Trucking bankruptcies not as ‘catastrophic’ as expected; freight demand ‘shaping up’

The number of trucking companies that have filed for bankruptcy during the COVID-19 pandemic has not been as bad as expected even as freight demand fell, an analyst said.

In a recent Journal of Commerce article, Donald Broughton, principal and manager of Broughton Capital, said, “It’s bad, but it’s not as catastrophic as most have been predicting.”

Through April, the number of companies that have ceased operations and reduced the number of trucks on the road has risen, but the decline in capacity has not been “as significant as the collapse in demand,” Broughton said.

This may come as welcome news for shippers that might be concerned about truck pricing increases this fall, the article shows. Shipper demand has become stable for those transporting essential goods, and they are shipping more than in previous years. Other shippers are starting to transport goods again after being shut down in March and April.

In April, the Freight Shipment Index fell 10% from the same month in 2019 and 7.7% from March. It was the largest decline in the index since the Great Recession, according to the Bureau of Transportation Statistics. The index, which is based on the amount of freight carried by the for-hire transportation industry, fell for the third consecutive month in April.

More capacity might be available this fall as demand rises with fewer trucking companies going out of business and those that have filed for bankruptcy continuing to operate trucks, according to the JOC article.

In May, Comcar Industries announced it had filed for Chapter 11 bankruptcy protection and plans to sell its five operating companies. Each one will continue to operate as usual, a company statement shows.

“After evaluating options to address our capital structure and conducting extensive negotiations, we determined that a sale of all companies would be the best path forward to maximize their value,” according to a statement from Comcar senior management. “We are proud that we have found excellent future owners as each division is being purchased and will be managed by strong and reputable operators upon their respective sales. Further, this process will allow our companies to continue operating in the ordinary course of business while the sales process for each one continues. We believe this will best maintain opportunities for our people, continue to serve our customers and maintain vendor relationships.”

Through separate agreements, CT Transportation LLC will be sold to PS Logistics LLC, CTL Transportation LLC will be sold to Service Transport Inc., and MCT Transportation LLC will be sold to White Willow Holdings. The company also intends to sell CCC and CTTS Repair.

In a report by senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird, transportation industry trends looked to have reached a bottom as the economy started to reopen amid the COVID-19 pandemic between late April and early May and freight demand rose.

“Trends remain challenged; however, demand appears to be shaping up which, coupled with continued tightening in industry supply, support improving freight fundamentals through the balance of 2020,” the Baird analysts said. “Interestingly, inventory trends are somewhat bifurcated currently, and we expect further clarity to re/destocking dynamics in coming weeks.”

Retailers that sell essential goods expect inventory to be restocked throughout the remainder of the year after demand for household items rose at the start of the pandemic, Hartford and Reed said. Bentonville-based Walmart noted its inventory fell 8% in the first quarter. As inventories are rebuilt, it might contribute to a rise in global freight demand. Recently, ocean container spot rates for shipments between Shanghai and the U.S. West Coast rose 43% in one week.

In the early part of the second quarter, spot truckload capacity was loose, demand was soft and contract truckload bids were delayed at the peak of the pandemic, according to the Baird analysts. Carriers expect low-single-digit declines in contract truckload bids for the 2020 bid season.

“That said, we remain focused on Class 8 net order declines, which continue to suggest incremental work-down in supply which, coupled with continued bankruptcies among smaller carriers in the truckload space, should lead to a more rational supply environmental during (the second half of 2020) and 2021, a net benefit to larger, scaled carriers,” according to Hartford and Reed.

U.S. Class 8 retail sales fell 62.5% to 9,165 in May, from 24,424 in the same month in 2019, according to a recent Transport Topics article. Sales of Class 8 trucks, the largest truck class, fell to the lowest level since 9,712 in February 2011.