Trucking companies failing at nearly triple the rate of 2018 Facebook Twitter Comments

Celadon Group, the largest provider of international truckload services in North America, became the latest trucking company to shutter operations after announcing it filed for bankruptcy earlier this month, falling victim to a trend sweeping across the industry at a rapid pace in 2019.

So far this year, trucking companies have failed at nearly triple the rate of 2018.

According to Donald Broughton, principal and managing partner of data firm Broughton Capital, 795 companies have failed in 2019. That means almost 24,000 trucks were removed from the nation’s capacity.

In 2018, 310 companies failed total, removing 2,805 trucks from the road. That was, however, a “historically record-low rate for trucking company failures,” Broughton said.

 

In addition to Celadon Group, other big companies that went under include New England Motor Freight, which employed more than 1,400 drivers, HVH Transportation, Falcon Transport and LME.

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Part of the problem, according to Broughton, is that spot pricing has dropped, which hurts smaller companies that operate in the spot market instead of the contract market. Spot prices refer to shipping prices as they currently exist.

“Pricing was so strong in 2018, that all truckers increased spending on driver pay,” Broughton said. “Especially given how low unemployment is, there is no way to cut driver pay. So, as rates decline, costs such as driver pay don’t and margins suffer as a result.”

Trade tariffs, as well as slowdowns in a variety of markets, including housing and auto, contributed to the drop, Broughton said. He has predicted companies will continue to fail in 2020 because of the weak pricing environment.

However, instead of the failure rate being abnormally high in 2019, Broughton said it was actually abnormally low last year.

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But added pain for the industry could be coming next year in the form of labor laws designed to protect contracted workers from being misclassified. In California, for example, a law will go into effect in January that will make it harder for companies to classify workers as contractors, which the California Trucking Association has said could put 70,000 owner-operators in the state out of work. The group has sued to prevent the law from taking effect.

New Jersey is considering similar presumption-of-employment status legislation, triggering alarm among the state’s trucking industry, as well.

And there is still a widespread driver shortage weighing on trucking companies. The industry was short about 60,800 drivers in 2018 – a roughly 20 percent increase from the year prior. If current trends continue, the shortage is expected to balloon to more than 160,000 by 2028. Over the next decade, the industry will need to hire 1.1 million new drivers – many of whom will be needed to replace older and retiring workers.

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Unlike other companies, Celadon was weighed down by a multi-year investigation into an alleged fraud scheme among former executives. In a news release, the company’s CEO cited the costs associated with the multi-year investigation, in addition to “enormous challenges in the industry,” as reasons for filing for Chapter 11 bankruptcy protection.

Source: https://www.foxbusiness.com/markets/trucking-companies-failing-at-nearly-triple-the-rate-of-2018

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Posted Date : January 10 2020