How will the demise of one of the nation’s largest shipping companies impact businesses shipping hemp and hemp products?
On Sunday, August 6, the Yellow Corporation announced it was filing for bankruptcy. “It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” the company’s Chief Executive Officer, Darren Hawkins, said in a press release. One of the largest and oldest short-haul trucking companies in the United States, Yellow has been struggling financially for years. The firm reportedly handled about 15% of less-than-truckload (LTL) shipments for major U.S. companies.
The company ceased operations at the end of July. At that time, Amit Mehrotra, an analyst with Deutsche Bank, told Bloomberg that other shipping companies might raise their prices as businesses cope with a reduction in their shipping choices. “This development is clearly very positive for the companies that remain open for business,” he said in a report.
Stakeholders in the hemp shipping sector had a more nuanced take on the news regarding Yellow. Zachary Wilcox is CEO and Founder of Fide Freight, a family-owned firm based in Michigan and Chicago that, since 2019, has pioneered the shipment of hemp and CBD products across the country. Fide Freight also contributes hemp sector transportation cost data each month to Hemp Benchmarks’ Spot Price Index reports.
Yellow’s demise, Wilcox said, “was a product of poor decisions that were made over the course of 15 years. It appears to be a slow death by debt.” However, he told Hemp Benchmarks, the shipping industry remains one of the most competitive in the country. Wilcox predicted that Yellow’s business “will be sucked up very quickly. I think it will have a small ripple effect on prices in some industries, but overall the adjustment will be quick.” Wilcox also believes that Yellow’s departure from the shipping sector will neither help nor hinder his company’s work.
As noted above, Fide Freight has since 2020 contributed data on costs to ship hemp and hemp products in the U.S. for inclusion in our monthly Hemp Spot Price Index reports, providing valuable insight into a common expense for hemp businesses. Yellow’s bankruptcy comes at a time in which transportation costs for hemp companies have risen overall due to global factors such as supply-chain challenges sparked by the Covid-19 pandemic, as well as rising fuel prices.
According to data provided by Fide Freight, average prices for commercial shipments of hemp products along common routes rose by between 5% and 20% from July 2022 to July 2023, depending on the route, vehicle type, and the direction in which the shipment was traveling.
Wide variances can exist between different routes, as well as along the same one. For example, attempting to ship products via a dry van from Los Angeles, with its extremely busy port sucking up demand for trucks, to Denver in July this year was roughly three times more expensive per mile, on average, than transporting a shipment the opposite direction between the same cities, according to Fide Freight data. The cost to hire a sprinter van to move product between the two cities, meanwhile, was comparable regardless of the direction; although moving product via a sprinter from Los Angeles to Denver was under a third of the cost per mile compared to shipping via a dry van along the same route.
Many of the factors impacting costs for shipping hemp and hemp products are relatively generic and would affect shipping costs for any industry, as in the case of Yellow exiting the business. Other considerations for shipping costs on which Fide Freight has provided perspective include extreme weather, infrastructure problems, labor actions, and seasonality. In regard to the current situation, Wilcox stated that his company’s rates will not be affected by Yellow’s closure.
As we have noted in previous articles, however, shipping hemp around the U.S. comes with its own unique challenges and has been a contentious issue since the legalization of hemp and CBD in 2018. The U.S. Department of Agriculture’s (USDA) Interim Final Rule on hemp production, issued in late 2019, stated definitively that the 2018 Farm Bill allows for the interstate transportation of hemp and hemp products across the U.S. The regulation came in the wake of several high-profile incidents in which legal and properly-documented hemp shipments were stopped and in some cases seized by state law enforcement, who claimed the vehicles were transporting marijuana.
The USDA’s final rule establishing a Domestic Hemp Production Program, issued in early 2021 and published in the Federal Register, recommended that hemp transporters “carry a copy of the producer’s license or authorization, as well as any other information the governing state or Indian tribe recommends or requires that will validate that the transporter is transporting legally grown hemp.” It also noted that the USDA would not add transportation paperwork requirements to this rule, “because it does not have jurisdiction over common carriers or other types of transporters.”
Wilcox said the hemp sector, including hemp transportation, continues to face challenges not found in other industries. “The regulations of hemp haven’t changed much,” he said, but “with the rise of derivatives [mainstream shipping] companies are still staying out.” By derivatives, Wilcox is referring to intoxicating products that are manufactured from hemp and contain various forms of THC. While the jury is out as to whether such products are legal federally, numerous states have prohibited or placed regulations on their production, distribution, and sale, complicating the efforts of companies attempting to address the U.S. market at large and build national brands.
Wilcox does expect some impact – albeit a small one – on hemp companies that depend on shipping services. “I think this will affect very few hemp companies,” he said, “but the ones that were utilizing Yellow will have to make a quick adjustment. We assume that some companies were shipping smaller (one to two pallet) shipments through Yellow and they will now need to find another solution. I think they will move over to another LTL carrier or begin to reach out for expedited services to fulfill the shipping while they find another partner.”
In the interim, Wilcox suggested that hemp companies look into shipping companies that can provide flexibility, rather than relying solely on a single carrier. “We always push for finding a third-party solution,” he said. Such third-party logistics businesses “have a network of carriers, so if any of them fall off there won’t be any disruption in our customers supply chain.”