Yellow’s bankruptcy creates a $5 billion loss in the trucking industry, endangering 30,000 jobs.

Yellow's bankruptcy creates a $5 billion loss in the trucking industry, endangering 30,000 jobs.

Yellow Corp. Ceases Operations: A Positive Boost for the Remaining Players in the Freight Market

The recent news of Yellow Corp., a major player in the freight industry, ceasing operations and planning to file for bankruptcy has undoubtedly sent shockwaves throughout the market. Yellow Corp., which accounted for about 15% of major companies’ less-than-truckload shipments, has faced long-standing financial struggles that have finally caught up with them. However, while this development may indicate a decline in the US freight market, there are positive implications for the companies still open for business.

Yellow Corp.’s collapse comes at a time when the freight industry is already grappling with shifting consumer habits, declining e-commerce shipments, and a drop in industrial production. However, industry analysts emphasize that Yellow’s woes are primarily a result of preexisting issues rather than broader industry dynamics.

The Nashville-based company, comprised of various short-haul trucking firms acquired in recent decades, has been burdened by substantial debt amounting to over $1 billion, due in 2024. Yellow Corp.’s financial troubles led the US Department of Treasury to provide a $700 million loan in 2020 to bail out the company during the pandemic. Furthermore, ongoing tensions with its union, as the Teamsters threatened to strike over a missed employee benefits payment, have exacerbated its situation.

Yellow Corp.’s bankruptcy plans were communicated to union officials after the company ceased operations, placing the employment of its 30,000 workers, including 22,000 union members, in jeopardy. The company has not yet commented on its decision.

Despite the setback, the stock market reacted unexpectedly to Yellow Corp.’s announcement, with its shares nearly doubling in value at 2:50 p.m. on Monday. However, the company’s market value remains modest at approximately $72 million, compared to its $5.2 billion revenue in 2022.

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The unique aspect of Yellow Corp.’s business model lies in its specialization in less-than-truckload service, which involves consolidating several smaller shipments into one truck for short-haul deliveries. This sets it apart from long-haul trucking and the parcel industry, which handle individual packages. As a result, the void left by Yellow Corp.’s exit from the market is expected to benefit other players in the less-than-truckload (LTL) sector.

Analysts predict that the reduction in capacity due to Yellow Corp.’s closure may allow carriers to increase prices, potentially boosting the volume and pricing for companies such as Saia Inc. and Thomas Wadewitz. Additionally, transportation and logistics analyst Lee Klaskow points to Old Dominion and XPO Inc. as potential beneficiaries if they can capture some of Yellow’s prior shipments.

Importantly, the impact of Yellow Corp.’s shutdown would have been much more significant two years ago when trucking capacity was tight. However, the current state of the market reveals several strong companies capable of meeting the needs of shippers. Melanie Burnham, Chief Financial Officer of competitor Hercules, with a fleet of 300 trucks and 30 facilities, highlights how the resilient market can accommodate any disruption caused by the company’s closure.

Furthermore, Yellow Corp.’s real estate assets, including approximately 300 cargo terminals, could attract buyers even in the face of bankruptcy. Morprop Advisors, a transportation real estate consultancy, explains that the truck terminal market has significantly expanded in recent years. These potential buyers, while less prevalent in 2023 than in 2022, may find it hard to resist participating in a bankruptcy auction of this magnitude.

In conclusion, while the collapse of Yellow Corp. is undoubtedly an upheaval in the freight market, it presents opportunities for other companies to fill the void and thrive. By reducing excess capacity, these companies may have the chance to raise prices, leading to potential financial benefits. Moreover, the resilience of the market and the availability of alternative players ensures that the needs of shippers will continue to be met, mitigating any disruption caused by Yellow Corp.’s closure.