America’s trucking boom now a distant memory as bankruptcies rise
Truckers and freight brokers were once riding the wave of increased demand for goods, but both now face a host of bankruptcies and mergers
The American logistics market created by the pandemic-driven e-commerce boom has decisively turned towards contraction, with both truckers and freight brokers staring down lower demand, and in some cases crumbling balance sheets.
This is creating a wave of bankruptcies in both. According to ACT Research, 3% of US truck operators ceased activity between mid-2022 and mid-2023, and headline bankruptcies have come from trucking company Yellow and start-up freight brokerage Convoy.
The former was shuttered in August 2023 after 99 years in business, while the remains of the latter were acquired by logistics technology company Flexport. Both firms found themselves facing substantial debt piles that they could no longer support and employed substantial workforces.
With the glut of online orders during the Covid-19 pandemic, logistics industry revenues rose dramatically. America’s Census Bureau reported that between the beginning of 2022 and mid-2022 such revenues increased by roughly a third. One million extra workers were hired, and 1.8 billion square feet of new storage space was built in the expectation of continued growth.
Post-pandemic, consumers are choosing to spend their money on services rather than goods. Consumer spending on goods has stagnated. Subsequently, retailers have found themselves with excess inventory.
Consumers are also showing a return to physical stores. As a result of these changes, logistics industry revenues have declined over three consecutive quarters.
Following on from a prolonged and consistent period of decline, Cass Freight Index® and the Cass Truckload Linehaul Index® have now bottomed out though, which may mean that the trough has been reached. This will provide small comfort to distressed firms, however, as interest rates remain high, and Cass Inferred Freight Rates had yet to finish declining.
“We continue to expect the freight cycle to turn once capacity tightens, but early signs of 2024 equipment production suggest that may be a while,” commented ACT Research Vice President and Senior Analyst Tim Denoyer.
“The trucking industry has broadly reached an uncomfortable equilibrium with spot rates steady for several months now. Net fleet exits, which have been going on for a year, are worsening, and although equipment demand at larger fleets remains fairly robust, there are signs that lower new equipment demand will lead to a tighter freight market over the course of 2024,” he said.