Trucking Bankruptcies Surged in 2020 as Pandemic Hit Small Carriers

The COVID-19 pandemic forced more than 3,000 trucking companies out of business in 2020 — a significant leap from about 1,000 the year prior — as the early months of the global health crisis proved too difficult for some in the industry to withstand.

A total of 3,140 trucking companies ceased operations last year, according to a report from transportation industry data firm Broughton Capital, up from 1,100 in 2019. And of those that closed last year, slightly more than half — or 1,580 companies — shuttered during the months of April, May and June, when freight volumes plunged amid the widespread economic disruption that pushed businesses to close and put millions of people on unemployment. In May alone, 760 trucking companies closed their doors.

“Initially when quarantines were imposed, there was a surge in trucking demand, especially for dry van and reefer, because we had to restock shelves,” managing partner Donald Broughton told Transport Topics. “That kept everybody hoping. But that also faded, and when demand faded, so did spot rates. That plummet in spot rates was so low, no one could operate and turn a profit.”

Broughton

Smaller trucking companies were particularly hard hit; Broughton’s data found companies that closed last year owned an average of 16 trucks. That’s about 40% smaller than the average carrier that closed in 2019 — the year that Celadon Group Inc., which owned about 3,300 trucks, closed its doors.

Broughton noted that larger trucking operations and more well-capitalized firms were able to weather the economic fallout from the pandemic better than smaller trucking companies, which felt more pressure, especially during the second quarter

Data from DAT’s Truckload Volume Index, a measure of dry van, refrigerated and flatbed loads moved by truckload carriers, fell 19% in March when measured against 2019 and 8% in April compared with 2019. Spot rates for vans dropped 23 cents per mile in March, reefer rates fell 25 cents and flatbed rates were down 26 cents a mile — the lowest since January 2017.

“The first quarter we had another 10,700 trucks pulled from the road, which normally would be enough to cause an influx in rates, but it wasn’t, because the demand collapsed,” Broughton said. “May was actually the peak of trucking failures and 16,000 trucks were pulled from the road. May was actually pretty weak, but then demand started to rebound.”

Broughton said smaller trucking companies tend to rely more on spot freight than larger carriers, which makes them vulnerable during an economic downturn. He noted that the last-minute nature of the spot market means shipments and pricing tend to be more volatile than when working in contractual arrangements with steady, larger customers.

“Spot rates got to a point where they were lower than what anybody could operate and turn a profit,” Broughton said. “I don’t care how low your costs are. Trucking is not that complicated, it’s getting paid an adequate amount per mile and running enough miles. That’s the business.”

According to American Trucking Associations, small trucking companies and independent owner-operators make up the majority of the nation’s freight carriers; 91% of fleets operate with six or fewer trucks and 97% operate with 20 or fewer.

Broughton noted that the spot rates improved during the second half of the year, as the closures and large number of parked trucks tightened capacity and drove up demand.

“You had 17% of the spot capacity from the road in the first half of the year, and demand started to pick up,” Broughton said. “Have some of those trucks returned to the road? I’m sure they have, but at a pace that’s much slower than demand has rebounded.”

Costello

Both Broughton and ATA Chief Economist Bob Costello see trucking capacity remaining very tight the remainder of 2021 and well into 2022.

“We’re going to have an economic rebound that is stronger than anyone is willing to believe — the economy is going to outperform everyone’s expectations for the next couple of years,” Broughton projected, stressing that the economy will be stronger because of consumer demand and improved technology — much of it brought on by the pandemic.

Costello is forecasting a gross domestic product growth rate exceeding 4% for 2021 as the economy picks up steam, which means trucking will have more freight to haul. “There are parts of our economy that are not only busy, they are going full out,” Costello said. “E-commerce is very busy. Temperature controlled freight, especially around grocery stores. Flatbed freight is very strong, especially around single-family home construction, as well as remodeling. There are some pockets of weakness, but that’s because the economy is not all growing at the same pace.”