Yellow shutdown may lead to sticker shock for shippers, analysts say

Jun 25, 2023

With bankruptcy looming for the major LTL carrier and its low-cost services, shippers will likely see rate hikes for similar services.

Yellow Corp.’s shutdown has left shippers without a major player in the less-than-truckload space — a development that means higher costs are likely in store, according to trucking industry analysts.

“There's probably going to be an increase in the pricing charged to the shipper,” said Craig Decker, who leads investment banking activities across supply chain, logistics and transportation areas at Brown Gibbons Lang & Co.

The price difference could be a 20% to 25% price per pound increase depending on the circumstances, DAT Chief of Analytics Ken Adamo suggested on a weekly market update show. All together, he said the price increases could be 7% to 10% higher.

“[If] you decided late last week to send ArcBest, Old Dominion, XPO and FedEx Freight your data to get some rates back, probably by late this week you’re going to be fully processing the sticker shock of how much of a price increase you’re going to have to take over what Yellow was charging you,” Adamo said.

XPO executives noted Friday on a Q2 earnings call that Yellow's shuttering is disrupting the market and accelerating their pricing. “"Our customers understand: When you take 10% of capacity out of the market, it's going to cost more to move freight," incoming CFO Kyle Wismans said.

The increase to rates comes as a result of Yellow's role in the trucking market: Shippers who relied on the low-cost carrier are likely left with higher-priced alternatives, analysts said.

“As one of the US’ most cost-effective LTL transport companies, businesses switching from Yellow to a more expensive rival carrier will experience a twofold cost increase," Charles Haverfield, CEO of U.S. Packaging & Wrapping, said in emailed comments.

Haverfield said this is particularly true if shippers have not built relationships with other carriers to secure discounted prices or if they switch to smaller trucking companies that cannot leverage Yellow's economies of scale to lower prices for their services.

"The best approach is for businesses to adopt a comprehensive approach, encompassing both major carriers and smaller freight companies," Haverfield said.

Shippers had been diverting freight to other carriers, brokers and the spot market even before Yellow confirmed it was shutting down terminal operations and laying off workers.

T.D. Cowen reported on June 28 that shippers were diverting freight to Yellow's competitors a full month before the carrier’s operations shut down. Less-than-truckload rivals Saia and TFI International confirmed as much in earnings calls late July, saying they've experienced increases in volumes.

Similarly, DAT Freight & Analytics reported 1.325 million loads were posted on its network the week before Yellow shut down, a figure which represents a 4.3% increase in trucking service requests compared to the previous week.

Shippers who diverted early were able to take advantage of the fact a slow economy in recent months had left a large amount of trucking capacity available, according to analysts.

“I think we all agree that’s terrible, that 30,000 folks are out of work, but from a market perspective, this could not have happened at a better time,” Adamo said.

Adamo said if the disruption happened in late September or early October, it would be more challenging, given the pressures of peak season. But because the disruption happened now, that means shippers might have time to consolidate and use a full truckload.

“Shippers are getting smarter,” Nicole Glenn, founder of Candor Expedite, said on DAT’s weekly market update. “They’re starting to ... look ahead, and I think a lot of people had that mindset stepping into this.”