Trucking bankruptcies rising as fleets fail to adjust to changing market place

There’s a conundrum in the trucking industry that has leading executives asking themselves, “If the economy is so good, how come so many trucking companies are going out of business?”

It’s a great question. Approximately 640 carriers went out of business in the first half of 2019, up from 175 for the same period last year and more than double the total number of trucking cessations all last year, according to Broughton Capital, a St. Louis-based transportation research firm that closely tracks the industry’s economic well-being.

Those failures this year removed 2,075 total trucks from the market place. The average fleet size of those carriers closing was 30. By comparison, there were 310 trucking bankruptcies or closings all of last year, with an average fleet size of nine trucks.

“The number of companies going out of business has gone up and size of fleets gone up as well,” said Donald Broughton, who compiled that data and closely follows the trucking industry.

In other words, in the first half of this year there more than twice as many trucking cessations than all last year, and the size of companies has more than tripled.

The list of significant closings began suddenly on Feb. 12 when 101-year-old LTL giant New England Motor Freight suddenly closed its doors. NEMF was part of the Shevell Group of 10 trucking and logistics units that also included Eastern Freightways, a major TL carrier. All told, NEMF controlled 1,472 trucks.

That was fallowed by Youngstown, Ohio-based Falcon Transport, which closed on April 27 taking 585 trucks out of service. Smaller companies such as Falcon Transport, Williams Trucking, ALA Trucking, LME, Starlite Trucking, Terrill Transportation, Carney Trucking and HVH Transportation followed, shuttering their doors by Labor Day.

“I expect more of same,” Broughton told LM. “As long as spot prices are weak, I suspect current issues to contain.’

The sudden drop in spot market prices for truckload services is the key to understanding this year’s failures, Broughton and other trucking experts explained.

 “Last year pricing power was extraordinarily strong for the trucking industry,” Broughton said.

  But that surge in spot TL rates has ended. Spot rates are off approximately 26 percent from a year ago, according to DAT Trendlines, which analyzes spot market rates historically.

 “In truckload, it depends entirely on what carriers did with pricing and how they reacted to market conditions in 2018,” Broughton explained. “If they paid down debt, invested in making their fleets more fuel efficient and in information technology, they’ll do fine. If they played spot market, then they have some real issues.

“It’s a tale of two cities,” Broughton added.

President Donald Trump’s tariff war with China and his disputes with Mexico have also been factors in trucking bankruptcies.

“It is uncertainty over China and drops in volume and velocity of cross-border trade as well,” Broughton explained.

Before a trade skirmish with Mexico in the spring, it often took U.S.-domiciled trucks 15 minutes or less to clear a load into Mexico at Laredo, Texas, or other major crossing points. That same route can now take a day or longer as Mexicans have retaliated against Trump over comments made regarding his border wall and immigration.

“The delays are better than they were earlier this year, but they’re still not clearing trucks fast enough. “So it’s both the volume of cross-border trade and its velocity that have been affected.”

More than 80 percent of Mexican exports come from the United States, and more than 70 percent of Mexican imports come from this year. “Yes, we’re their largest customers. But we’re also the largest source they have,” Broughton said.

The trade war with China also may be playing a factor, though it’s more difficult to assess, experts said. But because trucking is so intertwined with world trade, they say it would be silly to assume the increase in China tariffs is not having some effect on the economic well-being of the trucking industry.

“You hurt your own customers, you hurt your own economy as well,” Broughton said.