A few weeks ago, the logistics industry was still sweating the possibility of a UPS Teamsters strike that would have temporarily sidelined more than 300,000 drivers, sorters, clerks and mechanics.
Today, approximately 30,000 industry professionals are sitting at home for a very different reason.
We’re talking, of course, about Yellow’s decision to close its operations and decision to declare bankruptcy.
First shared by the Teamsters Union, the news made headlines across the country. After all, it’s not every day that a 99-year-old industry constant goes out of business.
The question is, what happens now? Is this news – like FedEx’s recent decision to close 29 less-than-truckload (LTL) terminals – a casualty of declining LTL volumes? How much of an impact did the Teamsters’ threats to strike have on the carrier’s seemingly rapid demise? And what will it mean for LTL rates and capacity going forward?
We recently sat down with AFS’s President of LTL, Kevin Day, to learn more.
We have to be honest. If you’d told us a month ago that we’d be talking about the possibility of a strike dramatically impacting the fortunes of a large industry player, it wouldn’t have been this one.
Yellow’s closure was definitely not the reason we expected to see the supply chain industry making the national news during late July and early August. However, it wasn’t exactly a surprise to those of us who work in the LTL arena either. In fact, the warning signs had been there for more than a decade.
Yellow had made a string of poorly advised mergers and acquisitions, including some companies that it famously overpaid for or that had almost identical rather than complementary networks. Plus, it didn’t have a solid plan for efficiently integrating these new operations into its existing network.
Although the company was optimistic that its “One Yellow” initiative, which was aimed at streamlining and restructuring the company, would right its precarious financial position, parts of that initiative had encountered significant pushback from the Teamsters Union, which represents 22,0000 of Yellow’s 30,000 employees.
The company had also been the recipient of a considerable pandemic-related U.S. loan – $700 million-plus – that was due to be repaid in September 2024. And that loan only represented about half of its total debt.
Fast forward to last month. Walk us through what happened.
Clearly, Yellow had been having some well-publicized financial struggles for a while (it reported a loss of $54.6 million for the first quarter of 2023 alone). As a result, the company wanted to defer making $50 million worth of payments into its employees’ pension and health insurance plans.
On July 15, it missed the first of those payments.
This didn’t sit well with the Teamsters Union, which threatened to strike almost immediately. The Teamsters eventually backed off of those threats, negotiating a 30-day reprieve for Yellow to make both payments. But by that time the final damage was done. Because they were concerned about the possibility of a strike, most of Yellow’s customers who hadn’t already started moving their Yellow freight to other carriers earlier in the year, began shifting their freight elsewhere.
It’s extremely tempting to continue looking in the rear-view mirror to break down what happened.
And to engage in some serious Monday morning quarterbacking . . .
But that’s not necessarily helpful for our readers. Instead, let’s focus on the road ahead. What kind of void does Yellow’s departure leave?
If you look at it in terms of sheer numbers, this is the largest trucking company bankruptcy in U.S. history.
Yellow was the country’s third-largest LTL and the thirteenth largest overall trucking company on Transport Topics’ Top 100 list. It operated 300+ terminals with 19,100 truck doors, and at its peak, handled as much as 49,000 shipments per day.
And depending on whose numbers you choose to believe, it had anywhere from a 7% to a 15% share of the marketplace.
As for its impact on employees, the American Trucking Association put it best when it said that, “Yellow’s closure is a substantial blow . . . to the 30,000 hardworking employees and their families in all 50 states.” You never like to see that many people lose their jobs, and you hate it for them and their families.
What does this mean from an LTL service perspective? Will this create capacity shortages?
Thankfully, no. Unlike a few years ago, when every mode was experiencing a record surge in demand, there’s now a surplus rather than a shortage of capacity. As a result, the industry’s surviving LTL players should have no problem absorbing Yellow’s former freight – as many of them already demonstrated when most of Yellow’s customers transferred their business several weeks ago.
But it definitely has the potential to impact pricing.
We’re assuming you mean that LTL rates could increase rather than decrease?
We’ve already seen evidence of that in the short term. Even before Yellow declared bankruptcy, many LTLs had proposed rates with the anticipation of there being less capacity, and right now it’s evident that blanket pricing has gone up.
As for what happens in the long term, let’s just say that it’s not unusual for carriers to look for an event like this as a reason to raise rates – and that they probably won’t hesitate to make hay and try to use the fact that there’s one less major player to their financial advantage.
Meanwhile Yellow customers will undoubtedly have to increase their freight budgets, because the company famously charged some of the LTL industry’s lowest rates. And even though there are still some lower-priced options available, that pool is considerably smaller now that Yellow is no longer there.
What’s the takeaway for LTL shippers?
Although LTL volumes have recently declined – and the industry is down one major player – don’t assume that this means that there are bumpy times ahead for your shipments. Overall, the LTL sector remains healthy, and so does your supply of available shipping locations and options.
Try not to lose any sleep over the possibility that there might be another Teamsters strike coming to another LTL carrier near you, because even though recent headlines about Yellow and UPS might make it seem like most of the logistics industry is unionized, such is not the case when it comes to the national LTLs.
Above all, don’t let carriers convince you that the sky is falling. While the pricing environment is likely going to be choppy in the short term – and there may be a period where some LTLs could use this as an opportunity to trade up in terms of the clients they choose to work with and the rates they command – that doesn’t mean that a long-term meteoric rise in rates is inevitable.
Feel free to reach out to us if you’d like to discuss how this and other recent developments could impact your performance and spend. And don’t hesitate to contact us if you have questions.