The 2:00 Minute Warning

Following up on our “Yellow Closes Its Doors – What This Means For Shippers” note that we sent out on Monday, we have been deluged with questions about how this event will impact shippers in 2023 and 2024.

These questions underscore the fact that now, more than ever, shippers need a written LTL Strategic Plan to address the challenges they will likely be facing over the next 12 to 18 months in the wake of Yellow’s closure. Here are some key questions to consider in putting that LTL Strategic Plan together.

How will this event impact my company?

If you’re an LTL shipper, get ready for an onslaught of proposed increases in your rates from your LTL carriers. This isn’t a theoretical possibility, it’s a fact. However, there are things that you can do to actually lower your LTL costs and we would be happy to have that discussion with you.

As we have explained in numerous Two Minute Warnings over the past couple of months, as the third largest carrier in the LTL sector with over $5 Billion in revenue (which was approximately a 10% share of the market) Yellow’s closure means that capacity in the LTL market has gotten much tighter. And once we come out of the freight recession that we are currently in, LTL capacity may well be the dominant issue facing LTL shippers.

Those shippers who think that LTL carriers can just buy more equipment and add more drivers clearly don’t understand the LTL market. The LTL carriers need freight terminals to handle capacity. And with the closure of Yellow’s approximately 300 terminals, handling the additional freight from the Yellow network proves to be a bit of a challenge for the LTL carriers. And since there are, according to one senior LTL executive leader, fewer terminal doors available today than there were when Consolidated Freightways shut down in 2002, this situation will take time to get resolved. 

Will carrier service levels be affected?

Despite assurances from carriers that they can handle as much of the Yellow business as possible, shippers are reporting that they have seen an increase in service related issues. Eventually, things will settle down and the service levels should improve. Over the next 60 to 90 days, shippers shouldn’t be too surprised to find service issues from carriers who are struggling to onboard as much Yellow business as possible.

Will Yellow reorganize or liquidate?

Many are wondering if this will be a reorganization or a liquidation. Based on our knowledge of the industry and this situation, plus numerous conversations that we've had with analysts covering the situation, we believe Yellow will liquidate their assets. 

What happened with the $700 million government loan? 

Some shippers have wondered how Yellow used the loan proceeds they received from the government. In a recent article, I shared how Yellow used most of those funds for pension plans and equipment. Since Yellow had significant debt and capital expenses, even a $700 million loan could not make a major impact for their financial future.
 
How did acquisitions impact Yellow?

Finally, some people have wondered whether Yellow’s closure is a harbinger of future changes in the LTL industry. As I have highlighted in talks and interviews, the biggest issue for Yellow was a number of unsuccessful acquisitions. While they were one company, in our opinion, they had multiple cultures. Yellow and Roadway didn’t like each other before or after Yellow acquired them. As I noted in a talk about Yellow, "When Yellow bought Roadway, it was like having the Green Bay Packers and the Chicago Bears come together to form a football team."

It is important to note that there are several healthy carriers in the LTL sector. Having said that we would not be surprised to see further consolidation in the LTL market. Hopefully, the carriers have seen the impact of Yellow's actions and realized that if you don't have your culture synchronized, your strategy is worthless because you have disparate parties pursuing their own agendas.

What should I do now?

In closing we reiterate our belief that this situation underscores the need to have a LTL strategy to consult in times like these. If you’re in need of help developing this strategy or could use short term help finding new carriers, we encourage you to get in touch. Simply give us a call, send us an email, or let’s set up a time to talk in person with me by scheduling a time to meet via Calendly.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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