How could the “Big 3” of less-than-truckload collapse into the Big-gish 2-in-1 in just 10 months? Is Yellow's takeover of Roadway a sign that the economy is imploding, or that everyone is now ordering either a full truckload or one parcel at a time? And what does it mean for the future of trucking?
Although the suddenness of the consolidation in the LTL industry is startling, the result shouldn't be. The economy has been sluggish, with GDP growing only 1.4% from October through March.
But that still implies demand for freight is growing, not shriveling. In the last couple of decades TL revenue has doubled. The airfreight business has tripled, largely on the strength of small packages.
Meanwhile, the LTL business has stagnated. The $6.6 billion in combined revenues for Yellow and Roadway — after they absorbed much of the freight that Consolidated Freightways was carrying until its abrupt closure last Labor Day weekend — is within rounding error of what the Big 3 were carrying a decade ago, back when $6 billion sounded like real money.
Every day, millions of customers who formerly went to a multitude of stores for separate purchases are now opting to shop in one mega-mart instead. The mega-mart is buying by the truckload, whereas the boutiques in the slumping malls each generated multiple LTL trips.
And when Amazon.com shipped 1-million copies of the latest Harry Potter book on its publication date, those copies all went to separate home addresses via parcel carrier. A decade ago, those books would have created thousands of LTL trips from printers to distributors to retailers — over a period of weeks. But in a world of “gotta have it right now, right here,” LTL carriers don't have the right network to handle a surge of one-time traffic to a multitude of destinations. Nor do they have the nimbleness to deliver the high-tech parts, human organs, financial instruments, and myriad other products that keep a few carriers growing and profitable.
In short, national LTLs have gone from being the carrier of choice for delivering everything to being too big for some shipments, too small for others, and too slow for nearly all.
But this deal is not a signal that the LTL business is dead. Even in an $11-trillion economy, $6 billion of revenue is not chicken feed. Nor is the 49% premium over share prices that Yellow offered to buy Roadway's stock.
Indeed, the merger may provide new opportunities, especially for short-haul and single-region LTLs. Yellow said it would continue to operate Roadway as a separate company, eliminating back-office overlap but with little change in networks.
However, it's more likely that Yellow will shed both duplicated routes and ones that don't fit into its vision of where to send its trucks. And the process of deciding what to keep, streamline, or drop may cause some deterioration in service, giving other carriers an opening.
The bottom line: Unlike CF's sudden collapse, the Yellow-Roadway deal is a sign of strength for these two carriers — but in the context of an LTL market that's not strong over the long haul. The merger means a better chance that the combined company will survive plus opportunities around the margins for some smaller carriers, but also a continuing evolution of the economy away from the type of goods movement that LTL served well in the past. Railroad mergers have created a few large, strong companies and allowed a large number of local and regional carriers to exist, but rail as a whole is not gaining market share. The LTL industry appears headed down the same track.