Yellow’s situation has disrupted the LTL market. (Yellow Corp.)
Less-than-truckload carrier Yellow Corp. ceased operations on July 30 after nearly 100 years in business, causing an upheaval for both its customers and the broader LTL market.
News of the shutdown emerged organically, as word of layoffs and service cancellations began to swirl. The company issued no formal statements in the days that followed beyond an online notice to customers seeking updates on deliveries. Yellow as of Transport Topics’ Aug. 3 print deadline had made no announcements about its future.
The silence left industry watchers wondering what the next steps might be for a company that had been adding equipment and fine-tuning its operations as it fought to remain in business. Its reported $1.5 billion debt load includes $700 million owed to the federal government as part of a rescue package tied to its contracts hauling cargo for the Department of Defense.
The carrier also had been in negotiations with the International Brotherhood of Teamsters on benefits for about 22,000 union workers. The company also had 8,000 nonunion workers.
Chan
Now, all of that cargo and all of those workers are up for grabs.
“We’re going to see a migration that has just begun of Yellow’s existing market share to the rest of the industry,” Stifel research director for transportation Bruce Chan told Transport Topics. “We expect most of this to impact the LTL sector, because LTL is a smaller subset of the broader trucking and transportation industry. There should be a pretty sizable tailwind for the remaining players that are out there.”
Chan said shippers that utilize LTL carriers could see increases as high as 20% in shipping rates with the exit of Yellow, which was known as one of the sector’s lowest-cost carriers. The company owned about 10% of the LTL market, so capacity is going to tighten.
“The best proxies for that business are traditional LTL companies, which include ABF and also somebody like Roadrunner,” Chan said. “They’ve been going through some significant operational changes, and it presents a good opportunity for a trimmed down carrier.” He added, “Everyone should have an opportunity to add a fair amount of volume and density here.”
Yellow’s accumulation of debt was years in the making. In 2003 it bought Roadway Corp. for more than $1 billion and rebranded as YRC Worldwide. Two years later, it purchased USF Corp. for $1.37 billion. The economic downturn of 2008 almost bankrupted the company after it reported nearly $2 billion in losses for five consecutive quarters, but executives convinced bondholders to swap their debt for equity in the trucking firm in a move to avoid liquidation.
In 2019 it took a $700 million federal loan package tied to COVID-19 relief for businesses after being declared an essential company because of the Department of Defense cargo it moved. But the losses continued to mount, and Yellow struggled to get ahead of its debts. It has primarily made interest payments on the federal loan as of the end of March.
To avert a union strike in July the company committed to pay the Central States Pension Fund $50 million to cover its share of health insurance premiums for unionized workers.
Nightingale
Tom Nightingale, CEO of AFS Logistics, said Yellow’s closure was likely hastened by Federal Reserve interest rate hikes passed to slow inflation, along with declining freight volumes.
“Rates were going up, and adding to that was the decrease we saw in volume,” he said. “Just in one year, 2021 to 2022, there was a drop of 17% in freight levels, and there was another big drop-off in freight in just the last six months. It was just a vicious combination.”
In a move to help raise cash, Yellow on July 27 said it was shopping its Yellow Logistics unit to prospective buyers. That company is a nonunion, independent subsidiary that specializes in truckload, contract logistics, and warehousing and distribution services. It manages operations out of six warehouses.
“I’m assuming there is going to be some value for it,” said Michigan State University business professor Jason Miller.“I’m sure for the right price, someone will buy it. Everyone knows they’re financially struggling. They’re not in a good position being a seller.”
Miller noted that Yellow has other assets to sell, including real estate and hundreds of relatively new tractors and trailers purchased with funds from the federal loan.
He and others are also watching closely reported ongoing negotiations with Yellow leadership and Apollo Global Management Inc. to provide the carrier with a fresh infusion of cash called debtor-in-possession, or DIP, financing. Apollo is well-positioned to provide the financing because it owns most of one of Yellow’s term loans, the people said. Talks aren’t final and plans may change, they added.
Yellow and Apollo officials had no comment on the status of the negotiations and there’s no definitive word on when or if Yellow might declare bankruptcy.
Meantime, American Trucking Associations said it has created a website to assist former Yellow employees with finding new jobs in the trucking industry.
“Our message to former Yellow employees is that we want them to remain a part of the industry that they have done so much to build and strengthen. That is why the ATA is launching a new portal to connect former employees with prospective employers who are eager to utilize their unique and in-demand skills and experience,” ATA President Chris Spear said. ATA said providing this information is completely voluntary and it will be shared only with ATA members and not with third-party vendors.
Yellow Corp. ranks No. 13 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 3 on the LTL list.
