**Yellow Corp. Ceases Operations and Plans to File for Bankruptcy**
One of the most prominent names in US short-haul trucking, Yellow Corp, is facing financial struggles, causing the company to cease operations and plan for bankruptcy. This development has created opportunities for competitors to absorb the freight and potentially raise prices, benefiting companies such as FedEx Corp. and Old Dominion Freight Line Inc. Analysts believe that Yellow’s problems are primarily due to preexisting issues rather than industry dynamics. The company has significant debt, including over $1 billion maturing in 2024, and has clashed with its union, threatening a strike over missed employee benefits payment.
**Yellow’s Financial Struggles Impacting the Freight Market**
The collapse of Yellow Corp. comes at a time when the US freight market is already experiencing a decline. The pandemic has shifted consumer habits, leading to a decrease in e-commerce shipments and a decline in industrial production for a second consecutive month. While these factors contribute to the weakened freight market, Yellow’s financial struggles have exacerbated its situation.
**Opportunities for Competitors in the Weakened Freight Market**
With Yellow Corp.’s operations ceasing, its competitors have the opportunity to absorb the freight and potentially raise prices. FedEx Corp. and Old Dominion Freight Line Inc., among others, will likely benefit from the reduction in excess capacity. Amit Mehrotra, an analyst with Deutsche Bank, believes that the decrease in capacity will have a positive impact on the companies that remain open for business.
**Debt and Union Dispute Contribute to Yellow’s Bankruptcy Plans**
Yellow Corp. has significant debt, with over $1 billion maturing in 2024. To alleviate financial strain during the pandemic, the US Department of Treasury provided a $700 million loan to bail out the company in 2020. Additionally, Yellow has had ongoing disputes with its union, the Teamsters, which recently threatened to strike over a missed employee benefits payment. These factors have contributed to Yellow’s decision to file for bankruptcy.
**Effect on Labor Force and Company Value**
Yellow Corp.’s bankruptcy plans have put a labor force of 30,000 employees at risk, including 22,000 union workers. The company’s shares nearly doubled in a volatile trading session, giving it a market value of approximately $72 million. Despite its financial struggles, Yellow Corp. generated $5.2 billion in revenue last year.
**Specialization in Less-than-Truckload Service**
Yellow Corp. specializes in less-than-truckload (LTL) service, which involves combining several smaller shipments on one truck for short-haul deliveries. This sets it apart from long-haul trucking and the parcel industry, which primarily handle individual and smaller packages. The disruption caused by Yellow’s bankruptcy is expected to boost volume and pricing for other LTL companies, providing support to stock prices for companies like Saia Inc.
**Potential Beneficiaries of Yellow’s Closure**
Competitors such as Old Dominion Freight Line Inc. and XPO Inc. have the opportunity to benefit from Yellow’s closure if they can pick up some of its shipments. Lee Klaskow, a transportation and logistics analyst with Bloomberg Intelligence, believes these companies could absorb Yellow’s operations and meet the needs of shippers. However, the impact of Yellow’s closure would have been more significant two years ago when there was less slack in trucking capacity.
**Impact on Yellow’s Cargo Terminals**
Yellow Corp. operates around 300 cargo terminals, half of which it owns. The company has already sold some terminals to competitors, and the remaining facilities are older and smaller in size. This presents an opportunity for investors in truck terminals to acquire Yellow’s facilities through a bankruptcy auction. The robust investor market for truck terminals may take advantage of this opportunity, despite being relatively elusive in 2023.
The bankruptcy of Yellow Corp. has created a significant impact on the US short-haul trucking industry. While competitors seize the opportunity to absorb its freight and potentially raise prices, Yellow’s financial struggles have posed challenges for the company. The future of Yellow Corp. remains uncertain as it navigates through bankruptcy proceedings, leaving billions of dollars in business up for grabs in a weakened freight market.