The Yellow bankruptcy is widely known, but it isn’t the only carrier that has closed its doors recently, and it won’t be the last.
Industry bankruptcy experts say financial distress at the hands of multiple factors has caused an uptick in bankruptcy cases among trucking and logistics companies of all sizes. Stephanie Lieb, a bankruptcy attorney at Trenam Law in Tampa, and Tim Swanson, a bankruptcy attorney at Moye White in Denver, said they expect that trend to continue … for quite some time.
“I think we're going to see the trend continue for another 12 to 18 months,” Swanson said.
He said what’s driving the demise of these companies is the longer-than-expected recovery from the pandemic because when the world reopened, consumer spending shifted from lockdown-driven goods purchases that caused a freight boom to more services-related spending. In addition to increased wages caused by employee shortages, rising fuel costs and inflation putting pressure on their carriers’ margins, the Federal Reserve kicked off historic tightening by increasing interest rates, putting even more pressure on supply chains. And Swanson said that pressure is resulting in liquidity issues, which has caused debt service to go up, leading many to file for bankruptcy and restructure their debts.
“When you have all these problems, and then they all happen at the same time, and you're already in a business that has a thinner margin, it just becomes a recipe for bankruptcy,” Lieb said.
She said she has especially seen an increase in bankruptcies among smaller trucking operations and thinks that’s because of Subchapter V that was the result of the Small Business Reorganization Act enacted in the fall of 2019. As a result of the pandemic and the CARES Act, Congress bumped up the debt limit to $7.5 million or less, making the process of filing under Chapter 11 more streamlined and affordable for smaller companies.
“Trucking cases don't typically have a high success rate within bankruptcy; they usually wind up in a liquidation versus a restructuring, and perhaps filing for this small business Subchapter V, they’ll have a better chance of success,” Lieb said. “It's hard to say because it’s so new.”
