Yellow Freight and an economy on the margin

Yellow Freight, a massive, almost century-old LTL carrier, has gone out of business, and the “spin” of the business world will likely rival the spin of the political world in covering this news.

First, some background. LTL refers to “less than truckload freight,” so an LTL carrier is one that picks up relatively small loads, usually 1 to 5 pallets’ worth, and consolidates them at terminals with other such freight with similar destinations, in what is called a “cross-dock” operation. Through a network of base terminals across a metro area, a region, or even the entire country, the nation’s thousands of LTL carriers consolidate such loads and deliver goods so that shippers don’t have the unbearable expense of hiring an entire truck for a small order.

Many such LTL companies have a truckload division and other divisions as well, such as logistics management consultancies, international freight forwarders, and project cargo subsidiaries, as did Yellow, but at Yellow, the LTL aspect has always been the driving force.

Yellow was a union carrier, so, both members of the transportation industry and the general public at large have been treated to very public battles between the company and the Teamsters for generations.

As with any business closure, there will be debates over fault for years to come. Was it because the union was too vicious in fighting management? Was it because management made bad decisions or was unable to fulfill promises it made to the union? Was it because either side consciously cheated the other?

Or was it because at some point, Yellow Freight just chose a direction for itself that became ever more challenging as the economy changed over the decades?

Yellow has had multiple restructurings and acquisitions since the 1970s, each time hoping to emerge stronger, while arguably digging itself a deeper hole. Gradually, Yellow had to lower its prices to keep business, reducing opportunities for profits, bleeding cash year after year as a result.

By the end, Yellow was just an enormous, low-cost carrier, with a reputation for unacceptably slow transit times, attracting only the most cost-conscious of customers.

Could others have managed the company better? We will never know, but the business pages will be full of discussions for the next few weeks, and some will go so far as to say that just because it was expected, it’s not a big deal. “Yellow’s failure was already baked into our outlooks,” they will say. Odd, isn’t it, how many talking heads say that the worst problems in the world are not a big deal, just because they were expected.

Here’s what we know for sure:

Approximately 30,000 people are now unemployed, who had a job last week. That’s 30,000 experienced people – truck drivers, dock workers, mechanics, bookkeepers, sales reps, IT experts, customer service reps, and other employees in all levels of management and back-office clerical services.

They will now be competing with the millions of other jobseekers already in the marketplace. Hopefully they will find something better; they could hardly do worse.

But in the meantime, while they hunt, they will be filing for unemployment and/or other benefits, and/or burning up their savings, putting further strain on an already struggling economy.

This gives us an opportunity to analyze one of the painful misconceptions that leftist economists like to parrot when discussing tax policy: that corporations should pay more income taxes, because if a corporation doesn’t directly pay income taxes itself, then it’s not contributing anything to the economy.

Well, Yellow has been losing money for years, so it has rarely made a profit, and therefore hasn’t paid much in income taxes for its size.

But in the past, Yellow bought millions of dollars’ worth of diesel fuel every week, and half of that spend was in fuel taxes and fees.

While it was operating, Yellow owned or leased thousands of offices, terminals and truckyards, in every state of the union, all of which paid property taxes.

Until last week, Yellow contributed to the workmen’s comp and unemployment insurance programs of every state in which it operated.  Yellow paid the employer’s matching amount of every employee’s FICA collection – that’s about 7 1/2% of all of those 30,000 salaries – paid to the federal government every week. That’s not chump change.

Until last week, Yellow employed an array of other local services and businesses, which both armchair economists and the ones on television never think about. Their sales reps took customers to lunch or dinner on sales calls. Their terminals hired local maid services, painters, parking lot repavers and landscapers. Their offices contracted with local utilities, buying cellphone service, internet coverage and land lines, and contributing to all the many other shared local expenses that utilities provide to a community.

It doesn’t end there. A company of 30,000 employees buys cars for its sales reps, and siding and roofing for terminal construction, and carpeting for its offices. It constantly invests in new trucks, new trailers, and new forklifts. When that company of 30,000 goes out of business, this steady spend in the local economy ends as well.

All the beneficiaries of those expenditures pay taxes. Even if Yellow itself wasn’t paying federal and state income taxes, because of its many years of losses, its employees paid income taxes, and its corporate spend enabled everyone else in the economy to pay income taxes.

You will see armchair economists report confidently that other trucking companies will pick up Yellow’s business, and Yellow’s equipment, and Yellow’s facilities. All true.

But with one less sales rep calling on customers, that’s one less automobile for the market to buy from Detroit, and one less sales lunch or dinner at local restaurants each day. With Saia, XPO or ABF buying Yellow’s used trucks, that’s that many fewer new trucks for Detroit to sell.  This closure means less business for all of the service industries surrounding each terminal.

There’s more. We could go on for days, listing the multitude of other successful businesses that depend in part upon every other business. When one giant closes, everyone suffers.

We should all shed a tear today for those affected most directly by the closure of this iconic brand. Should they not have bought USF a decade ago? Should they not have bought Roadway 20 years ago? Should Yellow employees have tried going nonunion, years ago, to free up the company to do what it needed to do? Should the federal government not have lit a match to $700 million in 2020 by purchasing 30% of an effectively bankrupt entity in a moment of wild desperation?

These questions are all worth asking. The history of Yellow Freight provides us with plenty of worthy material for studying management.

But it also provides us with a valuable opportunity to look at outside forces, beyond Yellow’s control, and imagine how things might have been different. Some years, the difference between profitability and unprofitability at Yellow was just a couple percent of revenues.

What if the government didn’t demand that 7 1/2% matching FICA contribution of all American employers? What if diesel fuel could be purchased for a fair price, instead of being doubled by this array of taxes? What if the government didn’t make their every truck cost ten or twenty percent more by loading it up with environmental-extremist technology? What if the Department of Transportation’s Hours of Service regulations didn’t meddle with dispatchers’ ability to staff up and serve their customers efficiently?

As we are seeing today, and as we will see in the months to come, as the ripples of this bankruptcy have their effects upon the economy at large, the Yellow Freight bankruptcy also provides us with a valuable lesson in the interconnectedness of a capitalist economy, and the dependence we all have on the enduring stability of a free market.

Perhaps, someday, we will learn the lesson that a crushing tax and regulatory burden doesn’t just hurt some unknown CEO in a Manhattan office somewhere. This burden makes everything harder for everyone, especially companies on the margin of survival.

If there was ever a time to learn that lesson, it’s now.

John F. Di Leo is a Chicagoland-based international transportation professional and consultant.  A onetime Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009.  His book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I and II) are available on Amazon.

Photo credit: Mark Collins