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What's causing trucking companies to go bankrupt?

Posted by Nate Schaublin on 3/12/20 11:56 AM
Nate Schaublin
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WHATS CAUSING TRUCKING COMPANIES TO GO BANKRUPT_ (1)

What the truck is going on? 

Trucking bankruptcies have been a hot topic over the past year, with several larger carriers such as New England Motor Freight, Falcon Transport, and Celadon ceasing operations and in some cases stranding drivers out on the road. In addition to these larger carriers, every week there seems to be another longstanding carrier with 30-plus years in business deciding that the business just wasn’t worth it anymore. What is going on and what do things look like moving forward?

Are we really seeing more bankruptcies?

Yes and no, depending on how we look at it. 2011 through 2018 saw historical lows for trucking bankruptcies when viewed through the lens of the number of trucks involved, as the recession-era of 2007-2010 culled many of the lower-performing fleets from the market. 2018 itself was the lowest failure rate in the past 20 years as tight capacity, plentiful freight, and higher spot market rates propped up many carriers that otherwise may not have survived. So, after many years of not seeing much activity in the way of shuttered and bankrupt carriers, the difficult market we’ve seen from 2019 onward has led to an increase in these events relative to what we were seeing, but nothing on the earth-shattering scale that industry media may lead you to believe. 

Speaking of the media…

In regard to the media’s role in this, there are simply more outlets reporting this type of news than ever before and they’re all battling to get more ‘clicks’. Whether it is Transport Topics, Commercial Carrier Journal, Freightwaves, or any of the other media outlets that seem to pop up every month, they all must generate content for their various Twitter, Facebook, and Instagram feeds. A 30-truck fleet in Oregon decides to shut their doors because the owner wants to retire – they chalk it up to the ‘Trucking Apocalypse’. Sensational headlines grab clicks (I’m guilty), clicks generate exposure, exposure attracts advertisers, advertisers pay money, lather, rinse, repeat.

Is there any commonality to these fleet failures?

Some, but in a complex and highly competitive industry like trucking, the reasons are many. Poor management and shady accounting practices doomed Celadon. Over-reliance on key customers with unfavorable contract terms helped to wipe out New England Motor Freight (Amazon) and Falcon (General Motors). Subpar safety practices and the resultant increase in insurance costs have claimed and will continue to doom many others. Failure to plan for the future and the lack of a next generation of leadership causes fleets to shut their doors and liquidate assets. That’s simply a matter of demographics. As the ‘Baby Boomer’ generation slowly ages out of the workforce, not having a sustainable succession plan will continue to bring long-tenured carriers to their reckoning.  Lastly, many carriers bought beyond their means during the good times of 2017 and 2018 and simply racked up liabilities that this slower business cycle can’t support.

What can carriers do to reassure stability?

This is an outstanding opportunity to get in front of customers and tell your story, to prove to them your steady quality of service and safety of operation. Focus on listening to your customers and providing solutions to their unique problems. Present a strong balance sheet capable of weathering the rough patches and building capabilities to take advantage of the boom times.

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Topics: Transportation

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