The trucking industry is undergoing its worst financial turmoil in years, putting pressure on banks as some transport companies struggle to repay their loans or even declare bankruptcy.
The industry's troubles are a reversal of its fortunes early in the pandemic, when homebound consumers spent big on electronics, furniture and other goods that needed to be shipped.
The boom in goods is long past over. Consumers are now splurging on services — restaurants, travel, concerts — and retailers are overstocked with inventory sitting at warehouses. So truckers are in far less demand than they were a year ago, driving down the prices that trucking companies can charge to ship goods.
The industry is in a "freight recession," said Rick Jordon, a transportation and logistics consultant at FTI Consulting. The rates some trucking companies get on shipping jobs have fallen by 20% to 40%, making it hard for some firms to break even. The next year is "going to be really difficult," Jordon said, as truckers' suddenly low earnings will make it impossible for some weaker companies to cover their obligations.
"The longer this recession lasts, the harder it's going to be to pay down those term loans or ABLs," Jordon said, referring to asset-based loans that are based on the value of trucks or other assets companies purchase.
Truckers' financial crunch is already having an impact on banks, which face the risk of having to write off loans from trucking companies that can't pay them back. Diversification in banks' loan portfolios should help, but charge-offs from the trucking sector are coming amid worries over consumers' financial health and other trouble spots such as office loans.
Executives at Amerant Bancorp, headquartered in Coral Gables, Florida, said in April that chargeoffs were higher than expected during the first quarter because a transportation industry client faced difficulties. The $9.5 billion-asset bank repossessed the company's trucks and trailers.
Umpqua Bank, a regional bank in Portland, Oregon, has seen elevated charge-offs from trucking companies in a subsidiary that offers commercial equipment leases to smaller companies. Still, executives believe loan delinquencies have reached a "plateau," Frank Namdar, the chief credit officer at Umpqua's parent company, Columbia Banking System, said in April.
At Regions Financial, overall credit quality remains healthy, but trucking is one sector seeing "elevated stress," CEO John Turner said in January.
The sector is highly cyclical, and it can suffer even as the overall economy remains in good shape, said Juan A. Cazorla, head of Regions' transportation and logistics group.
But "not all trucking companies are created equal," Cazorla said, and the $154 billion-asset bank focuses on working with companies that have a proven track record, strong management teams and more modest leverage.
"If there's a hiccup, they can weather the storm," Cazorla said.
Given the profitability challenges, sentiment among carriers has dropped sharply, according to
In another sign of trouble, delinquency rates have climbed on trucking equipment loans that get packaged into securities, according to the ratings firm Moody's Investor Service. Loans with late payments of 90 or more days rose to 0.7% in May — more than twice as high as they were a year earlier.
The challenges are particularly evident for smaller trucking companies and independent owner-operators, who often get "crushed" during downturns, said Spencer Tenney, president and CEO of the trucking M&A advisory firm Tenney Group.
The current downturn may be particularly painful since it follows a "wild, wild West" market where some firms were "lulled into thinking that they were performing better" than they really were, Tenney said.
Some longtime trucking company employees struck out on their own, starting their own businesses. Other firms may have bought more trucks than they needed — and are now stuck paying back for those unsustainable investments.
"It's very difficult from a cash-flow standpoint for many, many operators to sustain themselves in this environment," Tenney said.
Some banks are "getting nervous" about the value of trucks in the event that bankruptcies force companies to liquidate their fleets, according to Jordon of FTI Consulting. The first big auction may not have much of an impact. "But if it's two or three or four, and you flood the market with used equipment, all those auctions become far less valuable," Jordon said.
"I think all the banks are concerned," Jordon said, referring to the possibility that banks will see large declines in what they receive for repossessed trucks. "They're trying to limit their exposure or reduce their exposure."
