Less-than-truckload carrier Yellow Corp., which had been in operation for nearly a century, ceased its activities on July 30, causing significant disruptions to its customers and the wider LTL market.
News of the shutdown spread naturally as rumors of layoffs and service cancellations circulated. However, the company did not make any official statements beyond an online notice to customers seeking updates on their deliveries. As of August 3, there were no announcements from Yellow about its future plans.
The company’s silence left industry observers wondering about its next course of action. Yellow had been investing in equipment and refining its operations to stay afloat, but its considerable debt, totaling $1.5 billion, including $700 million owed to the federal government for its Department of Defense contracts, made the situation challenging.
It is now being reported that Yellow is considering selling its assets and real estate through a bankruptcy filing, which may happen as early as the upcoming weekend. Potential financial bidders have expressed interest in the company’s assets. However, the Chapter 11 bankruptcy process could potentially lead to liquidation in the future.
As of now, the situation is still developing, and no final decisions have been made. Requests for comments from Yellow have gone unanswered.
In addition to its financial struggles, Yellow had also been in negotiations with the International Brotherhood of Teamsters regarding benefits for its approximately 22,000 union workers, while also employing 8,000 nonunion workers.
Now, all of that cargo and all of those workers are up for grabs.
“We’re going to see a migration that has just begun of Yellow’s existing market share to the rest of the industry,” Stifel research director for transportation Bruce Chan told Transport Topics. “We expect most of this to impact the LTL sector, because LTL is a smaller subset of the broader trucking and transportation industry. There should be a pretty sizable tailwind for the remaining players that are out there.”
According to Chan, with Yellow Corp’s exit from the market, shippers who rely on LTL carriers may experience substantial shipping rate increases, potentially reaching as high as 20%. Yellow was known for being one of the lowest-cost carriers in the sector, and its absence is likely to create a significant impact. As the company owned around 10% of the LTL market, its departure will result in a tightening of capacity, making it more challenging for shippers to find affordable and available carriers for their freight.
“The best proxies for that business are traditional LTL companies, which include ABF and also somebody like Roadrunner,” Chan said. “They’ve been going through some significant operational changes, and it presents a good opportunity for a trimmed down carrier.” He added, “Everyone should have an opportunity to add a fair amount of volume and density here.”
Yellow’s financial troubles were a result of accumulating debt over several years. In 2003, the company acquired Roadway Corp. for over $1 billion and rebranded as YRC Worldwide. Two years later, it bought USF Corp. for $1.37 billion. The economic downturn in 2008 severely impacted Yellow, leading to nearly $2 billion in losses for five consecutive quarters. To avoid liquidation, the company persuaded bondholders to exchange their debt for equity in the trucking firm.
In 2019, Yellow secured a $700 million federal loan package as part of COVID-19 relief for essential businesses like itself, given its role in transporting Department of Defense cargo. However, the losses persisted, and the company struggled to manage its debts. By the end of March, it had mainly been making interest payments on the federal loan.
In an effort to prevent a union strike in July, Yellow agreed to pay $50 million to the Central States Pension Fund to cover health insurance premiums for its unionized workers.
According to Tom Nightingale, CEO of AFS Logistics, Yellow’s closure was likely expedited by Federal Reserve interest rate hikes aimed at controlling inflation, as well as a decline in freight volumes. These factors collectively contributed to the company’s financial woes and eventual closure.
“Rates were going up, and adding to that was the decrease we saw in volume,” he said. “Just in one year, 2021 to 2022, there was a drop of 17% in freight levels, and there was another big drop-off in freight in just the last six months. It was just a vicious combination.”
Yellow made a strategic decision on July 27 to seek potential buyers for its Yellow Logistics unit, aiming to generate funds. This particular company is an independent, nonunion subsidiary that focuses on providing various services, including truckload, contract logistics, and warehousing and distribution services. It operates six warehouses as part of its business operations.
“I’m assuming there is going to be some value for it,” said Michigan State University business professor Jason Miller.“I’m sure for the right price, someone will buy it. Everyone knows they’re financially struggling. They’re not in a good position being a seller.”
According to Miller, Yellow has additional assets that it can put up for sale, including real estate and a fleet of relatively new tractors and trailers, which were acquired using funds from the federal loan.
There are ongoing negotiations between Yellow’s leadership and Apollo Global Management Inc. regarding a potential cash infusion known as debtor-in-possession (DIP) financing. Apollo seems well-positioned to provide this financing as it already holds a significant portion of one of Yellow’s term loans. However, the talks are still ongoing, and plans may change, so nothing is confirmed yet.
Both Yellow and Apollo officials have refrained from commenting on the status of these negotiations, and there is no definite information about whether and when Yellow might declare bankruptcy.
Meanwhile, the American Trucking Associations has taken steps to support former Yellow employees by creating a website to help them find new job opportunities in the trucking industry.
“Our message to former Yellow employees is that we want them to remain a part of the industry that they have done so much to build and strengthen. That is why the ATA is launching a new portal to connect former employees with prospective employers who are eager to utilize their unique and in-demand skills and experience,” ATA President Chris Spear said. ATA said providing this information is completely voluntary and it will be shared only with ATA members and not with third-party vendors.
