Yellow Shutdown: What Happens Next?
So, it happened. Yellow, just a few months shy of being a century old, has gone out of business. The question that remains is what happens to the LTL market? The answer: it will go on as it always has.
Details
There is a saying that a rising tide lifts all boats, but the same is true if a boat sinks and its density raises the water level as a result. This is the case with Yellow.
Already LTL competitors to Yellow are planning on picking up the slack of the megacorporation. In Uber Freight’s market update for August, it said that it has no fear in being able to pick up the extra work.
“Let’s assume that Yellow’s loads, which are estimated at about 10% of the LTL market, are to be distributed among other LTL carriers,” the company said in the post. “The weekly work hours of LTL employees would rise to roughly 42 hours/week, still lower than the historical average. This implies that even an event of this magnitude will not be enough to fully swing the LTL market. However, it will bring this market closer to equilibrium. This means that rates will likely bounce back from y/y deflation, to their pre-pandemic positive growth trend.” The effect is lower when you realize Yellow handled about 9%, not 10%, of all LTL freight.
Indeed, it seems that LTL carriers are chomping at the bit to take advantage of the opportunity.
“There’s enough capacity in the LTL space to absorb the Yellow business,” said Kevin Day of AFS Logistics, which handles less-than-truckload as a part of its business. “A lot of that has to do with just the slow progress that this all unfolded. It’s not this abrupt event that happened over a weekend.”
Conclusion
On top of current entrants absorbing some of the demand, now is also a prime opportunity for new entrants in the market to establish themselves; it is not everyday that a company that handles 9% or more of a subsection of such a large industry finds itself shutting its doors. As with most things, we will have to wait and see what happens. There are even the smallest murmurs of Yellow making a comeback through restructuring due to MFN Partners LP, news that resulted in the bankrupt company’s stock quadrupling in price.
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