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Yellow, one of the nation’s largest trucking companies, suddenly shut down earlier this week. The 99-year-old company employed around 30,000 workers and had 300 terminals across the country. The Teamsters Union, which represents 22,000 Yellow employees, says it received legal notice that the company is filing for bankruptcy.
The shutdown won’t have much of an impact on the supply chain, though. “In terms of disruptions,” it will be “fairly minimal,” Jason Miller, an associate professor of supply chain management at Michigan State University, told CFO Brew, as much of Yellow’s freight has already been diverted to other carriers. But companies that relied on Yellow will need to shift to more expensive competitors, and their shipping costs will rise.
Lower LTL demand helped sink Yellow: Yellow was America’s third-largest carrier of less-than-full truckload, or LTL, freight. It transported around 7% of the nation’s estimated 720,000 daily LTL shipments in 2022.
LTL shipping is used by a wide variety of manufacturers, Miller said, including those producing food, specialized chemicals, medical devices, and fabricated metal. Retailers like Walmart and Home Depot are also among Yellow’s customers, the Wall Street Journal reported.
Recently, demand for LTL shipping has dropped. In 2021 the sector saw “artificially high demand,” Miller said, as inventories were down and companies felt an “urgency to get freight out quickly.” A surge in fuel prices triggered by the war in Ukraine led shippers to consolidate and opt for full rather than partial truckloads, he said.
Yellow particularly felt the pinch. It went from moving about 49,000 shipments per day in 2022 down to 10,000–15,000 this year, the AP reported.
The LTL slowdown added to the company’s existing financial woes. Yellow was carrying about $1.5 billion in debt and struggling to pay back a $700 million government loan it received in 2020. It posted a loss of $54.6 million for Q1 2023. And shortly before shutting down, it narrowly avoided a strike by Teamsters over its failure to fund pension funds and health insurance.
Lessen supply chain risk by vetting suppliers: Yellow’s sudden shutdown highlights the importance of diversifying suppliers. “This is a good example of why you have to be dual sourcing or multi-sourcing, especially if your primary provider is potentially in a precarious financial position,” Miller said.
Miller suggests companies examine shippers’ operating ratios as a way of gauging their financial health. “A good LTL operating ratio now is below 0.9,” he said. Yellow’s operating ratio for the first quarter of 2023 was 100.8, meaning its expenses far exceeded its revenue.