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Kate Linebaugh: Our colleague Paul Page covers supply chains and the logistics industry. And what’s your favorite color?

Paul Page: My favorite color is mauve.

Kate Linebaugh: Mauve?

Paul Page: I’m not sure what mauve is, but I just … it’s the first thing that came to mind.

Kate Linebaugh: Yellow wasn’t the first color that came to mind?

Paul Page: Oh, you want me to try that again?

Kate Linebaugh: No. Yellow. Both a primary color and the name of a major player in the world of logistics. One that’s been around for almost 100 years.
Okay. For people who have not heard of Yellow, tell us what it is.

Paul Page: Yellow is one of the biggest trucking companies in the United States. They are the nuts and bolts that moves goods between factories and distribution centers, between distribution centers and stores. We see their trucks all over the highways, and I know they blend into the background for most people, but they’ve been a binding force in the American economy.

Kate Linebaugh: But over the decades, Yellow’s business has had a rough ride.

Paul Page: So Yellow has been in almost continual, perhaps even periodic crisis, and somehow they’ve always pulled rabbits out of the hat. They’ve somehow managed to survive over time. They’ve gotten lenders to come in, they’ve restructured their finances in some ways, and they’ve managed to keep things going. But they’ve been stepping up to that cliff, really over the last 20 years, several times.

Kate Linebaugh: And this week, Yellow seems to be going over that cliff.

Paul Page: Yellow, on Sunday, ceased all of its operations. They simply stopped moving freight at all, and they told their unionized workers that they were going to declare for bankruptcy. This would be the biggest failure of a trucking company ever, really.

Kate Linebaugh: Welcome to The Journal, our show about money, business, and power. I’m Kate Linebaugh. It’s Friday, August 4th. Coming up on the show, how Yellow, one of America’s biggest trucking companies, finally ran out of gas.
US Trucking really took off in the 1950s, thanks to the creation of the National Highway System.

Speaker 3: Already the interstate system is shortening the distance between terminals, and making every community accessible. Travel and shipping times are less, routes more direct, and fragile and perishable goods arrive fresher and in better condition.

Kate Linebaugh: Suddenly, truckers could drive from New York to Chicago, Chicago to New Orleans, Miami to LA. It was faster and it was cheaper.

Paul Page: These kinds of long runs connecting distributors, farmers, manufacturers to far away markets in the US took hold, and companies like Yellow came out and profited a great deal. And they knitted the country together.

Kate Linebaugh: Yellow was one of only a handful of trucking companies. There wasn’t a lot of competition, and the industry was heavily unionized.

Paul Page: Yellow is also part of what looks increasingly like a long ago economy. An industrial economy that has been disappearing for several years, for decades, really. They went hand-in-hand with the Teamsters. And the Teamsters grew as the company grew, just as other trucking companies … and the Teamsters will tell you. That they worked hand-in-hand with trucking companies to expand their business. And as those businesses profited and grew, the Teamsters profited and grew.
What happened that upset that apple cart was deregulation of trucking in 1980 under President Carter.

Kate Linebaugh: Wait a minute. Trucking was regulated by the government?

Paul Page: Trucking was in fact regulated, highly regulated by the government. Rates and service were regulated, were overseen by a regulator, and they all worked hand-in-hand. The free market was just down the road, but there wasn’t as much of a free market as we have today.

Kate Linebaugh: Deregulation allowed new companies to pop up, specialty carriers. Their services cost more than Yellow’s low price shipping, but many weren’t unionized. And these companies were quicker and nimbler.

Paul Page: A lot of trucking companies sprang up, non-union trucking companies, and they went head-to-head with companies like Yellow. That presented a real challenge. It siphoned away at a continual pace a lot of the shipments that were going to Yellow and some of its competitors in that business.

Kate Linebaugh: And what did Yellow do?

Paul Page: They tried to grow by buying companies. I mean, this gets to some business strategy issues. They got bigger by buying other companies. They didn’t grow organically with the market. They didn’t go out there and try to, at least back in that era, grow as much as other companies were growing with specialized services. They grew by buying companies.

Kate Linebaugh: Those acquisitions allowed Yellow to build out a coast-to-coast network of trucks and shipping terminals. And in 2003, it bought a big rival, a company called Roadway, for about a billion dollars.

