Is Celadon's Bankruptcy Filing a Harbinger of Things to Come?
Dec 10, 2019
On Monday Celadon, a truckload carrier based out of Indianapolis, filed for bankruptcy protection and announced that they were going out of business.
While the headlines state that this is “the largest bankruptcy filing in the history of the truckload marketplace”, it is important to look at some facts about what this potentially means for shippers and third parties.
According to the FMCSA register, Celadon had 2,771 power units and 2,553 drivers as of October 25. For some perspective, I called our friend Scott Group from Wolfe Research. Scott and his team do an outstanding job of covering the transportation marketplace and he gave me permission to share his thoughts about Celadon from his newsletter this weekend.
“Based on our last conversation with Celadon over the summer, we believe it had a revenue run-rate of around $500M and around 2,700 trucks. We estimate the for-hire TL market is around $350B annually. So Celadon represents just 0.14% of the total market. Similarly, we estimate that there are over 3M Class 8 trucks in the market, implying Celadon represents just 0.1% of the total truck supply. And for some context, we built 27K trucks in North America last month. So, while it’s sad to see yet another TL bankruptcy, we’re not sure we’ll see any lasting impact on the market. … In the near term, some freight could scramble to find a home, which could help boost TL spot rates. Celadon also had big cross-border Canada and Mexico businesses and was big in the auto sector."
Some of you have asked, “How will this impact the truckload marketplace?” The good news is that with capacity still relatively “loose”, we agree with Scott—we are not expecting Celadon’s closure to have a significant impact on truckload rates.
Second, while we do not expect to see a sharp increase in TL contract rates, replacing Celadon with another asset based carrier who will commit the same equipment levels may be challenging. As we learned when we interviewed Thom Albrecht, Celadon’s Chief Commercial Officer last year (interview available here), Celadon had shrunk their network so that they could increase the density factor on certain traffic lanes. Replacing Celadon in these lanes, or as Scott Group noted above, replacing Celadon’s Canadian and Mexican cross border operations, could be a bit challenging and result in higher costs.
Finally, we agree with those experts who are predicting that we may see additional high profile carrier restructurings/ closures in 2020. As we have discussed in several Two Minute Warnings this year, truckload and LTL carriers are facing some significant economic and financial headwinds. That is why in several of my talks or webinars with CSCMP and NASSTRAC, we continue to challenge shippers with the “What if” question. As in, what if some of your carriers suddenly shut their doors? What does your backup plan look like?
At TranzAct we have a wealth of resources that can help you answer that “What if” questions and help you be prepared with a great “Plan B” that can be deployed and eliminate unpleasant surprises. Remember, we’re on your team.