Yellow, one of the largest trucking companies in the United States, is now in bankruptcy, three years after it got a $700 million federal loan meant to help it weather the pandemic’s upheaval. So why are rivals of the 99-year-old freight hauler doing just fine?
Yellow, which filed for bankruptcy protection on Sunday, had for years been an industry laggard. Analysts say that most trucking companies are strong enough to keep operating — even after a steep fall in business following the pandemic boom in purchases of goods — and that freight is unlikely to be much disrupted by Yellow’s demise.
Investors are even betting on the industry’s future, sending many trucking stocks sharply higher in recent weeks. “I don’t look at Yellow’s failure as much of a canary in the coal mine for the broader market,” said Avery Vise, vice president of trucking at FTR, a forecasting firm that focuses on the freight industry.
The trucking industry has a variety of tiers. FedEx and UPS handle mostly retail packages. Walmart, Amazon and Target have big private fleets. For-hire truckload companies, hauling goods from a single shipper over long distances, include big enterprises and others with only one to five trucks, a segment that mushroomed in response to demand early in the pandemic.
Yellow, which had 30,000 employees and nearly 12,000 trucks, fell into another group — the less-than-truckload sector, in which truckers fill containers with goods from more than one shipper and operate a hub-and-spoke system that moves goods in and out of terminals. The less-than-truckload business has emerged from the pandemic’s supply-chain chaos in better shape than the much larger truckload segment.
In the five years through 2022, a period in which trucking boomed, Yellow racked up over $200 million in losses, while Old Dominion Freight Line, also a less-than-truckload company with revenues similar to Yellow’s, reported over $4 billion in profit over the same period.
Some analysts said that Yellow’s elevated costs were partly a result of the wage demands of its unionized work force. And Darren Hawkins, the company’s chief executive, blamed the International Brotherhood of Teamsters, the main union at Yellow, for obstructing management’s efforts to make the company more competitive.
“A company has the right to manage its own operations,” he said in a news release, “but as we have experienced, I.B.T. leadership was able to halt our business plan, literally driving our company out of business, despite every effort to work with them.”
The Teamsters said Monday that the company’s employees had made financial sacrifices to try to save Yellow from its troubles. “They shamelessly pin their corporate incompetence on working people,” Sean O’Brien, the Teamsters’ general president, said in a news release.
Some analysts also point the finger at Yellow’s senior executives.
Satish Jindel, president of SJ Consulting Group, which advises transport and logistical companies, said that Yellow’s efforts to absorb big acquisitions over the last two decades had largely backfired and that the company took in less revenue per shipment than its rivals. Mr. Jindel said one cause was Yellow’s apparent inability to determine when to charge more.
He noted that ArcBest, a less-than-truckload company that is also unionized, had remained an important hauler in recent years partly because it had higher-paying customers. ArcBest, he said, took in $529 per shipment in the first quarter, versus $339 at Yellow. Mr. Jindel said Yellow was a laggard “largely because of mismanagement.”
Yellow did not respond on Monday to a request to speak about its management record.
One company hoping to pick up business from Yellow is Saia, a less-than-truckload company near Atlanta. The company’s stock has more than doubled this year, and is up 25 percent just since the end of June. The S&P 500 stock index, by comparison, is up nearly 18 percent this year.
“We did well through the pandemic disruption, and this may be another opportunity for us to move through a disrupted market and continue to gain share and grow the profitability of the company,” Frederick Holzgrefe, chief executive of Saia, said in an interview, referring to Yellow’s collapse.
The trucking industry plays a critical role in the U.S. economy, transporting nearly three-fourths of all freight tonnage in the United States, according to the American Trucking Associations, a trade group. It is also prone to boom-and-bust cycles.
Strong demand for goods like patio furniture and home appliances during the pandemic turbocharged the industry. Shipping volumes and rates ballooned, and drivers left companies to set up their own businesses, sometimes buying trucks at wildly inflated prices.
The number of trucking firms surged by more than 50 percent from March 2020 to June 2023, and the number of trucks by nearly 20 percent, according to estimates by FTR, based on the most recently available data. But nearly all that growth took place at companies with one to five trucks, according to FTR.
“Unprecedented is almost not even strong enough a word,” Mr. Vise said. “It was almost an unfathomable surge in the number of new carriers coming into the market.”
As services supplanted goods in driving consumer spending, the small truckers’ revenues declined, but many of their costs — including wages and debt — did not. That crimped profit margins and left some with big losses. Now, tens of thousands of the smaller operators are shutting down, according to FTR, though in many cases the truckers may go to work for larger companies.
“Trucking has been in a recession, all of trucking,” said Bob Costello, chief economist for the American Trucking Associations. “Even though the macro economy has not.”
Still, there is less pain for less-than-truckload companies, which, for the most part, have not suffered steep declines in shipping rates. That’s because a small number of companies account for most of the shipments in the less-than-truckload business, analysts said.
“It’s amazing how all these carriers have actually been very disciplined about holding the line on pricing,” said Ari Rosa, an analyst at Credit Suisse who covers trucking companies.
The stress has been concentrated among truckload companies. Entering the truckload business is easier because it requires having just a truck, rather than a network of terminals. As a result, the business is also more volatile and prone to suffer when a boom ends. Leading truckload companies like Knight-Swift and J.B. Hunt have reported big declines in earnings, but their stocks have rallied in recent weeks.
It is not yet clear how drivers will fare as the industry seeks to find a new balance.
Many received raises during the pandemic after years of relatively sluggish pay gains. Weekly wages in long-distance trucking — a good proxy for truck driver pay, according to economists — were $1,283 in June, the Bureau of Labor Statistics reported. That works out to nearly $67,000 a year, about 25 percent higher than in June 2019, not adjusted for inflation.
Industry analysts say companies have been loath to let go of drivers because of how hard it was to attract and keep them during the boom. But that can push up costs for companies when revenues are sagging.
“In terms of driver retention, we’re performing pretty well,” said Mr. Holzgrefe, the Saia chief executive. “Of course, we’re going to make sure we pay very competitively.”
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