Paul Page: They bought Roadway because they simply wanted to be a bigger company because they saw value in getting a lot bigger. The business guys call that economies of scale. You can spread out your costs over a larger, wider area of business. And when you buy a trucking company, you’re not just buying their trucks and all the other operations, you’re in a sense buying their customers.
So when Yellow bought Roadway, they bought all of Roadway’s customers. So they had a bigger reach into the American economy.

Kate Linebaugh: And was Roadway also unionized?

Paul Page: Roadway was unionized. And so that was a factor, they bought another unionized company. It was important to the acquisition, because combining unionized and non-unionized operations can be very difficult. You’ve got things that are governed by union contracts, and if you bring in a non-union operation alongside a union operation, it’s going to cause a lot of tension.

Kate Linebaugh: And how did Yellow integrate Roadway into its operations?

Paul Page: Part of the problem with Yellow is that they didn’t actually integrate Roadway into its operations. They tried to keep Roadway running as a separate operation alongside, as if you have two different stores next to each other and you’re just operating them separately. As if Walmart bought a Target next door, and then they just simply run it as Target.
In many ways, the easy way out is just to let things keep running, but the easy way out doesn’t really help you in the long term.

Kate Linebaugh: And how did Yellow finance the acquisition?

Paul Page: They took on more debt at the time. That also put them into debt, that also added to their debt load. And ultimately, there are so many things that Yellow had to deal with over the years, but that kind of debt load kept piling up.

Kate Linebaugh: At the beginning, Yellow kept its network of trucks and terminals largely separate from Roadway’s, which ended up hurting Yellow.

Paul Page: What they ended up with was having three trucks with three different drivers showing up to the same customer door. Not an efficient way to run a business.

Kate Linebaugh: So why didn’t Yellow integrate its business with Roadway’s?

Paul Page: Because integrating companies is very hard. And they, in a sense, didn’t make the tough decisions they needed to integrate those companies and get their finances in order. That ate away at their finances over time.

Kate Linebaugh: And how did Yellow perform after the Roadway acquisition?

Paul Page: Yellow got bigger. But the problem is Yellow had trundled along, kind of steaming down the highway as it were, barely eking out a profit. They were all about bringing in revenue, all about market share, growing at all costs. And the problem is you’re growing at an unprofitable business, and that just gets worse and worse as you get bigger.

Kate Linebaugh: Yellow’s Former CEO, who oversaw the Roadway deal, said in retrospect, Yellow should have integrated the two companies sooner. It wasn’t until two years ago that Yellow started a program to fully combine its acquisitions, but that didn’t end well. That’s next.
The pandemic changed the landscape for trucking and logistics. When all of us were stuck at home ordering stuff online, truckers became essential workers. And many trucking companies started making money hand-over-fist, but not Yellow.

Paul Page: Yellow, oddly enough, didn’t profit as much as other companies. Yellow was the low price option, and they had a very difficult time with their customer base, raising prices and getting the kind of returns that other companies were getting. It gave them some breathing room, but we saw some enormous profits from some of Yellow’s competitors, from trucking companies. Yellow profited, but they didn’t profit enough to have the kind of meaningful impact on their balance sheet and clear away debt that they really needed to.

Kate Linebaugh: And why did Yellow need to clear away its debt?

Paul Page: Yellow had enormous debt. They needed to keep servicing that debt. Therefore, they needed to keep the revenue going in. They couldn’t afford to lose revenue and to lose customers, so they kept that churning along. The problem is there’s, again, that tough decision that you don’t make, and the easy way out was to keep everything the same and just keep moving along.

Kate Linebaugh: In 2020, the company warned it would struggle to make its debt payments.

Paul Page: People started looking at Yellow, and we started looking at Yellow and saying, look, this company isn’t going to last. And somehow they pulled another rabbit out of the hat. And this time, the rabbit was the federal government.

Kate Linebaugh: The government loaned $700 million to Yellow as part of a COVID rescue package. The Treasury Department classified Yellow’s services as important to national security because of its contracts with the Pentagon.

Paul Page: The loan was originally a lifeline. It gave Yellow some room to operate, and it gave them money to fund the kind of new trucks, new equipment that they needed. Yellow is not known for operating the best, most up-to-date, well-maintained equipment out there, and so they were able to do that.

