Though a term more appropriate for a George Romero film than the freight market, “Zombie Truckers” are still afflicting motor carriers both large and small by keeping capacity in play that technically shouldn’t be there. The term – coined by Larry Gross, president of Gross Transportation Consulting and senior consultant with FTR Consulting Group – refers to truck operators who are not making their monthly equipment payments and thus should be bankrupt or shut down, yet remain in operation because the banks do not want to repossess their equipment as its value remains minimal.
Noel Perry, a senior consultant with FTR and principle of research firm Transport Fundamentals, noted that by contrast the trucking industry witnessed a big spike in bankruptcies during the rapid rise in fuel costs back in 2008, but didn’t see that same corresponding spike when the recession hit in 2009.
“The reason is that banks are reluctant to foreclose on the assets [of these carriers] because they can’t sell them, so the banks are allowing them to stay in business in the hope of getting some money back on their loans to them,” he explained.
The irony is that such carriers, with no equity in their equipment and little if any cash in the bank, are driving down freight rates as they keep capacity levels high within the industry and undercut fellow truckers in the marketplace. The issue was addressed head on by G. Tommy Hodges, chairman of the American Trucking Assns. (ATA) and chairman of Tennessee-based Titan Transfer earlier this year.
“Right now, we have an artificial structure within the industry as banks are propping up many carriers, whereas in a more ‘normal’ cycle these trucking companies would be out of business,” Hodges told FleetOwner. “Because of the financial situation many of these [propped up] carriers are in, they are doing anything they can to get revenue – and that unbalances the playing field.”
While shippers may be benefitting from the lower rates created by such “propped-up” carriers right now, Hodges believes a serious wakeup call is on the near horizon.
“Unfortunately for our industry, we provide such uniform services that trucking is viewed as a commodity by shippers and consignees – one company can be easily interchanged with another,” he explained. “Yet shippers depend on reliable, consistent service – and in the upcoming months, I believe they are going to get a taste of what unreliable service means to their business as those carriers struggling financially can’t meet their obligations.”
“It’s definitely an issue that’s still out there creating some problems, and it’s going to remain an issue for at least the next several quarters,” Eric Starks, FTR’s president, told FleetOwner. “Most of the affected fleets are still upside down on their equipment and while used truck prices have increased recently, they are still not high enough to warrant widespread repossessions yet.”
As a result, this situation will act as a brake on attempts to increase freight rates ahead of fuel prices climbing again. “They will keep rates down until fuel prices spike – and we expect to go through another fuel price ‘shock’ as the global economies recover,” FTR’s Perry said. “Overall, we don’t expect the trucking industry to return to the rates they experiences in the 2004-2005 timeframe until 2012.”
“Fuel prices are the key to this,” added FTR’s Starks. “If diesel prices shoot up quickly, most of these guys are going to close their doors. They’ve been giving shippers favorable rates, but higher fuel prices will eat up what little cash they have; they won’t be able to survive 120 days for freight payments anymore.”
That, in turn, will cause consternation for shippers. “All this active capacity will get pulled out of the market and shippers are going to be upset,” Starks explained. “They will see 50 trucks parked across the street and wonder why they can’t get their freight moved, or only get it moved at a much higher cost. We’re looking to the second half of this year to start seeing that.”