The story of how that came to be started in 1906 with a man called Cleve Harrell. Founding a horse-drawn carriage transportation company in Oklahoma City, Harrell did well enough that he could afford to buy a Model T Ford car after one year. He realized people would pay more to be driven around in a car and so he ran with that business model.
Following World War I, Harrell bought more cars and decided to paint one of them yellow on a whim. Laughed at by other cab drivers, Harrell kept going and soon enough his yellow car was bringing in more business than his competitors. Eventually, Harrell trademarked the Yellow Cab name in Oklahoma and his formula was copied by Chicago’s John Hertz, who got the national trademark for the Yellow Cab name.
Still, Harrell and his family kept going and their Yellow Cab Company became the Yellow Corporation - one of the world’s most successful logistics and trucking brands.
But even companies that create cultural icons aren’t immune to a reversal in fortune. In 2023, the logistics giant filed for bankruptcy because of a string of issues. High debt, labor shortages and supply chain disruptions toppled Yellow Corporation.
This familiar story is repeating itself across North America as the logistics industry faces some of the most pressing challenges experienced in recent years. And if you find yourself staring into the storm of this uncertainty, there are lifelines out there.
The first step is to understand the financial costs of logistics before you develop a plan.
According to Supply Chain Brain, total transportation costs in the US grew by 7.4% year-on-year from $1.2960 billion in 2021 to $1.3914 in 2022. These costs are among the most expensive that logistics companies must consider and are wide-ranging. They can include:
Storage costs are another factor you should understand thoroughly about risk management in logistics. This could be any one or all of the following:
Along with being familiar with the financial risks and cost management in transport, you should be aware of the industry challenges.
Cash flow management is at the top of the list of challenges for logistics companies – it’s driven by every other issue that we’ll be discussing. Remember the story of Yellow Corporation’s rise and fall? The company suffered from cash flow problems and was drowning in $1.2 billion of debt.
Meanwhile, Minnesota-based Twin Express defaulted on a $19 million loan and was liquidated by courts in November 2023. FreightWorks also shut down after losing its biggest customer, putting many employees out of work.
Bankruptcy often happens due to several internal factors like poor cash flow forecasting and profit management. But it’s not just what’s happening inside a company – we know external factors like soaring overheads and wage and freight cost rises can also play a major role.
The geopolitical landscape has been rough terrain for the transport industry. The conflicts in Russia and the Middle East have damaged supply chains, leading to shipping delays and an inability to find replacement suppliers. Adding to that, the growing tension between the US and China could further complicate matters.
Another symptom of this disruption is a labor shortage, with the American Trucking Associations predicting a shortage of 82,000 drivers in 2024. You also must consider the slew of bankruptcies like some of the companies we’ve already mentioned. With those brands shutting down, thousands of skilled drivers have been left in the lurch, making it an even more competitive environment for jobs that businesses can’t hire for because of recession turmoil.
Talk of a recession happens every year. But there is evidence to support that many of the recent big logistics bankruptcies have been caused by rising interest rates, with one of the most prominent examples being Convoy Inc.
The co-founder Dan Lewis said in a company-wide phone call that the main reason why the company went bust was being caught in “the middle of a massive freight recession and a contraction in the capital markets. This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm. There has been a drop in merger and acquisition activity in the logistics sector and most of the logical strategic acquirers of Convoy are also suffering from the freight market collapse, making the deal doing that much harder.”
Now that we’ve looked at the major factors driving logistics companies to fail, one of the first actions to take is to reassess all your due diligence processes. How do you choose suppliers and partners? How do you vet them? How do you manage Accounts Receivables and keep cash flowing?
Let’s start with supplier due diligence. Poor practices will only saddle you with late product deliveries and expose you to the risks of working with unethical suppliers who can cost you financially, legally and reputationally.
Here’s a useful risk management checklist to help you set up effective due diligence processes:
Once your due diligence is air-tight, apply the same thoroughness to your Accounts Receivables processes.
Here are some tips to help you improve your Accounts Receivables and keep cash flowing:
As the saying goes, in times of peace, prepare for war. Even if everything seems great like it did at Yellow Corporation on the surface, don’t run the risk of going down the same path. Have multiple backup plans so you can fend of all logistics challenges and be at the front of transport risk and cost management.
Here are some things to consider for your contingency plan: