Yellow's Collapse A Tailwind For Other Freight Carrier Names, Deutsche Bank Says

With major trucking firm Yellow slated for bankruptcy and a wind-down of its operations, the key question is where its billions of dollars in business is going to wind up being siphoned off to. 

The firm was responsible for roughly 15% of major corporations' less than truckload (LTL) shipments, according to Bloomberg. It has struggled with a sizeable debt load and changing consumer habits coming out of Covid. Yellow has $1 billion in debt due in 2024 alone and has struggled to find common ground with its union. 

The company's labor force of 30,000 employees, 22,000 of which are union employees, were notified of the company's bankruptcy plans this week. The company has about 300 cargo terminals, about half of which it owns. It had already started to liquidate some of these properties and its remaining ones are on small parcels of land. 

And now Yellow's loss looks like it will be a marked positive for the rest of the industry. Old Dominion and XPO are expected to be two of the main beneficiaries, according to Lee Klaskow, a transportation and logistics analyst with Bloomberg Intelligence.

Amit Mehrotra with Deutsche Bank weighed in this week, stating: “This development is clearly very positive for the companies that remain open for business.” He listed Old Dominion, Saia, CSX and FedEx among other top picks in the industry. 

"To put this in context, Yellow is more than double the size of TFII on a shipments basis, almost double SAIA's level, and about the same size as ODFL. Despite this level of scale, the company contributed 0% to industry profits, which highlights the reasons for its ultimate exit," he wrote. 

He also noted that LTL stocks have outperformed already since mid-June, when it became clear that Yellow was at risk. "The bottom line is we still see significant upside potential at all LTL companies, but what will separate one from another from here will be execution. Adding the right type of volume and keeping service levels high will be
critical for prospective upside. We suspect market participants will start paying closer attention to the details, in this regard."

Mehrotra cited SAIA as his top pick: "Our top pick remains SAIA. As we said on Friday, We estimate SAIA's volume trends in the last week have improved about 10% and the company is deploying tools to prioritize volumes moving through its network (we believe the company is deploying tools for drivers to sort pickups by priority and profitability, as just one example of how it’s managing higher business levels). We also have no concerns on ODFL, in this regard."

Thomas Wadewitz at UBS added: “While this disruption has been anticipated for a while, we believe the boost to volume and pricing for other LTL companies is likely to provide support.”

“There are some strong companies out there that can service the needs of the shippers,” added Melanie Burnham, chief financial officer of competitor Hercules, who also noted that Yellow's bankruptcy would have hit much harder if it happened several years ago during the nation's Covid-induced "supply chain hell". 

Klaskow's recent note adds: “To their benefit, unlike two decades ago, there is now a much more robust investor market for truck terminals. Those buyers have been more elusive in 2023 than in 2022, but a bankruptcy auction of this magnitude will be hard for them to ignore.”