From Yellow to Red
Why do some freight movers fail?
Some say failure is success in progress. Through failure one can learn from mistakes and keep moving forward. But how can an almost 100-year-old trucking company not have learned from past failures? Research shows 50% of all new trucking businesses won’t make it to the five-year mark. (followed by 70% by year ten). Sobering numbers for sure, but what contributed to trucking businesses going in the red?
What we know…
Yellow Corporation has ceased operations and is filing for bankruptcy. The shutdown comes after Yellow failed to reorganize and refinance the roughly $1.5 billion dollars it had, as of March, in outstanding debt, a large portion of which came from the $700 million pandemic-era government loan. At the time of the loan, the company was facing charges of defrauding the government by overbilling on shipments for the U.S. military. It ultimately settled the lawsuit and agreed to pay the US Defense Department nearly $7 million. The shutdown also comes amid its ongoing, and costly, conflicts with its employees. Yellow employed roughly 30,000 people as of the end of 2020.
“Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government,” said Teamsters General President Sean M. O’Brien in the statement. “This is a sad day for workers and the American freight industry.” The $729.2 million it now owes the US federal government is due in September 2024. Yellow has repaid just $230 million of the principal it owed, in addition to $54.8 million in interest payments, government documents show.
Future pricing…
Some of Yellow’s largest clients, including retailers Walmart | Home Depot, and logistics platform Uber Freight have already halted shipments to the failing carrier company to prevent goods from being lost or abandoned in the event of bankruptcy, Reuters reported. As Yellow customers take their shipments to other carriers, like FedEx or ABF Freight, prices will go up for those who remain. Yellow’s prices have historically been the cheapest compared to other carriers, Satish Jindel, president of transportation and logistics firm SJ Consulting, told the Associated Press. “That’s why they obviously were not making money,” he added. “While there is capacity with the other LTL carriers to handle the diversions from Yellow, it will come at a high price for (current shippers and customers) of Yellow,” Jindel said.
Here are the top 10 NOT reasons why trucking businesses will fail over the next 10 years…
- not prioritizing sustainability
- not putting customers first
- not relentlessly innovating
- not embracing diversity and inclusion
- not being agile enough to adapt to change
- not having a clear purpose or mission statement
- not having a strong culture that supports innovation and creativity
- not having a strong brand identity and not having a strong digital presence.Trucking companies large and small also fail for a variety of what might seem obvious reasons:
- lack of planning
- poor management
- low cash-flow
- no collection strategy
- low paying freight
- no knowledge of market rates
- failure to stay compliant.
- partner with the wrong people and no professional help.
- charging incorrect rates for services
- not seeking getting professional help when needed
- industry-wide problems
- a floundering economy
- not meeting customer expectations
- not investing in technology
- failure to manage and inspire drivers.
- a challenge to find and retain excellent driver
Let go back a bit…
Market conditions in 2020/21 for the trucking industry were pardon the comparison… “on fire”. The year began with a 28% decline in Spot Rates according to FreightWaves National Truckload Index. The contract market rate to move a truck declined by 6% over the same period. The cost, however, to run a trucking business has sharply increased despite this slump in rates. The most challenging of cost changes has been the retail cost of fuel. Diesel costs have grown a staggering 36% higher from the beginning of this year. Compared to 2019, the industry hasn’t seen a wave of large firms declaring bankruptcy. They seem eager to keep on expanding. Hiring activity increased and HR listings fell. USA data reflects trucking payrolls increased by around 55,600 drivers, or a 3.6% increase, from January to November 2022. After the ‘bull run’ for business some companies have proven more resilient than others.
However a few have not…
Some of the largest NA trucking companies that filed for bankruptcy in 2022 include Marvin Keller Trucking, LandAir, UFI Transportation, Matheson Postal Services, Falcon Transport, New Century Transportation, Jevic Transportation, Arrow Trucking, New England Motor Freight, NationsWay Transport Services, Preston Truck Lines, Celadon Group, Freon Logistics, Navarro Trucking Group, JCB Trucking Enterprises, McClellan Trucking and Duran Transfer, Elite Transportation, Rooney Trucking and L.W. Miller Cos.
When a trucking company goes bankrupt, it can no longer operate, and its assets are liquidated to pay off its creditors. The employees of the company may lose their jobs as the company moves through the bankruptcy process. Failure may be success in progress, but not this time for the Yellow Corporation…it sees nothing but red.
