The 2:00 Minute Warning

This past weekend shippers got a bit of a shock when news broke that Central Freight Lines is closing their doors effective December 20, 2021. Their last day of pickups was this past Monday and they expect to have all of the freight in network delivered by the December 20th deadline.

While this marks the largest closure of a carrier since Celadon went out of business a couple years ago, it really attests to a reality that shippers need to address in their future plans: Expect more consolidation in the trucking industry.

Subsequent to shooting this week's video we learned that according to a FreightWaves article, several carriers such as Estes and TFI International have been eager to take on CFL’s drivers, employees, and equipment.

The President of CFL Bruce Kalem noted, "Estes Express has also 'made an offer on some of CFL’s equipment,' but added that other LTL carriers, including TFI International’s TForce Freight, Saia and XPO Logistics have also expressed interest in hiring many of the company’s drivers, dockworkers and management personnel and are looking at buying some of its equipment. While other companies have posted hiring notices on various social platforms, Kalem said Estes is making the aggressive effort of working directly with Central." He then added: “The bottom line is our employees have a lot of job opportunities if they want them, which is good.”

Since news of the CFL closing broke, we have received questions about this closure and what it means for shippers as we head into 2022. The three most commonly asked questions are:

Will other carriers be going out of business?

Not likely. Central Freight had internal problems rather than being impacted by external events or market conditions. The company was loaded with debt and according to Kalem: "years of incurring operating losses and struggles for many years sapped our liquidity." So despite strong market conditions, they simply couldn’t generate the revenue and returns they need to stay in business under their financial state.

How will this affect the LTL market?

We don't expect this to have a significant impact on the LTL market as carriers like Estes and TForce Freight and the other carriers interested in CFL's assets are large carriers that can assimilate CFL's book of business. That said, it is important for shippers to be aware of the consolidation and changes in the LTL sector that have occurred in 2021. For example, this year Knight-Swift recently bought Midwest Motor Express and earlier purchased AAA Cooper. At the beginning of this year, one of the biggest stories in the logistics industry was UPS Freight selling to TFI International.

Strategically speaking, it is critically important for LTL shippers to understand these issues, which is why we strongly recommend that you listen to this interview we had with David Ross, EVP at Roadrunner Freight, this summer. In this interview, David noted that the LTL market has been seeing consolidation for a long time:

“We haven’t had a new LTL carrier of significance I would say start up in about 30 years […] and during that time, there’s been consolidation within the space. So while the real estate and transportation infrastructure which I call the long term capacity of the LTL industry has been fairly stable, the number of competitors, the number of decision makers and the number of people negotiating rates with shippers has actually gotten smaller. […] Even the carriers that would like to expand are limited by both labor and real estate constraints.”

Add it all up, and it succinctly explains why shippers won't be seeing any new players in the LTL markets. Instead, look for established transportation companies to continue buying legacy based LTL carriers.

What strategies and factors should we consider for our sourcing events?

One thing that these transactions underscore is the fact that since carrier networks are constantly changing, shippers will need to "refresh" or completely change their sourcing strategies in order to procure effective rates from their carriers. In addition to the aforementioned interview with David Ross about LTL market conditions, earlier this year we held an outstanding interview with Chris Caplice from MIT about maximizing the impact of strategic sourcing events based on how the markets have changed.

And if you haven’t already, we also strongly recommend watching our latest webinar A C-Level Look at the Road Ahead in 2022 for Logistics Professionals.

Of course, if you have questions or want insights on strategies for your company's sourcing, you can always get in touch with your friends at TranzAct.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT
CONNECT ON LINKEDIN