Stifel Analyst Offers Insight into Market Impact of Yellow’s Exit

With longtime trucking giant Yellow shutting down and reported to be planning to file for bankruptcy, what is the related impact on the trucking industry, in particular LTL?

HDT spoke with Bruce Chan, director and senior analyst at Stifel, who predicts the bankruptcy will be filed as a liquidation rather than as a restructuring. Basically, analysts see this as Yellow’s exit from trucking following a long path of financial challenges and struggles.

“We certainly lament the loss of 30,000 jobs, it's very difficult for a lot of these folks who are losing their livelihood," Chan said. “But the Yellow demise has really been in the cards for the better part of 20 years. They've gone through quite a few struggles, and each time they survived I think it's been more of a surprise than anything else.”

Yellow's Relationship with the Teamsters Union

Chan points to recent disagreements between the Teamsters Union and Yellow, noting the union has made concessions to the company on several occasions. However, he also said he can also understand the position of the Teamsters.

In recent media releases, the Teamsters president blamed Yellow for the demise. But Yellow blamed the union for making things financially tough on the company.

“I think in some situations, they've been quite bombastic and quite aggressive in their language and messaging, but I understand the viewpoint," Chan said of the Teamsters. "At a certain point, you can't accept any more cuts, and you've got to hold the line. And I think that's what they did here."

How Yellow's Exit Will Affect LTL Market

Yellow was the number three player in terms of market share. With the LTL giant departing, how will the remaining players adjust?

Chan said he anticipates that the 10% share of the market that Yellow served will be redistributed to others in the industry, noting that the LTL sector is highly consolidated and has high barriers to entry.

Some existing LTL companies, he said, overlap better with the Yellow network. Some have pricing that is also closer to what Yellow had offered to customers. Those logically will gain business.

“We've kind of assumed that everybody gains a little bit on a sort of ratable basis. So, if you have 10% market share, you probably gain 10% of what Yellow gives up, roughly,” he explained.

Will Yellow Shutting Down Affect LTL Pricing?

Another consideration with Yellow's departure is what will happen in the pricing environment.

“On a constrained base of capacity, with volumes coming out of one of the lowest-price players in the industry, I think you're going to see some uplift in industry pricing. And we've sort of assumed that over the next year or so, that's the sort of high single-digit range,” Chan said.

There also has been talk among some carriers of a second GRI (general rate increase) or maybe an earlier GRI that will be at a higher level.

“I think it's very safe to assume that the industry pricing as a whole moves up. And certainly, the freight that was with Yellow that needs to find a new home is going to be repriced at higher levels,” Chan added.

Timing and Capacity

With many analysts seeing the freight market rates at or near bottom, how does Yellow’s ceasing operations come into play?

If Yellow had left the market space in 2021 or even early in 2022, there may not have been enough capacity to absorb the company's exit. However, with the trucking industry near the trough in the freight cycle, he estimates there's currently about 15 to 20% spare capacity in the LTL market, thereby easing the adjustment to the loss of a major LTL carrier.

“If this was an inevitability, if you had to pick a time, it would be this time and that's probably universally true for everybody except for stakeholders in Yellow," he said. "From the competing carrier standpoint, they have room to take it. And this certainly helps what otherwise has been a pretty challenging freight trough for both volume density and pricing perspective.”

From the perspective of former Yellow customers, the timing of this potentially is better than if it happened later. As Chan points out, if the market had started to peak, then their increase would have been more drastic than facing the increase now while the market rates are near bottom.

He predicts the shipping disruption of Yellow’s exit to be minimal.

Yellow Liquidation Expected

Chan anticipates the Yellow bankruptcy filing will be a liquidation rather than a restructuring. There aren't many likely buyers within LTL because network integrations are very complicated, he explained.

“Part of the reason why Yellow is in this debacle to begin with is because of, I think, what was an ill-conceived acquisition or merger between Yellow and Roadway back in the early 2000s,” he said. “These are very complicated and very dangerous undertakings to engage in an overlapping network integration. I don't think there are very many players in the industry right now that have an appetite for that.”

Chan said he sees very little interest from the players in adjacent industries in buying Yellow. For truckload carriers or even shippers, there could be concerns over possible union influence.

“There is a potential that the union influence may spread to other parts of their organization, assuming that they're non-union," Chan explained. "And then, if you think about players that could be acquirers that don't really have a risk of unionization, even still, why buy something that at this point has already shut down operations and has so much operational baggage, when maybe you can be patient and wait a little while and buy a higher-quality asset?"

His third point of why he sees liquidation for Yellow is the current industrial real estate market. Yellow's rolling stock will be sold but will be largely discounted. However, industrial real estate is in hot demand, but mainly in specific markets.

"You've got 166 [Yellow] owned facilities, and not all of those are very sought after," Chan said. "Certainly, you have a few. The market for cross docks right now is very tight. There are a lot of LTL companies looking to expand and grow their capacity, but only in certain core markets."

Of the rolling stock, Chan said he expects there will be more demand for trailer equipment than tractors, explaining that the trailer market has been tighter than the tractor market.

He also mentioned that Yellow had one of the older fleets in the LTL market, with some tractors now reaching double digits in age. Some newer tractors, purchased when Yellow landed CARES Act funding, could still be sought after by other LTL or trucking companies.