The financial collapse of Yellow, the third-largest less-than-truckload (LTL) carrier in the U.S., will incur some challenges in the transportation world that people might not have considered.
Before Yellow went out of business, UPS was experiencing ripples in its labor force, which was threatening to strike. Recent labor disputes have spurred activity within the shipping community. Shippers are reaching out to other carriers to avoid potential disruptions resulting from providers abruptly ceasing service.
Many in the industry see the collapse of Yellow as an excellent opportunity for smaller carriers to acquire new business. However, a lot of these smaller providers already operate at 90% capacity. When you add 100% of Yellow's freight to the marketplace, existing carriers can’t handle the additional volume without buying new trucks and hiring new drivers. Larger carriers may have more spare capacity to absorb this freight, however.
The situation has been a long time coming. When trucking was deregulated in 1984, the three largest LTL carriers and other unionized carriers faced greater competition from non-union providers. Consolidated Freightways went out of business in 2002, and Teamsters began accepting concessions to even out the cost advantages of non-union LTL carriers. Then, in 2004, Yellow acquired unionized rival Roadway, for which it paid $1 billion. The integration of overlapping networks proved difficult, and added to the company's problems.
In Yellow's most recent financial report, the company carried over $1.5 billion in long-term debt, half of which came from a pandemic-era bailout loan. Yellow used the money to purchase new tractors and catch up on delinquent benefits and payments to union members. Still, Yellow today has one of the oldest fleets in the industry.
Teamsters concessions helped out Yellow financially, but the company said it would be out of money again if the union didn't approve specific operational changes. The Teamsters refused, and on July 30, Yellow ceased operations.
What Can Carriers Do Now?
Bruce Chan, research director for transportation with Stifel, says the industry is just beginning to see a migration of Yellow customers to other carriers. "Shippers that utilize LTL carriers could see increases as high as 20% in shipping rates with the exit of Yellow, one of the sector's lowest-cost carriers,” he adds. “The company owned about 10% of the LTL market, so capacity will tighten."
Chan anticipates that Yellow's 10% market share will be redistributed to others in the industry. He believes that some existing LTL carriers with pricing closer to what Yellow offered its customers will gain business.
With the demise of Yellow, prices could rise “in the high single-digit range," Chan says. "I think it's very safe to assume that the industry pricing moves up. And certainly, the freight that was with Yellow that needs to find a new home will be repriced at higher levels."
What Can Shippers Do?
Shippers who relied on the low-cost LTL carrier are in for sticker shock. When they learned that Yellow was going under, many began reaching out to a mix of large and smaller carriers to secure pricing and capacity. A WSJ article reports that truckers in Yellow's markets “have seen from 2,000 to 3,000 added shipments each day in recent weeks, a welcome infusion in a U.S. freight market that has been turning downward this year.”
Shippers are considering additional ways to address the challenges caused by Yellow’s demise. One option is changing product packaging. Another is breaking pallets into individual products and shipping via parcel or smaller regional carriers. While this will get orders into the hands of end customers, it could cause an increase in transportation spend.
Shippers now have an opportunity to consolidate their LTL shipments into full truckloads. Freight-optimization software can help analyze the best way to do this. Consolidation of LTL into TL shipments lowers cost by reducing the number of carriers needed. Fewer shipments also result in lower fuel consumption and carbon emissions. By maximizing available carrier capacity, companies can reduce the number of empty or underutilized trucks on the road.
LTL carriers rely on terminals to move freight through their networks. Shipments come from a warehouse or distribution center to the terminal, then are shipped to the end user. Yellow had more than 300 terminals that are now closed and will eventually be up for sale. They are mostly near high population centers, making deliveries quicker and at a lower cost. Working with a third-party logistics (3PL) provider with a vast network of carriers can help shippers find the right LTL carrier with terminals in prime locations to keep costs and travel time down.
Yellow’s collapse will have a ripple effect over the supply chain for the next year or two, and maybe beyond. But with the economy looking strong, shipments are picking up, so shippers and carriers should have a solid year in 2023 and 2024.
Chris Schramm is director of sales and accounts at Nexterus.
Timely, incisive articles delivered directly to your inbox.