With the dust settling from the exit of Yellow Corp. in the less-than-truckload (LTL) market, following its Chapter 11 bankruptcy protection filing earlier this month, various industry stakeholders have taken time since then to assess what Yellow’s departure, as well as its 8%-to-9% sector market share, means for LTL and the freight transportation sector, too.
One common theme, regarding Yellow leaving the market, has been that the LTL market is well-positioned to handle the spillover freight that the company had in its network, at the time of the bankruptcy filing, coupled with some rate swings as well.
Glenn Koepke, GM, Network Collaboration, for Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, explained that there is a lot of excess LTL capacity right now, with both national and regional LTL players able to take on that volume and not have a material impact on operations.
“LTL networks are generally very asset intensive, and they're very fixed networks,” explained Koepke. “So, between the other national players and the regional players, that volume can get consumed right now because of the soft market. If this happened, a year ago, we're in a more doomsday type scenario.”
What’s more, even though Yellow had been facing various financial challenges for more than a decade, Koepke said its exit serves as a huge reminder for the national players to be careful, scalable, and also be nimble, adding that cannot be done by taking volume only to sacrifice profit to do it, which is not likely to be sustainable for the long haul.
“I think what we'll see out of this is the expansion of more and more regional players,” he said. “And ideally, they can take on some of the equipment and the assets there, as well as some of the [Yellow] employees, but it is a shakeup of the LTL industry. It's going to impact pricing a little bit but not as much right now just because demand is so soft. Capacity is going to get swallowed up. Will things change? Let's say you fast forward 12-to-18 months in the LTL market, the economy is booming and everything else, you know what will happen? I think there's enough runway for companies to invest to be able to scale into additional capacity. So, that 8%-to-9% of LTL capacity that Yellow had, I think, will be a blip on the radar in two years when the economy's booming.”
Dave Menzel, COO for Chicago-based third-party logistics and technology-enabled transportation services provider Echo Global Logistics, observed that the impact of Yellow leaving the market was not as dire as it could have been, because shippers using Yellow saw it coming and made contingency plans well in advance of the bankruptcy.
And from a shippers’ perspective, Menzel noted that this happened at a pretty good time, because the trucking market remains very soft, much different from the onset of the pandemic in early 2020 into early 2022, as LTL carriers had built up capacity to serve the elevated pandemic-driven demand, prior to consumer demand softening, which led to what he called a reasonable amount of excess capacity in the market.
“And despite that fact, the LTL carriers were holding pretty firm on price,” said Menzel. “They were pretty disciplined, in how they run their networks. “Just because the economy softens up, they're going to be slower to change their pricing, because they have terminals and got people, and an operation to run.”
In the short period since Yellow filed for bankruptcy, Menzel said that it is likely that many LTL carriers have used this opportunity to raise prices. And, in some cases, he said that it has led to carriers having to embargo a terminal and not take any additional freight moving through a certain area, due to increased congestion, for example, as carriers want to honor their commitments to existing customers and protect their service.
“Overall, things have been pretty orderly,” he said. “In terms of a transition, it hasn't been this dramatic situation with almost 10% of market capacity having left. I do think it causes a little bit of mode shift, in that maybe a shipper is going utilize a truckload carrier for a certain component of freight that maybe could have gone LTL. But with prices increased on the LTL side, some are looking to do it a different way.”
So, by how much have LTL rates increased since Yellow’s departure?
Menzel said that Echo has seen selected carriers raise rates anywhere from 5%-to-15%, with the caveat that the implication to the entire industry is not clear just yet, as there are many LTL shippers that did not see any rate increases.
“I think it probably just affects the fringe spot markets a little bit more than it does shippers that have established relationships and routing guides,” he said. “So, I think makes it hard to tell you what the aggregate impact is. I don't think it's anywhere near 5%-to15% market-wide.”
The demise of Yellow was, in a sense, a slow-motion action, in that the industry was watching the situation unfold, with the expectation that the eventual outcome was coming, explained Kevin Day, President, LTL, for Shreveport, La.-based 3PL and freight audit and payment company AFS Logistics LLC.
“Because of that shippers had a really good opportunity to find a home for their freight,” said Day. “There's a handful of carriers that are better closer aligned in pricing to Yellow than others. Everyone has been the recipient of extra freight but more likely, those T-Force and XPO are the carriers seeing more gains than anyone else, with mid-double digit volume gains in the second quarter. From a pricing standpoint, I think, the immediate effect is, carriers are really scrutinizing their networks, to say, ‘does this freight make sense to be in our network, maybe it did six months ago, 18 months ago, 12 months. But does it today?’ And all the carriers are going through that that exercise and then looking at it now.”
And, as expected, Day noted overlength freight and unconfigurable freight has been somewhat targeted as not exactly desirable, when capacity is really tight. Which, from a service standpoint, has led to carriers tapping out, saying they don't have capacity to pick up the overlength freight, as some of that freight gets moved to the next best-value carrier and so on up the ladder, he added.
“You didn't have to be a Yellow customer to feel the effects of what's going on in the industry from a service standpoint,” he said. “And I think that very few shippers will try to be insulated from a rate standpoint, as well. I'll say XPO probably is probably the most prevalent in the marketplace right now. You have to remember they took on a hefty amount of this business. They're going through their list of accounts. And even if it's been an established account for a long period of time that kind of fits the criteria of maybe not operating well within their system, they're looking for some pretty egregious increases or to cancel the pricing altogether, which is really just stating we'd rather not be hauling this freight at this moment.”