Forwarder’s Forum: Yellow Freight is a cautionary tale

The bankruptcy of Yellow Freight is a cautionary tale for the freight transportation industry — as much for airfreight as land and sea freight. [caption id="attachment_93852" align="alignright" width="280"] Brandon Fried, Executive Director of the U.S. Airforwarders Association[/caption] The company’s demise is the result of several factors, including: Management’s poor handling of the situation. A debt-laden balance sheet created by previous leveraged buyouts, along with Yellow management’s cries that it was running out of cash during union negotiation attempts, scared off customers. After fleeing to rival carriers, customers didn’t return. The Teamsters union’s inflexibility. After several wage decreases, the Teamsters refused to make additional concessions on salaries and benefits, which further strained Yellow Freight’s finances. The union’s rigidity made it difficult for the company to restructure and become more competitive. The government’s decision to give Yellow Freight a $700 million loan. The loan was a mistake. The company was already in a precarious financial position, and the loan only delayed its inevitable bankruptcy. Customers demanded below-market rates and Yellow Freight could not make a profit. The reduced revenue put the company in a difficult financial position, as it could not cover its costs. A wakeup call The Yellow Freight bankruptcy is a wakeup call for the freight transportation industry and reiterates that the free market, not the government, should determine success. Transportation companies are not too big to fail. If they cannot make a profit, they will eventually go bankrupt. This rule is especially true in the current economic climate, as demand for freight transportation services declines amid normalizing volumes. Customers must be willing to pay fair prices for transportation services; unions must be more flexible in their negotiations with companies; and the government must be more careful about giving loans to companies already in financial trouble. The bankruptcy of Yellow Freight is a tragedy for the workers who lost their jobs — and a warning for the trucking industry to change its ways in order to survive. Everyone likes a good deal, including shippers looking to save a buck on freight transportation spending. But rates offered far below the market should be a warning sign that the provider is desperate for cash, cannot cover its costs and cannot make a profit. Shippers using carriers on the verge of bankruptcy risk losing freight in the pipeline should operations abruptly cease. Avoiding bankruptcy Leveraged buyouts are risky and prone to failure amid shifting economic conditions. Yellow Freight’s management’s buying spree beginning in 2006 saddled the company with an unsustainable debt burden. Combined with poor integration, Yellow was unprepared for the Great Recession, resulting in its initial bankruptcy filing. Sound financial choices and shrewd management can help transportation companies avoid this fate. Customers must be willing to pay fair prices for transportation services. Paying a fair price will help transportation companies cover their costs and make a profit. However, carrier managers, not the customers, determine a company’s profitability by controlling costs and making prudent managerial decisions. Unions need to be more flexible in their negotiations with companies. This flexibility will allow companies to restructure and become more competitive. Lastly, the government needs to be more careful about giving loans to companies already in financial trouble . The U.S. government exposed taxpayers to financial risk by granting a loan despite Yellow’s lack of qualification for the money. Government loans should only go to companies with a good chance of repaying them. Who loses? In the final analysis, the American taxpayer is the biggest loser. This bankruptcy is one of the largest in history and will likely lead to higher prices for transportation services consumers pay. The demise of Yellow Freight is a clear example of how, despite being well-intentioned, our government should let the free market do its job in determining a company’s survival. Join Air Cargo Next for its second annual Air Cargo Tech Summit on Sept. 18-19 in Brussels, sponsored by Unisys and Brussels Airport and featuring a fireside chat with Brian Hodges, managing director, American Airlines Cargo . For more details and to register, click here .

Forwarder’s Forum: Yellow Freight is a cautionary tale

PODCAST: Avensis CEO Sutter discusses A340, A330 conversions

Cargo carriers aid Maui wildfire relief

Related Posts

Narrowbody transactions heat up in July

Widebody transactions carry momentum into June

From the Cockpit with K2 Aviation’s Karl Ryan

Cargo carriers aid Maui wildfire relief

Cargo Facts Free Newsletters

Cargo Facts Connect Podcast

Follow Us

Welcome Back!

Retrieve your password