After 96 years of serving the industry, Central Freight Lines has filed Chapter 7 bankruptcy less than two weeks before Christmas, reports Clarissa Hawes of FreightWaves. The move will effectively lay off 2,100 employees and is the industry's most significant closure since Celadon in 2019. The sad reality is Central Freight Lines succumbed to excessive debt and an inability to maintain profitability through the pandemic. While many carriers have experienced record-setting profits in the past two years, it's important to realize record rates don't always amount to fiscal protection. Also, this closure reignites the fires of rising carrier costs and how trucking companies need to stay profitable. Inevitably, rates will rise in tandem with higher overhead costs, and shippers need to act now to ensure their operations are ready for higher shipping costs in 2022 and beyond.
CFL has established a long history of LTL freight, but the writing was on the wall over a year ago. Following an executive reorganization, the company tried to survive the pandemic. However, rising trucker costs in tandem with above-average demand started to build problems. Those problems matured as customers' demand for low prices and free shipping grew unchecked up to the biggest peak season in history, 2021.
Investors were interested in buying pieces of the company, including a completed sale of the West Coast terminals, but a full buyer for the company was unavailable. That's where the real problem became inevitable, and CFL had to shutter operations on the eve of the biggest trucking surge in history—again, peak season 2021.
The closure and failure to secure a buyer also reveal another fact. In a world where truckers can make record-setting profits, how was a trucking company doomed to fail? The answer to that question lies within an inability to account for total overhead costs. In other words, CFL wasn't charging customers enough to cover its payments to trucking companies and third-party service providers, including other 3PLs partnerships.
It's easy to speculate whether CFL was simply unaware of its fiscal troubles or whether the company hadn't worked with the right finance tools. Regardless, there is limited information surrounding concrete reasons for the closure due to existing non-disclosure agreements at the company.
Rising carrier costs are not new, especially as peak season surcharges have existed for nearly two years. However, 2022 general rate increases (GRIs) will be higher than in recent years. Meanwhile, shippers push carriers to their limits and still demand lower costs. The result comes down to two possible outcomes. Shippers will pay carriers more or keep paying existing rates, in which case more carriers will likely follow CFL to the trucking graveyard.
That means there's only one viable solution for shippers with expanding capacity requirements—higher costs are inevitable. Yet, customers will be unwilling to budge on the promises of fast, free shipping. Such demands beg the question, what can shippers do to account for not recouping shipping costs from customers?
The closure is also a bit unusual. Prior company closures tended to occur over several weeks. But with less than two weeks until Christmas, and the deadlines for holiday shipping already here, many of which were on Wednesday, December 15, 2021, this is a significant problem.
For example, GlobalTranz immediately removed CFL from its systems as a carrier upon the announcement over the past weekend. Such closure might not be a major issue for many shippers. But imagine this scenario: What if the shipper had previously started to tender a load, saw CFL as a viable option, and hadn't completed the process? That would mean the shipper is back to square one with finding coverage and getting freight to the destination in time for Christmas. For shippers that had also been previously consolidating parcels to create LTL loads for CFL, they're also out of luck. It's a dire situation for any shipper that had counted on CFL, and now, they must scramble to find replacement capacity. That's why having a few tricks up their sleeves is critical to long-term success for today's shippers.
Shippers often find themselves between a rock and a hard place. They must pay higher rates to carriers; that much is true. However, they cannot simply pass along those costs to consumers. They need to find an alternate way of managing transportation shipping spend without impacting the customer experience. After all, customers will run to Amazon faster than stock-outs of the hottest Black Friday sales. Fortunately, that's possible by taking a few simple steps:
There will always be uncertainty in the market, and as the COVID-19 Omicron variant spreads, there will be a higher risk for all freight. The global international air cargo capacity has increased 2% in recent weeks, according to Accenture. However, the total air capacity compared to 2019 is still 5% lower. As air capacity tightens, shippers will need OTR trucking more than ever, especially as the industry enters the final push of the holiday season. Such demand could be a breaking point for trucking companies that haven't maintained profitability. And in so doing, they may be more subject to overnight bankruptcy filing like CFL. Still, well-prepared shippers will have an easier time adjusting to those issues and can actively work to reduce reliance on single carriers to achieve those goals. Of course, they should also follow the tips outlined above and use them to avoid extra costs. In the interim, shippers should kickstart their data strategy and transportation business intelligence plan by connecting with Intelligent Audit.
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