Yellow faces bankruptcy: Who is in line to benefit?

a potential shake up for the transportation industry Trucking Company yellow warning they may soon run out of cash just three years after securing a 700 million dollar Federal bailout in the face of yellow's potential fall who stands to benefit in the transportation space joining us now with his picks it's Ken hexter B of A Security senior Transportation analyst so first just explain to us where yellow is with its problems great good morning um so yellow's been at this for a while they've been uh running out of cash if you go back to 2008 2009 during the great financial crisis uh you had other carriers that were chasing their volumes they went from about a 26 percent market share back then to a nine percent share today over the last two years they've lost about 30 percent of their volumes uh in Teamster negotiations which actually don't start their contract doesn't run out until next April uh they announced in negotiations that the teamster said yellow told them they run a run out of cash in August they came out with a lawsuit last week and they said actually we're going to run out of cash in in July so the timetable seems to be moving up uh it looks like the banks are not going to give them further loans unless they get uh some sort of Teamster agreement wrapped up earlier than the contract ends to give them some more leeway in work rules and that's put a lot of pressure on them and it seems that things are coming to a head a lot quicker than one would have anticipated and that's going to cause continued volume Fallout like I said over the last two years alone they've lost about 30 percent of their volumes Ken I'm going to go a little bit more broad here where where is the strongest portfolio play among Transportation right now well you got to look at the cycle right transport is a cycle we don't make anything we just move it in our world so typically the truckload group starts first then the rails then the air freight because they're more concurrent with an economy and then the less than truckload usually lags and given that lag you're seeing the volumes really come out of the industry and given that pull out that's what we're talking about with yellow uh if volumes start accelerating even beyond your fixed cost coverage it can cause some of those volumes to leave a little quicker and that can juice other carriers that have excess capacity and all of a sudden are able to take pricing up so in a normal cycle you'd normally start if we're at the sort of the bottom uh when we're kind of bouncing along that we've been bouncing along that since I'd say mid-February uh when we kind of found a floor after the tight congestion from a year ago and we've been kind of staying at this very low level and we do a truck shipper survey every two weeks and it really just shows us that we're we're kind of hanging out around in that in that 40 to 50 range of of our survey which is a diffusion indicator and that's kind of a historical lows and so if you've been at that now for 38 weeks 19 surveys that's a pretty good Freight recession definer in terms of how weak the the backdrop is right now okay so that kind of goes into my next question which was is there anything within the logistics or even trucking business right now specifically that signals to you or flashes warning signs of Q3 2023 recession yeah well we we start off with defining a freight recession right and so when we look at how weak it is the economics we leave to our economists right just because then you're talking about the services side and and services a big such a big part of GDP overall but from a freight recession period just like we saw in 2012 uh 2015 uh 2015 2019 we're seeing those same signs again of true fundamental weakness from a shipper point of view at this low period in in the uh in the survey that that defines kind of what a freight recession whether that turns into an economic recession given Rising interest rates higher inflation uh you know I leave that to The Economist to make they're still looking for growth looks like through the end of the year and and and I think they pushed out their recession call a little bit but from a freight recession period uh no doubt we're in the midst of one right now so Ken I got to ask you so yellow has managed to avoid bankruptcy in the past but let's say let's say the bottom does fall out uh who picks up that market share so there are some customers as a unionized carrier you'll have natural attrition of Union shippers that have to go to another Union carrier which would be companies like arcbest and TFI which bought UPS Freight renamed it t-force Freight so those two companies get some natural share but the big ones are the non-union carriers companies like Old Dominion Saya and FedEx freight those three over time have figured out how to take capacity take uh volumes and create long-term value so those are the three that we really focused on in our recent upgrades but the industry benefits overall there's no doubt when you lose a player that represents nine percent of share and if you look at the top call it 10 LTL companies less than truckload companies they own it it's pretty Consolidated they own about 80 percent market share so losing a nine percent player in that you're gonna have immediate volume shift to the remaining carriers and those like Old Dominion Saya FedEx freight have figured out how to take that on very profitably over time and making investors money with that Ken haxter thank you for explaining LTL to me and others all right we appreciate you so much we have a security senior Transportation analyst connector

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Length: 5min 19sec (319 seconds)

Published: Wed Jul 05 2023