Yellow's Bankruptcy Casts Uncertainty Over the Future Landscape of the Freight Sector

Yellow, a major freight and trucking firm in the country, has declared its closure, resulting in one of the most significant recent mass layoffs and possible rises in shipping costs. The company is facing bankruptcy only three years after receiving a $700 million loan from taxpayers.

Yellow, the Largest "Less-than-Load" (LTL)

Yellow, previously known as YRC Freight, used to be one of the largest "less-than-load" (LTL) transport companies in the US. LTL companies handle smaller amounts of freight, falling between full-trailer truckloads and individual parcel shipping like what delivers your Amazon package. Yellow accounted for almost 9 percent of the LTL market, making it the third-largest LTL company in the country that provides various goods, including industrial, commercial, and retail items, across sectors like defense, aerospace, automotive, oil and gas, and healthcare. Other leading LTL shippers include FedEx Freight, XPO, and Old Dominion Freight Line.

Yellow Trucking Service Dynamics

Yellow, a trucking company with a 99-year history in Nashville, Tennessee, declared bankruptcy this week. This comes after it received a $700 million government loan through the pandemic-relief CARES Act a few years ago and amid intense contract talks with the Teamsters, the union representing most of Yellow's workers. The bankruptcy has sparked a debate about why the once-successful company faltered. Some blame government bailouts for postponing the inevitable decline of struggling companies, while others, including Yellow, attribute the situation to issues with organized labor.

Yellow's collapse raises concerns about its impact on 30,000 employees, taxpayers, and consumers, who have seen prices rise due to supply chain disruptions. Resolving its assets and handling pending freight deliveries will be time-consuming, causing delays. Some supply chain clients foresaw this and had already switched to pricier alternatives, potentially leading to further increases in consumer prices.

Yellow's Bankruptcy Filing

Yellow's bankruptcy filing might not surprise those monitoring the logistics industry over the past 15 years. The company faced challenges after expensive acquisitions in the early 2000s, exacerbated by the 2008 financial crisis, leading to a substantial net loss. Yellow narrowly avoided bankruptcy in subsequent years, with employees taking pay cuts.

Recent signs of strain, particularly during union negotiations, hinted at Yellow's vulnerability. With over 100,000 creditors, including Amazon, the company struggled with payments to the employee pension fund, reaching about $50 million. The threat of a strike prompted the union to grant additional time for price, but Yellow's delivery volume plummeted as customers left. Last week, the Teamsters were informed of the impending shutdown.

Public focus on Yellow's closure often revolves around the $700 million federal loan received in 2020, drawing scrutiny. A Congressional Oversight Commission report questioned its qualification for the CARES Act loan, stating that Yellow didn't meet the criteria as vital to US national security interests. The report highlighted that other freight trucking companies could have provided similar delivery services to military bases. Despite being in poor financial condition before the pandemic, Yellow received most funds designated for businesses crucial to national security. At the time of the bankruptcy, it had repaid only $230 of the loan's principal. The loan included a low-interest rate in exchange for a nearly 30 percent equity stake in the US Treasury. Yellow expresses its intention to repay the CARES Act loan in full.

Future of the Shipping Industry

While the closure of Yellow doesn't mean immediate shortages on store shelves for the average consumer, it signals that the challenges in the shipping industry will persist. The industry faces tough competition and substantial operational expenses, such as high fuel costs and wages for numerous human drivers. Trucking requires a significant workforce to maintain its constant operations, but a persistent shortage of drivers has been a long-standing issue. Yellow's shutdown suggests consumers might experience increased costs for buying and delivering items. This results from the ongoing struggle between freight companies seeking profits and workers advocating for fair compensation, which continues to unfold.