Last November, during the height of the AIG and Fannie Mae/Freddie Mac meltdowns, I wrote a piece questioning whether there was a logistics or transportation company that was too big to fail (see “Too Big to Fail, or Death by a Thousand Cuts“).  My opinion at the time (which for the most part I still hold) is that there’s no single logistics company that’s too big to fail.  But the industry as a whole is certainly too big to fail, and its death (if it happens) will come by a thousand cuts: thousands of additional carrier bankruptcies, additional costs driven by new regulations (carbon tax, Employee Free Choice Act), the inevitable rise of fuel prices, more toll roads, severe driver shortages, a bankrupt Highway Trust Fund, and so on.

A few weeks later, I had lunch with a friend, the president of a transportation consulting company.  He disagreed with my opinion.   He felt that there are certain transportation companies that are indeed too big to fail, or at least important enough to create significant capacity and service issues if they collapsed.  He cited YRC Worldwide as an example, due to its significant share of the less-than-truckload industry.  Last month, he forwarded me the following excerpt from a research note published by Wolfe Research (founded by Ed Wolfe, formerly with Bear Stearns): “One of these [large manufacturing companies using YRC] went to his treasury department late last year for help in assessing YRCW’s financial condition, and while the response supported reduced exposure and contingency planning, this shipper had good conviction that YRCW would survive at least through 2009 because even on the worst-case financial scenario, he did not believe the new Obama administration would allow such a failure [emphasis mine].”

Now you know why I was so interested in an article that appeared in last Friday’s Wall Street Journal: “YRC to Apply for Bailout Funds” by Alex Roth and Robin Sidel.  According to the article, YRC will seek $1 billion in federal bailout money to help relieve pension obligations (read the article for the details related to pensions).  The odds are slim that the company will get any Troubled Asset Relief Program (TARP) money, according to a source quoted in the article, but William Zollars, YRC’s CEO, is quoted as saying that applying for TARP is a “way to get the dialogue started about the pension issue.”

I still believe that the failure of any large logistics or transportation company, while painful and disruptive in the short term, is a problem the industry can recover from relatively quickly, especially in this economic environment where shipment volumes are down significantly and excess capacity exists.  It’s the many other issues that I cited earlier-”the thousand cuts”-that pose a greater long-term risk to the health of the transportation industry.

What does this all mean for you?  If you haven’t already, you should follow the lead of the manufacturer cited in Wolfe’s research note and understand your “exposure” to transportation and logistics partners that are facing financial difficulties (you should do the same for any supplier, including IT partners) and have some contingency plans in place.  And if you’re concerned about the long term health of the industry, you should stay informed of what’s happening in Washington, with things like the Highway Trust Fund and cap-and-trade, and lend your voice to the debate.

What do you think?  Is YRC Worldwide or any other logistics and transportation company too big to fail?  Are things like the Highway Trust Fund and cap-and-trade bigger issues?  Post a comment and share your viewpoint.