Yellow’s Downfall Shakes Up Economy
BY PAUL PAGE
The collapse of one of America’s largest trucking companies is reverberating across the economy, from domestic shipping and real-estate markets to Wall Street.
Yellow was a $5.2 billion business as recently as last year when it moved around 50,000 shipments a day in a trucking network that made it a fundamental part of the supply chains of hundreds of U.S. companies.
The rapid wind-down of its business last month, capped by the shutdown of all operations and a bankruptcy filing in recent days, is leaving behind a trail of winners and losers as the 99-year-old trucker disappears from the highways. Here is a look at the impact of Yellow’s downfall: The most immediate winners are Yellow’s competitors in the less-than-truckload sector, known as LTL, a segment of the trucking industry that acts as a kind of circulatory system for the goods economy by having trucks carry cargo for multiple customers on the same trailer in fast-paced distribution networks.
Operators ranging from big carriers such as ABF Freight, Old Dominion Freight Line
and TForce Freight to smaller, regional operators have seen a surge in business since mid-July when Yellow’s tailspin accelerated and customers began abandoning the company. Experts say various 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.
ABF Freight, a unit of ArcBest and one of Yellow’s main rivals, saw daily shipments surge at a double-digit pace starting in mid-July, as shipping customers fled Yellow.
“That is a great opportunity for us,” said Judy McReynolds, Arcbest’s chief executive, on a July 28 earnings conference call.
Yellow’s departure provides more than just a boost in shipments for its competitors since the carrier was a low-price leader in trucking. Industry experts say they expect prices to rise with Yellow’s rates now off the table for many shipping customers.
“Those guys now being gone, that is going to help the industry overall,” Alain Bédard, chief executive of TForce Freight parent TFI International, said on an Aug. 1 earnings conference call Even trucking companies outside Yellow’s immediate market are likely to benefit as big retailers and manufacturers reset their supply chains and look for new shipping strategies to minimize costs.
Big truckload carriers such as Knight-Swift Transportation, Werner Enterprises and Schneider National—companies that haul the biggest loads for retailers and manufacturers from ports to distribution centers to stores—can expect more shipments.
“Clearly, if there were to be a disruption as a result of Yellow, I think that could be felt in all types of transportation including in the truckload world, as there is space there to absorb that,” said David Jackson, chief executive of Knight-Swift Transportation, the largest truckload carrier in the U.S. and owner of LTL business AAA Cooper, on a July 20 investor conference call.
Other big winners include investors in Yellow’s publicly traded competitors, including ABF Freight parent ArcBest, Old Dominion Freight Line, Saia, XPO and TFI International.
Shares in those companies have surged since the spring despite a downturn in freight demand and declining earnings. ArcBest shares are up about 34% since June 23 even though the company reported a 63% drop in operating profit in its trucking business in the second quarter from last year.
“Since mid-June when reports first surfaced about Yellow’s liquidity concerns, our pureplay LTL coverage universe is up 39% on average vs. just a 5% move in the S& P 500,” Citi analyst Christian Wetherbee wrote in an Aug. 2 investment report that suggested Yellow’s woes would likely help boost earnings this year at other carriers.
Those and other trucking companies may also pick up some of Yellow’s sprawling real-estate holdings, including the dozens of truck terminals the carrier has accumulated around the U.S. to move freight. Many of them are in prime locations near population centers and will hit the market when building new trucking facilities faces pushback in communities.
“Any opportunity to pick up properties along the way, we would have great interest in that,” said Jackson.
Lastly, Apollo Global Management is likely to be a winner even though the asset-management giant is one of Yellow’s biggest lenders and has hundreds of millions of dollars tied up with the business. Apollo was moving to provide debtor-in-possession financing for Yellow’s bankruptcy, which would put the business in position to recover its money through the sale of Yellow’s assets. Apollo already signaled its collateral rights over the trucker when Yellow sold a single freight terminal in Southern California for $80 million earlier this summer, as Yellow’s finances were eroding, and used the money to pay down the Apollo debt.
The clearest losers in Yellow’s demise are the company’s workers, who were laid off, dismissed and locked out of closed terminals and offices last month as the trucker wound down its business.
The loss of some 30,000 jobs is the largest at a single company since Boeing at the end of 2020 announced it would cut its workforce by around 30,000 jobs, according to Challenger, Gray & Christ-mas, an outplacement services firm.
Yellow’s shutdown puts a range of workers, from accounting and technology staffers to truck drivers, dispatchers and cargo handlers, looking for work in a softening labor market that has been particularly hard on transportation and warehouse workers.
Trucking companies, which added 180,000 jobs during the pandemic, have kept hiring flat this year as consumer spending has pivoted from goods to services and shipping demand has sagged.
“Good drivers will find jobs; there’s no doubt about that,” said Mike Regan, chief relationship officer at TranzAct Technologies, which advises retailers and manufactures on freight transport. “But there will certainly be some attrition.”
Other losers include Yellow’s customers, who are likely to see higher freight rates now that Yellow’s trucks and its low prices are off the market.
“One key change businesses should expect is higher delivery costs,” said Charles Haver-field, CEO of US Packaging and Wrapping. “This is particularly true if no relationships have been built with carriers to secure discounted prices or if switching to a smaller firm where customers can’t benefit from the same economies of scale as Yellow’s size and capacity.”
Regan said many carriers had pushed back signing shipping contracts with customers for the fall until Yellow’s outcome was clear. Now, he said, trucking companies are seeking “stunning” general rate increases.
Among Yellow’s customers is the federal government, which loses a major provider of transport services under contracts with the Defense Department and the General Services Administration, the government’s procurement arm. Yellow’s competitors have said they have the capacity to handle the shipments, but experts say few may be willing to haul the goods at Yellow’s prices.
The losers also may include American taxpayers.
The Treasury Department, as a condition of a $700 million Covid aid loan in 2020, took a 30% stake in the trucker.
Treasury’s equity could be wiped out. Yellow said it would pay back the loan, but some lawmakers and analysts have said taxpayers could lose money. Whether the federal government recovers the money it lent would likely depend on how much Yellow raises by selling real estate and other assets in bankruptcy.
The loss of some 30,000 jobs is the largest at a single company since Boeing in 2020.