A major piece of news this week is that Yellow Corporation, the 90 year old fifth largest less-than-truckload (LTL) transport firm in the country has declared Chapter 11 bankruptcy. It and its subsidiaries have ceased operation. Wyatt Grantham-Philips reports at the Associated Press:
NEW YORK (AP) — Trucking company Yellow Corp. has declared bankruptcy after years of financial struggles and growing debt, marking a significant shift for the U.S. transportation industry and shippers nationwide.
The Chapter 11 bankruptcy, which was filed Sunday, comes just three years after Yellow received $700 million in pandemic-era loans from the federal government. While a Chapter 11 filing is used to restructure debt while operations continue, Yellow, like other trucking companies in recent years, will liquidate and the U.S. will join other creditors unlikely to recover funds extended to the company.
Yellow fell into severe financial stress after a long stretch of poor management and strategic decisions dating back decades.
For me the question is why? Obviously, it’s not because people aren’t shipping anything any more and I doubt it’s because of competition from, say, Amazon. Amazon is a customer of YTC’s. Clearly, the company was mismanaged but how?
Corporate management blames their problems on the Teamsters and there may be kernel of truth in that but I doubt it’s the whole story. As might be expected at Vox.com Whizy Kim remarks:
Labor has long been a major presence in the logistics industry — there are about 340,000 union UPS workers, for example — but unionized drivers and dock workers have become less common since the deregulation of the trucking industry in the 1980s. “There’s a lot more competition now,†says Patel — competition that often uses cheaper, non-union labor. Yellow, like many others in the sector, had failed to be “nimble,†Patel adds. “Time has caught up with this company, and the financials have caught up with this company.â€
I can’t help but notice that Yellow went on a sort of buying spree about 20 years ago and has been on shaky ground ever since. Did rising interest rates doom Yellow?
Read a piece on this a bit ago. Sounds like long term bad management. Recent interest rates may not have helped but sounds like it was going to go under regardless.
Steve
In the background, there has been a year long decline in exports from East and South Asia. Which suggests consumers are reducing buying. We are in a recession.
Yellow was a LTL (less than truckload carrier) which could indicate that carriers were dispatching loads more efficiently and using LTL less, but Yellow had been hanging on by their fingertips for years and I think that financing finally dried up.
Distressing for me to hear that the Teamsters were publicly talking strike even though they had two members on Yellow’s board and the financial situation was crystal clear to them.
Entirely possible that the Teamsters sacrificed Yellow, (knowing it lived on borrowed time) to buttress their position with negotiations in the UPS contract and with an eye on Amazon.
Go Teamsters!
Life’s tough, after five years the new UPS contract will pay drivers up to $175,000/year in wages and benefits!
If we’re ever going to save the middle class in America, this is the blueprint!
This:
is a very interesting observation. My understanding is that Yellow had about 9% of the $50 billion LTL market and that there’s about 9-10% slack in present capacity. Said another way Yellow’s demise is not a disaster (other than for its employees) but it’s likely to mean higher shipping costs. Since shipping costs are already at historic highs, things will get interesting.
Yellow overexpanded over the years, financed by debt, and followed a low price strategy without adjusting its cost structure to its revenue realities.
It survived on Teamster concessions (wages now in rough parity with non-union shops) and debt infusions.
Not a viable operating or financial strategy. I think GS could be entirely correct as Yellow has been irretrievable for years.