Apparently bleeding cash and teetering on the edge of what some analysts believe is an imminent bankruptcy filing, Yellow Corp. has announced that it intends to divest its promising third-party logistics arm, Yellow Logistics, and has “engaged with multiple interested parties regarding the sale” of the 3PL.
In a release late on July 27, the company said discussions about the divestiture “are active and ongoing.” The 3PL specializes in truckload, residential, contract logistics, engineered solutions, distribution, and warehousing and is operated through an independent, non-union subsidiary, according to a Yellow release, which went on to tout the 3PL's growth and value to the company’s overall operations.
Meanwhile, a Kansas City Business Journal report (Yellow subsidiary YRC is headquartered in the KC suburb of Overland Park, Kansas) were surfacing on Friday afternoon that Yellow had begun laying off much of its non-union workforce in anticipation of a bankruptcy filing. The company employs around 30,000, about 8,000 of whom are not members of the union, the International Brotherhood of Teamsters. FleetOwner also confirmed independently that layoffs had begun, as many as 315 in one department, according to sources.
Shares of Yellow fell almost 45% on July 27 to a new low of 57 cents per share but were up a tick to above 60 cents in pre-market trading today on reports Thursday that the No. 6 carrier on the FleetOwner 500: Top For-Hire Fleets was getting ready to submit a bankruptcy filing, perhaps as soon as July 31.
The third largest less-than-truckload carrier has been rocked recently by union disputes and a threatened strike by its 22,000 Teamsters members, accelerated cash burn, inability to make pension and health care benefits payments on time, and customers fleeing the carrier in anticipation of an imminent liquidation. The company has been struggling to implement One Yellow, its third reorganization in 15 years, to prop up its books. But a bankruptcy at Yellow could cost 30,000 jobs if the LTL folds entirely.
Another in-the-know analyst, Kevin Day, president of LTL at AFS Logistics, joined the chorus of others on Friday in an interview with FleetOwner in predicting Yellow’s possible if not imminent demise. Day said the news out of the company of the sale of Yellow Logistics is “a bid to gain some cash. If you have some valuable property like that, I would assume it’s just to get cash.”
AFS is a prominent LTL broker in the market that itself is a non-asset-based 3PL managing more than $11 billion in freight spend annually across four key business units, freight audit and payment, parcel, LTL, and managed transportation. As such, AFS contracts Yellow shipments and said that, in discussions on July 27 with Yellow executives, shipments in the company network had been drawn down from 55,000 to 60,000 earlier this week to about 10,000 to 12,000 as of Thursday, signaling the LTL is winding down its operations.
An AFS/TD Cowen analysis two weeks ago, principally directed at the now resolved turbulence at UPS, called a possible bankruptcy at Yellow “a wild card that could present extraordinary opportunity for LTL carriers to push up rates.” On Friday, Day added that the LTL segment will be “messy for less than a quarter” if Yellow does halt all operations. Capacity will tighten and rates will go up at other LTLs such as Old Dominion, which would benefit as a result from a Yellow exit, he added.
“That freight will find a home. It’ll be messy for less than a quarter. What this will do, there will be an inflationary effect on LTL rates,” Day said.
An analysis earlier this week from Stifel said on the subject: “For the rest of the industry, there is spare capacity to absorb a Yellow demise at this point in the freight cycle; such an event would be a major tailwind for remaining players, with immediate benefits to volume and density, as well as yield.”
Day added: "You will have carriers now that have a larger pie to eat from and new business that didn’t have the visibility of Yellow before a bankruptcy."
In the recent second-quarter earnings call for trailer manufacturer Wabash, company leadership was asked about the impact of the rumored pending bankruptcy of a “large fleet” that has been “in some headlines” lately.
Wabash President and CEO Brent Yeagy explained that a certain amount of “purging” was “natural” during the “spot rate and cost inflationary market” that carriers are currently facing, but that happens at “the far end of the carrier spectrum,” among smaller fleets.
“The customers that we have look at this as a very advantageous scenario,” Yeagy said. “They would be pleased with the culling of the herd, which allows them to grow market share more profitably and to think about what a more stable back half of ’23 and a more profitable ‘24 and ‘25 will look like.
“In the context of a large carrier—that may or may not go bankrupt—that would only be a tailwind from a Wabash perspective, as we think about Q4 of ‘23, all the way through ’24 as carriers continue to reposition to take advantage of the hole in the market that will be created.”
Grave trouble at Yellow has been building
Yellow executives haven’t yet said when they will announce the company’s second-quarter results. Last summer, they did so Aug. 3. In the first quarter, Yellow lost $54.6 million, nearly twice as much as in early 2022, on revenues that were down 8% to $1.16 billion. (In 2022, the company produced a net profit of $21.8 million thanks to $38 million of gains on the sales of some real estate; the year before, it posted net loss of $109 million.)
CEO Darren Hawkins told analysts in February that the second phase of Yellow’s realignment plan had been delayed from its previous year-end 2022 target. At the time, he was optimistic that the next phase, which focuses on integrating the company’s operations in the Eastern half of the U.S., would be completed in the spring.
The company in early June updated investors on its operations in mid-June, saying its quarter-to-date shipments per workday were down 14.6% from prior-year levels and revenue per shipment (including fuel charges) was off 4.7%. Those numbers were worse than during the first three months of the year, when the company’s shipments per day were down about 13% from early 2022 and revenue per shipment was actually up 6% year over year.
Those numbers have taken a sharp turn for the worse since. In a note early this week to investors, Stephens analyst Jack Atkins said he is assuming revenue was 35% below plan last week and that it has plummeted this week to just 30% of its year-ago levels. A recent Morgan Stanley survey suggests that the vast majority of Yellow’s customers have diverted at least some of their business or are planning to in the near future.
If Nashville-based Yellow does go belly up, it could be bad news for U.S. taxpayers as well as company employees and investors, as 30% of the company is owned by taxpayers after Yellow received a $700 million government loan from the Trump administration during the pandemic, despite the fact that at the time Yellow was facing charges of defrauding the government by overbilling on shipments of items for the U.S. military. The company settled the dispute without admitting wrongdoing but was forced to pay a $6.85 million fine.