New CFL Bankruptcy Hints at Rising Carrier Costs, Shippers Brace for Impact

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.

Why CFL Couldn't Sell Its Company to Prevent Bankruptcy

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.

What Does the Closure Mean for Shippers

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.

How Shippers Can Lessen the Impact of Rising Carrier Costs

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:

1. Diversify the carrier network to enable continued operations despite the risk of some carrier closings, much like CFL has suddenly left customers without an additional source for capacity. Any strategy for lowering shipping spend must include a diverse carrier network. As already mentioned, a lack of diversity could be disastrous for CFL-only shippers, but diversity is protection in shipping. It helps to promote more capacity, competitive rates, and protection against uncertainty. Shippers, however, need to know which carriers to use, and that's where having a data-backed resource for performance is vital.
2. Eliminate the hassle of manual data collection and analysis. Manual aggregation is not simply mind-numbing; it's outdated, archaic, and costly. Shippers should let the systems aggregate the data from their full tech stack to ensure a comprehensive view of their network. This helps provide better analysis and application of the next steps to mitigating rising carrier costs.
3. Normalize the data to make sense of it and enable apples-to-apples comparisons. Data in its raw form lacks value and is incomprehensible. While computer systems can help turn that data into actionable insights, it's still only a portion of the bigger picture. Shippers, therefore, must normalize the data from each system to make it comparable to other data sets. For instance, the TMS data may be radically different in structure from the WMS data. That difference could be disastrous if left unaddressed, and it's downright impractical to try to compare data that are radically different in structure without a strategy. That's what normalizing data does—makes it similar and easy to find correlations through advanced algorithms.
4. Eradicate lost or returned freight by finding and correcting shipping label anomalies before pick up. Another factor to consider is the impact on the customer experience. They want fast, free shipping, and that's not possible if the address is wrong, if the GL code is inaccurate, or if the name contains an error. Shippers can address these factors with intuitive anomaly detection and correction. This is similar to exception management, but it occurs automatically and before a driver picks up the shipment. As a result, the freight makes it to the destination the first time without preventable delays. In turn, customers are less likely to initiate a return, adding to reverse logistics costs, which lowers total transportation spend.
5. Leverage zone-skipping with more full truckload carriers to avoid complete LTL or parcel-only strategies. It's not only knowing which carriers to use that can help shippers overcome rising carrier costs. It's the ability to understand when another mode makes more sense. For instance, air transportation is costly, but ground might still arrive in an acceptable time frame at a lower cost. However, everyone assumes air is faster. That's not the case, and the only way to know which is suitable for each shipment is to use data. Data will show which shipments are eligible for zone skipping or hub injection. It's all dependent on the unique needs and expectations for each shipment, and in turn, it will help reduce total transit time and cost in one step.
6. Lessen the risk of lost trucking payments by using a secure payment process, like TriumphPay, an Intelligent Audit Partner. It's pure speculation to tie poor payment management to CFL, but it is possible. That's why shippers need to ensure their payments go to the appropriate parties and on time. Intelligent Audit has that covered too, and it's going to be a vital way in which shippers can build stronger relationships as carrier bankruptcies and higher costs of transportation continue.

Be Ready for Uncertainty Despite Trucking Company Bankruptcies by Partnering With the Right Transport Intelligence Solution

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.