Kate Linebaugh: Yellow also paid off millions of dollars in debt, and used some of the money for missed healthcare and pension payments to its workers. Then in 2021, the company set out to finally integrate its businesses, a plan called One Yellow. It wanted to close some terminals and consolidate operations.
On the ground, it wanted to have drivers do more work helping out at the docks of truck terminals. But this also meant changes to its contracts with the Teamsters, and the union wasn’t having it.

Paul Page: The Teamsters said, whoa, wait a minute. You’re changing work rules. This isn’t allowed in the contract. We need to go back into the contract. You can’t just unilaterally tell people, this is now your job. The job is defined in the contract. So that created something of a standoff.

Kate Linebaugh: Things escalated in June this year, when Yellow tried to delay $50 million in pension fund payments. The Teamsters threatened to strike, and that prompted Yellow’s customers to take action.

Paul Page: People started shipping away from Yellow, and Yellow in turn said, look, we’re losing business. It’s because of you, the Teamsters, that we’re losing business. And they filed $137 million suit. That was how much money Yellow said they had lost. That was how much business Yellow said they had lost from the Teamsters confrontation. And they blamed that on the Teamsters.

Kate Linebaugh: How did the Teamsters respond?

Paul Page: Well, the Teamsters weren’t happy. That really started the finger pointing back and forth. And it created this, in a sense, a family fight, right? They were working hand-in-hand together. Well, now it was not so much hand-in-hand. And so it looked, at that point, like the Teamsters relationship, this symbiotic relationship that had gone on for decades, really was broken.

Kate Linebaugh: And that became very clear last weekend. Yellow started laying off workers and closing its operations. According to the Teamsters, Yellow notified its workers that it’s preparing to file for bankruptcy. A longtime board member called it an incredibly sad situation. That bankruptcy filing hasn’t happened yet.

Paul Page: I mean, really ultimately, the issue here is there are 30,000 jobs and 30,000 workers. And there are a lot of big business issues here, but I keep going back to that. These are blue collar jobs. These are hardworking people. People have spent, as they say, 20, 30 years with this company and really have worked hard for it, given it their life’s blood over the years. And very abruptly, that seems to be turning off right now.
It’s not really a business story for them, it’s a personal story. It’s their life story.

Kate Linebaugh: Will Yellow’s bankruptcy cause a major disruption for trucking and logistics in the US?

Paul Page: Yellow is failing at an interesting time. If this had been two years ago, it would’ve been a major disruption. The fact is, there’s not that much stuff moving right now. There’s plenty of space available. We heard from one of Yellow’s competitors that, look, we have 30% of our capacity going unused right now.
So oddly enough, as big an event as it is, it seems to be, in fact, already absorbed. Companies have already absorbed all of Yellow’s business, all of the shipments out there. And I’m not hearing about big disruptions here or there.

Kate Linebaugh: So what’s the lesson from Yellow? It ran out of rabbits?

Paul Page: It reached one too many times into that magic hat, and really didn’t find any rabbits in there at the end. It’s a business lesson. Make the tough decisions when you need to. Don’t take the easy road. Don’t take the easy way out. Think long term. Think about where you expect the company to get to, where you expect it to be. Not really what’s the best thing just for today. A lot of that short term thinking is what led Yellow to where it is today.

Kate Linebaugh: That’s all for today, Friday, August 4th. Additional reporting in this episode from Sarah Nassauer. The Journal is a co-production of Gimlet and the Wall Street Journal. The show’s made by Maher Adoni, Annie Baxter, Katherine Brewer, Maria Byrne, Pia Gadkari, Rachel Humphreys, Ryan Knutson, Matt Kwong, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinoza, Heather Rogers, Jonathan Sanders, Pierce Singgih, Jeevika Verma, Lisa Wang, Catherine Whelan, and me, Kate Linebaugh.
Our engineers are Griffin Tanner, Nathan Singhapok, and Peter Leonard, with help this week from Sam Bear. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Griffin Tanner, Nathan Singhapok, and Blue Dot Sessions. Fact checking by Nicole Pazulka. Thanks for listening. See you Monday.