News / The capacity and rates fallout at the end of Yellow's LTL road

After 99 years, Yellow Corp is no longer a going concern.

On 7 August, management filed for bankruptcy, but the company had closed its gates on 30 July and stopped picking up freight about two weeks ago. Now people are wondering about the fallout.

Yellow’s collapse, reportedly the largest bankruptcy in US trucking, put 30,000 employees out of work. The company had struggled for years, but the final act saw a dramatic increase in speed: customers were leaving the ailing firm in droves, especially when the Teamsters union threatened a strike after Yellow failed to make pension and benefit payments for June.

The carrier’s demise takes a chunk of capacity out of the market. Yellow was the third-largest LTL carrier in the US, with a market share of 8.6%, in terms of revenue, and about 6.8% in the number of average daily shipments.

It also brings about a significant reduction of the overcapacity that has kept pricing down so far. The slowdown in the market has generated about 8-10% overcapacity by some estimates.

Satish Jindel, president of SJ Consulting, is certain that the remaining LTL carriers will raise their prices. He added: “If I had 10%, 12% excess capacity and I use five, six or 7% on ex-Yellow customers, I’m going to put in extra pricing. Everyone will feel it.”

XPO CEO Mario Harik said recently the tightening of capacity was expected to produce “an overall yield and price acceleration”, with incoming CFO Kyle Wismans adding: “Our customers understand. When you take 10% of capacity out of the market, it’s going to cost more to move freight.”

XPO saw a 9% rise in shipments in July and management indicated it may ramp up its terminal and equipment additions to accommodate increased demand.

And Mr Jindel does not see a huge problem for cargo owners in rate increases. He said shippers should be able to absorb higher trucking costs, noting that trucking rates in the US were cheap compared with other countries.

“Shippers have increased their prices,” he added. “Moreover, 30% of the trucks on the highways are under-utilised. They carry air. Improve their utilisation, and you’ll save a lot of cost.”

He said some Yellow customers that diverted some of traffic to another carrier may now be signing up for larger volume on a contract basis, which should reduce their rate.

Meanwhile, a skeleton crew remains in place at Yellow to wind down the company. According to its bankruptcy filing, it has assets of $2.15bn and liabilities of $2.59bn. The assets include 300 facilities, including 166 terminals owned by Yellow, more than 12,500 trucks and about 42,000 trailers.

The terminals should fetch the best prices, although the company sold many facilities in high-price locations and leased them back during its prolonged struggle for survival. The fleet includes new vehicles bought with the $300m Covid relief loan the company received from Washington, thanks to its work for the US military.

Mr Jindel does not expect the sale of Yellow’s assets to be completed within a few weeks. He reckons it may take as long as a year, as the administrator will strive to obtain high prices to cover Yellow’s debt.