Why are Trucking Companies Closing at Alarming Rates?
Published on Feb 18, 2020
According to Broughton Capital, 640 trucking companies in the United States went bankrupt – in the first six months of 2019. While this number seems high, what is shocking is that it’s nearly three times the amount of trucking-specific bankruptcy filings during the entire 2018 calendar year.
This is something of a big deal and it may be an issue that continues to grow well into 2020.
Trucking companies in the United States are closing at an alarming rate. That's for sure.
What the experts are uncertain of, however, is the why.
Whether it’s due to an increasing shortage of qualified drivers, a lack of proactive thinking, or an inability to evolve, there are several factors that are seemingly impacting the transportation industry.
So, what’s the root issue? Or is this a progressive problem caused by multiple factors?
In this blog post, we are going to look at six possible sources for why trucking companies are struggling to keep their doors open.
It’s hard to predict the future – especially when it comes to planning the operations of a trucking company.
However, having the ability to stay ahead of the curve with increasing trucking regulations, laws, and evolving needs of today’s customers, is crucial to the successful operation of any trucking business.
Another contributing factor to the rapid increase in trucking company failures can be traced to company management.
In fact, the recent announcement of Celadon’s bankruptcy at the end of 2019 was partially attributed to executive leadership who had been accused of financial malfeasance – with several pending legal trials.
Any company, regardless of industry, must be led by individuals who operate on an ethical basis, follow all laws, and understand the importance of positive company culture. It’s just as crucial for trucking executives to realize how important having the right resources to serve today’s customer needs is for operational strength.
Sometimes, this means enlisting the help of experts in finance, route optimization, and supply chain management.
Poor Financial Management
At its root source, bankruptcy is caused by not having the cash resources to pay debt that has piled up. This is just poor financial management, plain and simple.
There are multiple factors that impact reduced cash flow including retaining customers in a competitive industry, not able to fulfill due to driver restrictions, the rising costs of operations, inability to collect on invoices efficiently and more.
The key for transportation companies is to manage their cash flow better.
Set up user-friendly processes for customers to pay their invoices and you will eventually see a sizeable reduction in waste and costs.
Most trucking companies that have shut down in 2019 were smaller providers who made a conscious decision to suspend operations – simply due to the expense of integrating technical equipment required for regulatory compliance.
The ELD Mandate provides a significant hurdle to smaller trucking companies with reduced capital resources due to the cost of the equipment, training drivers, admins, and more stakeholders in their business.
Additionally, the ELD Mandate restricts hours of service for all trucking companies, which likewise increases expenses for drivers while on the road.
As a trucking company has fewer drivers available to them to move freight for their customers, the less they can scale business. And in the worst cases, possibly be forced to close their doors.
Outdated Communication Methods
Customers today demand updates quickly on the movement of their commodities. While many fulfillment centers and eCommerce businesses have the platforms to expedite communication through the supply chain, a major hurdle is getting trucking companies to update their vehicles with modern communications hardware.
Whether it’s installing satellite tracking systems, Wi-Fi connectivity, or the software within their transportation management platforms, trucking companies that can’t keep up with consumer communication demands are quickly losing customers.
While there are multiple economic factors that determine why a trucking company is struggling to keep the doors open, there are several that can be mitigated with the assistance of a professional third-party logistics company.
A proven 3PL like Redwood Logistics can help any sized trucking company review its financial stability, arm them with the right technology to streamline operations, reduce areas of waste, and improve customer service.