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May 4, 2021
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Rising Fuel Cost Might Lead to Truckers Filing Bankruptcy in 2021

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According to the American Trucking Association (ATA), some managers with government aid money are not spending it fast enough to save the industry from drastic changes. If the pain continues, it could accelerate consolidation, slow growth, drive qualified drivers out of business, accelerate a long-term shortage of truckers, and force major national carriers to cut salaries. Small Fleet sizes will hit smaller US airlines that cannot spread the cost among larger fleets after the downturn. 

More Truckers Filing Bankruptcy

There have been over 130 truckers filing bankruptcy since the start of this year. According to the Federal Deposit Insurance Corporation, in the first three months of this year, over 340 companies filed for bankruptcy in the United States alone.

 The number of company bankruptcies in 2020 was almost identical to 2019, while the number of applications from small businesses declined somewhat. Throughout 2015, Haynes & Boone counted 22,391 oilfield service providers. By 2020, that number fell to 21,655. 

 Broughton’s data shows that companies that closed last year had an average of 16 trucks. Most of the country’s transportation companies are midstream companies, such as oil and gas pipeline companies and oilfield service providers, supplying storage and pipelines to producers. In the third quarter of 2020, they performed better than small haulers. According to American Trucking Associations, the majority, or 80 percent, of truck companies with at least ten trucks are the majority – small businesses – those with fewer than 10,000 employees.

 Those who operate over 10,000 trucks in the United States are most at risk of truckers filing bankruptcy. The American Trucking Association reports a massive driver shortage, meaning drivers affected by the shutdowns are likely to find a place elsewhere. They represent the majority (71%) of national truckers, but they have also announced or implemented thousands of permanent redundancies.

 Rapid disclosure is essential because systemic defaults that take too long to catch up can lead to failure. Problems with late claims can plague companies like General Motors Co., Ford Motor Co., and Chrysler Group LLC. Smaller companies without sufficient financial cushions risk going bust or selling their companies to larger ones, reinforcing consolidation overall. The downward spiral has sent even the most prominent players into battle, said David Schoenfeld, a partner at Gibson Dunn & Crutcher LLP in New York. He specializes in defending companies facing SEC investigations.

Freight and Oil Business Shutdowns

Small trucking companies tend to rely more on spot freight than larger haulers to offset fuel and other expenses such as insurance and maintenance costs. Many small haulers operate in the spot market, where prices tend to be lower than those negotiated with large haulers.

 The US Energy Information Administration says over 1,000 small trucking companies in the United States also shut down, citing “coronavirus or sheer disaster.” The closures signal that small businesses and independent truckers will be more reliant on the oil and gas industry in 2021 than in recent years. Unless an Oklahoma-based shipping company transporting oilfield supplies goes bankrupt in 2019 or 2020, it might force one of the nation’s most prominent trucking families to cut production back to zero.

 A start-up that claimed to offer artificial intelligence tools that could replace accountants for small businesses cited a pandemic that halved its revenue and forced it to close as the reason for its collapse. The US Securities and Exchange Commission says the “pandemic” has caused revenue to halve and production ceases, but not only.

 Speaking to the Wall Street Journal, John Echo, CEO of ECHO Trucking, identified the oversupply of trucks as an essential factor in reducing spot freight and cited it as the cause of the pileup action, which continued until 9 March 2019. Over 3,000 US truckers cannot pay their freight bills, while large and small energy companies seek protection from creditors. According to a recent report by the Federal Trade Commission, they seek protection from collectors if the business fails to bring back revenue.

 Igoris Geguzinskas, president of Deluxe Specific, said rising insurance costs had made his company’s finances difficult. Afraid that they may have to borrow to stay afloat because of uncertain results from the coronavirus and the resulting uncertainty, Williams and his partners fear that they will not repay loans. Employers can only apply for federal loans and waive interest charges if they intend to use at least 60% of the funds to keep payroll.

Three of the top trucking employers who closed in 2019:

  1. Celadon Group Inc. – 4,000 employees 
  2. New England Motor Freight – 1,472 employees
  3. Falcon Transport – 585 employees

 It mainly affects small truck companies, according to the American Trucking Associations. According to Broughton, closed companies had an average of 16 trucks last year, and 91% of fleets operated with six or fewer trucks. The majority of the country’s truckers make up more than half of the US trucking industry’s total fleet of 1.5 million vehicles.

 It was brutal and now seems to reach a crescendo: The total number of truckers filing bankruptcy filings in 2020 reached a new high, while Chapter 11 cases will also get new highs. Americans will now file for bankruptcy in federal court in 2021, according to the United States Bankruptcy Court for the Southern District of New York. According to Broughton, only about 1.5% of small truck companies survived the first half of the year, compared with about 3% in the same period in 2017 and 4% last year.

 HVH Transportation and NEMF have gone out of business in the past year due to losses from significant contracts, increased regulatory burdens, and sky-high insurance costs. According to an Energy Information Administration report, more than half of bankruptcies of small businesses and truckers who rely on the oil and gas industry signal a decline in oil prices. These prices rely on US companies. One company, Chesapeake Co., stopped operations in March, citing coronavirus and natural disasters.

The Price of Oil

We will see the US transport industry upended by an oil glut that forces many small fleet owners and operators to file for bankruptcy. Although the Oklahoma-based transportation company, which transports oilfield shipments for family members, did not file for bankruptcy in 2020, the income ban will force it to close, according to Broughton. He also said the revenue bans had a significant impact on the number of small shipping companies in the US, and some would go bankrupt.

 Studies show that this pandemic could suddenly destroy oil demand and destroy oil-producing countries in the oil industry. The price of oil plummeting will cause the value of many of the world’s largest oil companies, including ExxonMobil, BP, Shell, Chevron, and BP, to plummet with it. When the assets melted, they tried to expand their oil industry during the financial crisis. The price drop led to one mega-deal after another that created oil giants. Big companies released huge amounts of oil, reportedly more than the year before.

 Crude oil prices have risen steadily in the wake of the 2015 price collapse and have benefited some extent. OPEC and Russia have jointly curbed production, raised prices, and stabilized the relatively high oil price. But since 2020, costs are rising volatile and could fall below $30 a barrel, as has been in recent years. This has limited oilfield service providers’ ability to gain support from oilfields and service providers to support their share prices.

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