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Opinion: What’s behind the U.S. trucking bankruptcies?

Posted: September 9, 2019 by Mike McCarron

The first six months of 2019 were tough on truckers south of the border. According to transportation analyst Donald Broughton of Broughton Capital in St. Louis, 640 trucking companies shut their doors in the first half of the year. That’s a big spike compared to 175 companies that closed during the same period in 2018.

Trucking is cyclical, but what’s interesting this time around is that you can’t attribute these closures to one single factor. Broughton does acknowledge that costs are higher and pricing power has dipped, but there’s been no economic downturn, no regulatory change, or spike in fuel prices to take down a lot of carriers all at once.

I looked into the sudden increase in U.S. trucking closures to see what lessons we can learn in Canada. Here’s what I found.

Too Many Trucks

Trump, tariffs, and other business disruptions are coming from all angles, and many people including myself felt they had contributed to a downturn in freight. So I was surprised to learn that truckload volumes in the U.S. were actually 7% higher during the first half of 2019 compared to the same period last year.

The problem isn’t a lack of freight. It’s too many trucks.

It seems that U.S. truckers expected the boom of 2018 to last forever, forgot the lessons of 2008, and used last year’s record profits to increase the size of their fleets. With more trucks chasing the same freight, control over pricing has shifted back to the shippers, and rates are down. It’s tough managing your own capacity, let alone an entire industry.

Customer concentration

Last February, 101-year-old New England Motor Freight—the nation’s 19th-largest LTL carrier—was taken out after one of its biggest contracts, Amazon, squeezed them. In July, Youngstown, Ohio-based Falcon Transport, a 700-truck fleet, closed when its largest customer shuttered two plants.

It’s risky to have a lot of business with a few customers, but in trucking this is incredibly common. When I owned MSM Transportation, I had many sleepless nights fretting over the loss of a big customer. There is no magic formula to combating customer concentration, other than maintaining a vibrant sales funnel and continually attracting new business. In today’s market, that’s easier said than done.

Spot markets and small carrier peril

According to Broughton, the average size of the U.S. carrier that went south in 2019 is 30 trucks.

With pricing power back in the hands of shippers, spot van rates in August were down 15% year over year, according to DAT. The real problem for small carriers is that the spot market, on which many rely so heavily, is down a whopping 62% this year, according to Business Insider.

Unfortunately, small carriers don’t have the same leverage as their bigger counterparts to get higher contract rates. They’re also dealing with the reality that many larger carriers used their surge in profits from 2018 to raise driver pay or invest in technology to make their operations more efficient.

Kudos to Canadians

Whenever I compare statistics in Canada and the U.S., I use the 1/10 ratio — and it’s almost always bang on.

I was over-the-moon ecstatic to see that instead of the expected 64 trucking closures in Canada this year, I could find only one: FTI Transportation. Even that should be listed with an asterisk because FTI’s demise can be linked to Denver-based HVH Transportation, which shut down in August.

To what can we chalk up our improved survival rate?

One reason is that Canada has a far more rigid lending environment, which makes capital tougher to access. It’s the same reason the 2008 economic meltdown was far less severe in Canada.

The only other conclusion I can draw is that Canadians are now simply better than Americans in both hockey and trucking.

  • Mike McCarron is the president of Left Lane Associates, a firm that creates total enterprise value for transportation companies and their owners. He can be reached at mike@leftlaneassociates.ca, 416-551-6651, or @AceMcC on Twitter.

 

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