Truckers Seeking Bankruptcy Amid COVID-19 ‘Cataclysm'

Truckers Seeking Bankruptcy Amid COVID-19 ‘Cataclysm'
Dancor Transit of Van Buren saw a drop in freight prices and an increase in insurance prices last year. Then COVID-19 upended the world. (Google Maps)

Dan Bearden’s Van Buren trucking company had been struggling with soaring insurance rates and falling freight prices since last year. Then the pandemic struck like a meteor.

“It’s almost like we got hit with a cataclysmic event,” Bearden said last week. “And that’s what causes extinctions.”

On Feb. 27, his Dancor Transit Inc. filed for Chapter 11 reorganization, listing $5.8 million in debts and $7.3 million in assets.

Dancor is part of a national wave. In the first half of 2019, 640 trucking companies went out of business, more than double the trucker failures in all of 2018, according to transportation industry data firm Broughton Capital LLC, as reported by The Wall Street Journal.

“Before the COVID-19 issues, there were a lot of trucking companies who were experiencing problems, particularly with rising insurance costs,” said Kevin Keech, a bankruptcy attorney in Little Rock.

Keech represents Dancor in its bankruptcy, but he declined to comment specifically about that client.

“We did start seeing an uptick in the number of people who were experiencing financial stress and difficulties in 2019 in the trucking industry,” he said.

And the coronavirus is making the business situation worse.

“What’s going on out here is that the manufacturers are shut down, which means the truck drivers have got nothing to haul,” said Bearden’s daughter, Jeri Lynn Bearden, vice president of the company.

Trucking companies are dropping their prices just to get freight, she said. “It’s just making our situation even harder.” Dancor, with about 80 trucks and 34 drivers, has sold some real estate “just to keep afloat,” she said.

It’s quite a turnaround, because good times aren’t that far in the rear view.

RELATED: Denial of PPP Loan Makes Matters Worse for Dancor Transit

A ‘Fantastic’ 2018

2018 was a “fantastic year” for the trucking industry, said Doug Voss, a professor of logistics and supply chain management at the University of Central Arkansas. He also serves on the board of the Arkansas Trucking Association. (For guest commentary from Voss, see Coronavirus Could Change the Global Supply Chain.)

Two major hurricanes in 2018 helped, Voss said, because demand for trucking rose as rebuilding materials were sent to the damaged areas. The federal Tax Cut & Jobs Act, passed in December 2017, was also good for the bottom line.

The upturn encouraged drivers to go out on their own. “Trucking has very low barriers to entry,” Voss said. “So when the rates go up, you get a lot of new trucking companies flooding the market.”

Dan Bearden said the overcapacity hurt the industry. “The worst enemy of a trucking company is itself,” he said. When freight rates are high, companies want to expand by adding trailers and drivers.

“All you hear is there’s a shortage of drivers,” he said. “Nobody says I can’t get my freight delivered.”

For the fiscal year that ended Sept. 30, 2018, Dancor had $17.7 million in revenue, according to its bankruptcy filing. A year later that dropped to $16.2 million, reflecting industrywide stress in 2019.

A Choppy 2019

Even large trucking companies weren’t immune last year. In mid-2019, “the trucking freight market began to soften,” Kathryn Wouters, senior vice president of finance and treasurer of Celadon Group Inc. of Indianapolis, wrote in December in her company’s Chapter 11 bankruptcy reorganization filing.

“The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates.”

Bearden also witnessed the drop in freight prices.

Last summer, freight rates were around $2.25 or $2.50 a mile, he said. A dollar a mile is now on the high end.

Meanwhile, insurance rates have been rising. In 2019, Dancor’s insurance rate for trucks went from $4,500 to $12,500 “overnight,” Bearden said.

Jeri Lynn Bearden, who handles insurance and benefits for the company, said Dancor had a “good, solid, clean record for the past two years.” But the rates still ballooned, another industrywide trend.

“It’s catastrophic out there right now in the trucking world,” she said.

Voss said the rise in insurance premiums was driven by multimillion-dollar verdicts against trucking companies for road accidents and pressure on the supply side as some insurance companies have stopped writing policies.

Still, Dan Bearden said Dancor, at least for now, is able to pay its remaining 50 employees, although some have been laid off. And the company continues to pay its utilities and mortgages. “We’re making all our payments,” he said. “We’re still running. We’re still hauling freight.

“I mean, the show runs on.”