Yellow terminals’ dispersal means LTL sector ‘becoming even more consolidated’

The reshuffling of assets and capacity within the $58 billion less-than-truckload (LTL) sector has begun. The bankruptcy of Yellow Corp has made one thing clear: shippers ought to be prepared to pay higher rates, perhaps 6-to-8% higher in contractual renewals.

“We’re getting a consolidated industry that’s becoming even more consolidated,” Mike Regan, Co-Founder and Chief Relationship Officer, at TranzAct Technologies, said today on a webinar he organized to assess Yellow’s liquidation.

“The only reason we didn’t have a capacity crisis (because of Yellow’s closing) is that we’ve been in a freight recession,” Regan added. He warned that when demand returns to normalized levels, watch for LTL rates to soar.

Analysts have been shocked by first results from the auction of the Yellow terminals and their value to rival carriers. Thus far, 128 of the 174 owned properties have been auctioned off. Two additional leased properties were also sold. All told, the auction has generated approximately $1.9 billion in proceeds that will be used to pay Yellow’s creditors.

That leaves 147 leased facilities and 46 company-owned terminals still on the auction block. Auction for those terminals is set for Dec. 18. Those sales could provide Yellow’s secured creditors with another $1 billion.

There were some surprises coming from the first auction. “I think people were surprised to see XPO spending $870 million to buy 28 terminals with 32,117 doors—that’s $270,438 per door,” Regan said.

“That is really significant,” Regan said on a web conference call, noting the average price of a terminal door was around $130,000 prior to the Yellow auction.

LTL market leader Old Dominion Freight Line (ODFL), which at one time held leading “stalking horse” rights to the Yellow terminals with a $1.3 billion bid, ended up passing on all the real estate. ODFL already has a 257-terminal national footprint and officials said they decided to pass on the real estate after due diligence.

It was also surprising to see several regional carriers in the final list of those making acquisitions. Estes Express bought 24 terminals and rival Southeast regional carrier Saia picked up 18. A. Duie Pyle won three former Yellow locations in West Virginia, Pennsylvania and New York as part of its mid-Atlantic expansion.

Pyle Chairman and CEO Peter Latta remarked: “We are pleased to have been the designated winner of the auctions for three former Yellow properties in West Virginia, Pennsylvania and New York, and the 85 door LTL cross-dock and fleet maintenance property previously operated by New Penn in Camp Hill, Pa.

Latta said he planned “complete renovations” to bring these properties into Pyle condition. Pyle now serves the entire Northeast U.S. which includes 14 states and Washington, D.C. That will mean Pyle will operate 35 LTL service centers.

“Adding these latest facilities will create capacity to support the growth that we believe our team is capable of achieving,” Latta added.

LTL carriers had time to do their due diligence and visit the sites for sale. Jason Seidl, analyst for Cowan, reported some carrier executives found some of the terminals (mostly the legacy Yellow Freight) were in “deplorable” conditions.

Environmental concerns were brought up at some properties given poor terminal conditions, but wasn’t a significant issue, Seidl said.

Despite the new capacity coming back into the market, pricing power remains in the LTL carriers’ favor, Seidl said. General rate increases (GRIs) are in the range of 5%-7%, effective in the New Year.

“Some carriers could try to make lofty real estate purchases with pricing, which may tilt shipper decisions,” Seidl wrote in a note to investors.

Seidl said the main question for LTL carriers is how much do you value the real estate, which he called “a once in a lifetime opportunity.”

There is no question that very high prices were paid for these properties. But LTL carriers looked at the bigger picture and opportunity, while identifying locations or terminal swapping and expanding.

In the short term, Seidl said, there will be a layering aspect of selling overlapping terminals (carriers will retire small/less advantageous terminals) which may lead to: another phase of reshuffling capacity down the road; and while the first wave kept all Yellow terminals within the LTL space, future property selling could remove some of that capacity if it is sold to non LTL buyers.

Shipments over the last several months have decelerated after double-digit shipment growth. “This speaks partially to the Yellow dust beginning to show signs of settling, among a weak industrial demand market,” Seidl said.

With a substantial portion of Yellow terminals now sold, shippers can get a better understanding of what the LTL sector looks like in a post-Yellow world and determine the decisions they will need to make in 2024.

Scott Group, trucking analyst from Wolfe Research, noted in his report on the Yellow auction: “Overall, the biggest buyers are national carriers and so a consolidated market is staying quite consolidated. This should be supportive of continued LTL pricing power over time.”

Mull over “supportive of continued LTL pricing power.” It’s reasonable to conclude that LTL carriers will continue to have some leverage in their rate negotiations with shippers as they propose their annual General Rate Increases (GRIs).

However, that is only part of the story, according to TranzAct’s Regan. Some 88% of these former Yellow terminals’ door counts have been acquired by national LTL carriers.

“While some LTL shippers will see their rates and overall freight costs go up as a result of Yellow’s closure, that doesn't have to be your destiny,” Regan said at a web seminar on the Yellow dispersal. “There is an alternative to pursue and options for your company to actually lower costs.”

Sales of these ex-Yellow terminals serve as “a tipoff” as to where rival LTL carriers will be expanding, Regan added.

David Ross, executive vice president of rival long-haul LTL carrier Roadrunner, said ever since deregulation in 1980, capacity in the LTL sector has been reduced due to bankruptcies and significant barriers to entry.

Yellow’s shipment count had been reduced to about 20,000 shipments a day. That freight was easily absorbed. “But going forward, (capacity) will be determined by how these terminals are absorbed by the LTL industry,” Ross said.

Ross said shippers will be “taking a more strategic view” of their LTL portfolio over the next few years to “mitigate these broad industry-wide pricing pressures.”

Steve Robinson, CEO of the Supply Chain Project, which provides nonprofits with access to the resources, technology and support they need to streamline their supply chain operations and maximize their impact, said there is “clearly an indication” that LTL shippers will be impacted by price increases in 2024.

Shippers need to work with their customers to streamline and consolidate their LTL shipments. Carriers said there are three areas where shippers can help:

• consolidating pickup and deliveries (avoiding Mondays, for example);
• crossdocking strategies (avoiding single shipments, for example); and
• line-haul costs (the largest single area for shippers to improve efficiency)

It’s all about optimizing a carrier’s time and equipment capacity to eliminate waste. With Yellow out of the equation, the market has gotten that much tighter.