equity stake in the company. Is this the first step in LTL reverting back to Regulation? There has been some conversation that the loan may be related to future regulations by the Interstate Commerce Commission or other government agencies. We view this as unlikely as we see several logical actions to initiate the loan listed below. Also, add that the current Trump administration has been more interested in reducing government regulations in the past.
The loan details reveal that The U.S. government entered the $46 billion less-than-truckload (LTL) industry by effectively purchasing 30% of financially troubled LTL giant YRC Worldwide in exchange for a badly needed $700 million cash infusion. The Treasury said the company qualified for the loan under a provision of the $2.2 trillion law Congress enacted in late March. This authorized $17 billion for companies deemed essential to national security.
The U.S. Treasury feels it is critical that YRC incorporate the recovery efforts necessary to ensure the company survives today and into the long term. Listed below are reasons to maintain YRC as a viable company.
- YRC is critical to maintaining national security.
- YRC is a “leading provider of critical military transportation and other hauling services for the U.S. government. YRC provides 68% of LTL services to the Department of Defense.
- This loan will enable critical vendor as YRC to maintain approximately 30,000 trucking jobs and continue to support essential military supply chain operations and the transport of industrial, commercial, and retail goods to more than 200,000 corporate customers across North America.
- 30,000 employees have continued to serve hundreds of quarantined communities across the country during the pandemic and this financial assistance will enable us to bridge this pandemic-related crisis and continue to provide essential shipping services for the nation's supply chain.
Background on Transportation Regulation
For many years, regulation played a large part of much of the transportation system in the United States as well as pipeline, railroads, airline and other industry were regulated. These regulations were implemented for many reasons. Abuse of monopoly powers as a reaction to John D. Rockefeller’s use of them as a tool for monopolizing the oil industry. Rate control, truckers charged rates that did not even cover their operating costs and tried to make up for this by avoiding maintenance on their trucks and tires and driving long hours.
In the post-World War II era, it became apparent that regulation was not working well. Those segments of the truck and inland waterways industry that had not been regulated grew in size and took considerable traffic away from the railroads. Most railroads in the Northeast were bankrupt. One of these was the Penn Central, and, in financial terms, this had been the nation’s largest bankruptcy to date.
How to Optimize in Deregulation
Deregulation has taken many turns for the good of the industry and also several that resulted in unintended consequences. The “Good,” deregulation has leveled the playing field between Shippers and Carriers. The unintended consequence is the unfair advantage carriers have over shippers. Without specific pricing expertise, the tables will be tilted in favor of the carriers. With expertise, Shippers and Carriers can enjoy a transparent and honest business relationship.
CPC provides the expertise that Shippers need to level the playing field. CPC’s solution includes a No-Cost/No obligation assessment. Every proposal is backed by an “All or Nothing” performance guarantee on savings.
Contact CPC immediately if your company is ready to save. Otherwise this new rule could wind up costing you significantly.