Truck capacity is about to get tighter for less-than-truckload (LTL) shippers, especially in the Northeast and Mid-Atlantic, as New England Motor Freight (NEMF), one of the largest regional LTL carriers, is filing for bankruptcy. The New Jersey-based company announced plans for a Chapter 11 liquidation and shutdown Monday, a step that will throw the regional freight market into disarray.
For northeastern shippers, especially those operating out of New York and New Jersey, an increase in regional LTL pricing may be an immediate result, as capacity contracts.
NEMF is no small carrier. The company had more than $400 million in revenue in 2017, making it the second-largest LTL regional carrier in the region, after Pitt Ohio Express, according to SJ Consulting Group data. The company, based within the Port of Elizabeth, had more than 35 terminals in a network stretching from Bangor, Maine, to Chicago to Roanoke, Virginia.
“This is the largest LTL bankruptcy since Consolidated Freightways went out of business in 2002,” Satish Jindel, president of SJ Consulting Group, said. The last major northeastern LTL shutdown was Jevic Transportation in 2008. NEMF had about 1,250 tractors and trucks, and 1,470 employees, according to registration data filed with the Department of Transportation.
NEMF is part of the larger Shevell Group of Companies, and the Chapter 11 filing involves 10 related businesses, including truckload carrier Eastern Freightways, Apex Logistics, and Carrier Industries, a warehousing and dedicated trucking business. The trucking company’s origins go back to 1918. Chairman and CEO Myron P. “Mike” Shevell acquired NEMF in 1977.
“We have worked hard to explore options for New England Motor Freight, but the macro-economic factors confronting this industry are significant,” Vincent Colistra, a senior managing director with Phoenix Management Services and chief restructuring officer for NEMF, said in a brief statement. Liquidation will “maximize the value of its assets,” he said.
He promised an "orderly wind down" of NEMF operations. NEMF instituted a 5.4 percent general rate increase Feb. 4, citing increased costs associated with regulatory mandates, insurance premiums, new equipment, and technology advancements.
A 'lesson for shippers'
Although its true trucking companies of all types, including LTL carriers, face a hard time recruiting sufficient drivers as well as rising costs, NEMF’s bankruptcy comes as many LTL carriers report higher revenues and improved profitability. NEMF and the Shevell Group are private companies, but many larger public LTL carriers reported a record year in 2018.
“We believe the backdrop going into 2019 is positive and the longer-term trend should remain steady,” Stephanie Fisher, chief financial officer (CFO) of YRC Worldwide, said in a Jan. 31 earnings call transcribed by Seeking Alpha. Other LTL carriers, including ABF Freight System, reported a “positive freight environment” in the fourth quarter and “balanced” market in early 2019.
“We're starting off the year in a good spot, and we feel optimistic,” Adam Satterfield, CFO at Old Dominion Freight Line, told Wall Street analysts in a Feb. 7 fourth-quarter earnings call. “A lot of that optimism is based on macroeconomic trends that we see as well as the customer demand trends that we continue to get reports from our sales team on.”
So what happened at NEMF and the Shevell Group? Details may emerge in bankruptcy court, but Jindel suspects the carrier may have lost a major customer. “This is a lesson for every carrier not to let a customer become such a dominant part of the business that you can’t survive without them,” he said. He did not say who he thought that customer may have been.
He also said the NEMF and Shevell Group bankruptcy is a “lesson for shippers that if they are too aggressive and drive pricing down, they may lose capacity.”
NEMF’s trailers will not be easy to replace or fill. There’s not a lot of excess capacity in the LTL market, Jindel said, especially in the Northeast. The big beneficiaries are likely to be regional carriers Pitt Ohio, A. Duie Pyle, New Penn, and Ward Transport, but even those carriers combined would be hard-pressed to absorb NEMF’s business, Jindel said.
“UPS Freight is likely to be a bigger beneficiary than others,” he said, as that national LTL carrier still has unfilled capacity in its network resulting from its self-imposed shutdown before a union contract vote last autumn. “They’ve recovered most of that business, but they still have space,” Jindel said. The problem for all LTL carriers will be finding NEMF freight that fits their networks.