Yellow Freight’s demise is a big deletion in this year’s chart but still there are positives to be derived from 2023.
In January, the AJOT publishes its list of “Top 100 North American Trucking Companies” which tallies trucking companies from Canada and the United States. Most of the companies are familiar names, like UPS, Old Dominion, J.B Hunt or Estes that you pass along the highway, see parked at highway road stops, or see making deliveries at warehouses around the country. But this year one big name is missing — Yellow Freight (YRC).
On Sunday July 30th, 2023, Yellow Freight ceased operations and shortly later on August 6th filed for bankruptcy.
And there was some logic sustaining this belief. After all the Federal government itself owned 30% of the corporation.
But how in the first place did the U.S. government get to be a shareholder in Yellow? Back in 2020 during the COVID-19 pandemic the Trump Administration under the Cares Act through the Treasury Department in a curious move granted Yellow Freight a $700 million emergency loan on national security grounds. In return Yellow Freight gave the Federal Government a 30% stake in the company. It didn’t help. A combination of creditor problems, highlighted by quarrels with the unionized labor, doomed the trucking company to bankruptcy.
Now with Yellow Freight’s liquidation underway, chunks of Yellow Freight’s sizeable assets are being bitten off by top tier trucking companies like A. Duie Pyle, Estes, XPO, TFI, ArcBest, FedEx, Knight Swift Canada Cartage and others, like great whites feeding on the floating carcass of a dead whale.
Generally, YRC was often considered the nation’s largest LTL trucking firm — usually ranking within the top 6 trucking companies in AJOT’s annual list — now the company is deleted but not forgotten as the asset liquidation process continues.
As for the exit of Yellow’s capacity in the LTL market, with the downturn in demand, other carriers have been able to pick up the slack without showing much of an upward push in freight rates. But there are few markets more cyclical than LTL trucking and with the next rise in demand, it will be interesting to see if Yellow’s demise has an impact on rates or whether the improved networks will provide sufficient capacity.
Mergers, Acquisitions and Trucking On
In 2021 through early 2022 there were an unusually large number of trucking mergers & acquisitions (M&A). It was almost as if the industry collectively hit the reset button after coming out of the COVID-19 period. PMCF investment banker wrote in their 1st quarter 2023 transportation and logistics brief, “Mergers and acquisitions within the Transportation and Logistics “(T&L)” sector are no longer reaching the levels observed during the record-breaking highs of 2021 and 2022, however, they are still in line with historical averages.”
And like many industry sectors within the logistics’ universe, trucking companies had largely benefited from the high freight rates in the immediate post-COVID boom. With burgeoning war chests, a highly fragmented industry, containing many “mom and pop” operations, a strong interest in the sector by private equity firms, the stage was all but set for a reshuffling of the deck.
A year later, with the “freight slump” and slow-down in demand, many trucking companies were content to take stock of their positions, particularly in respect to new acquisitions, and address internal operations. This isn’t to say nothing happened but rather in comparison to the previous years, it was slow. But by late in the third quarter and into the fourth, M&A activity started picking up and the liquidation of Yellow Freight opened up the coffers for the better heeled companies looking to expand quickly at a bargain basement rate.
As a result, there were some interesting merger targets in 2023. For example, UPS bought Happy Returns from none other than PayPal. Penske Truck Leasing added Star Truck Rentals and Kris-Way Truck Leasing; RoadOne IntermodaLogistics acquired Transport Ace Transport and The Transporter while private equity fund ZS Fund LP snagged Lily Transportation.
What all these acquisitions had in common is that they were more “strategic” in nature than opportunistic. It is acquisition in a highly specific manner, which may characterize the current state of M&A in the logistics sector at large – excepting of course, the German government’s decision to sell logistics goliath DB Schenker (see Stuart Todd’s article “DB Schenker: Biggest takeover of a logistics group so far this century” at AJOT’s www.ajot.com)
Take the example of RoadOne. Miami-based Transport Ace adds 100,410 sq ft of warehouse in Miami and expands RoadOne’s Florida service network. Similarly, The Transporter acquisition adds a regional intermodal service provider with facilities in Houston, Dallas and Laredo, Texas.
It is the same with Penske adding two truck rental companies [Star Truck Rentals and Kris-Way Truck Leasing] to their nationwide coverage or the private equity company ZS bringing Lily into the fold to pair with Transervice Logistics.
Another aspect of any trucking M&A is through acquisition bringing more drivers onboard. Like the industry itself, many drivers move not only between companies, but also industries. For instance, there is a well-documented connection between trucking and the construction industry. When the construction industry is hiring — which often coincides with improved economic activity — drivers are harder to keep in seats. This incidence is a double whammy of sorts, as it corresponds with greater demand for trucks and drivers as the construction sector is a big source of freight.
2024: The Road Ahead
There are few market certainties, as the Yellow Freight debacle attests. The economy has for the last two years avoided slipping into an oft forecast recession (although it can be argued that a recession has occurred) and kept inflation in check. The US elections on the horizon and the possibility of a government shutdown in March adds a dash of instability to any economic forecast. Further, there is a question as to whether the US consumer has enough stamina (and deep enough pockets) to continue spending to thwart a recession.
Early returns from the holiday period were positive. Census and Statistics reported the 2023 holiday season grew 3.8% over 2022 to a record $964.4 billion. According to the National Retail Federation’s (NRF) Chief Economist Jack Kleinhenz, “Consumer spending was remarkably resilient throughout 2023 and finished the year with a solid pace for the holiday season. Although inflation has been the biggest concern for households, the price of goods eased notably and was helped by a healthy labor market, underscoring a successful holiday season for retailers.”
Of course, that doesn’t necessarily translate into a better trucking market as American Trucking Associations’ (ATA) Chief Economist Bob Costello observed in the December newsletter, “We continued to see a choppy 2023 for truck tonnage into November,” said ATA Chief Economist Bob Costello. “It seems like every time freight improves, it takes a step back the following month. While year-over-year comparisons are improving, unfortunately, the freight market remains in a recession. Looking ahead, with retail inventories falling, we should see less of a headwind for retail freight, but I’m also not expecting a surge in freight levels in the coming months.”
Nonetheless, with the economic cycle returning to normal, 2024 may well turn out… for lack of a better word — normal. And that might just be enough for a good year in trucking.
