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“Yellow was barely eking out a profit. They were all about revenue, market share and growing at all costs, but the problem is you are growing at a loss”
One of the largest US trucking companies, Yellow, has been in the news regarding a potential bankruptcy. This would be a significant event in the US, as one of the largest failings ever in the logistics industry. This Journal podcast runs through some causes of the failure.
In the early years of Yellows operations, competition was limited and trucking firms were helping to map out the logistics networks of the US. De-regulation of the Trucking Industry in 1980 under President Carter changed the margin profile of the entire industry, as previously trucking rates were highly regulated. Rates were overseen by the regulator and all parties worked hand in hand. De-regulation allowed for new speciality carriers to pop up, many weren’t unionised, who syphoned away a lot of shipments that would have otherwise gone to Yellow.
To grow, Yellow went on an acquisition campaign rather than focusing on growing organically with the market. In 2003, Yellow spent $1 billion USD to buy a large unionised competitor, Roadway. Yellow saw ‘Economies of Scale’ benefits however they didn’t integrate Roadway into a larger combined entity, running it separately alongside the existing business. This actually created greater inefficiencies, as you could have three differing trucks, with differing drivers, turning up to the same customer door at different points through the day, losing scale/efficiency advantages. Making this more challenging, Yellow took on debt to complete the acquisition, which compounded the problems.
“Oddly enough, Yellow did not profit from the pandemic like other trucking companies. They are the low priced option and found it difficult to increase prices to their end customers”
“Yellow was barely eking out a profit. They were all about revenue, market share and growing at all costs, but the problem is you are growing at a loss”
“The servicing of debt was eating away at the business, the easy way out was to keep moving along”
Yellow was however saved by a $700m loan from the Government, paying off debt and using some money to recoup missed healthcare/pension benefits to workers. By 2021 they looked to integrate all units, under a ‘One Yellow’ campaign. However changes to work done by truckers were blocked by the Union representatives. Yellow then filed a massive suit against the Union, claiming loss of business. While the bankruptcy is yet to be resolved, this podcast is an interesting and easy to understand walk through of how Yellow arrived at its current state.
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