Why Do Small Trucking and Transportation Companies Fail?

From the largest 18-wheeler commercial delivery operations to the most niche owner-operator transport business, the trucking and transportation industry is changing and facing greater challenges all the time. Even before the COVID-19 pandemic and the economic difficulties of 2020, the trucking industry was suffering a particularly difficult financial period. Transportation companies failed (i.e., went bankrupt or closed) in 2019 at three times the rate they did in 2018. 795 trucking companies went under in 2018, taking about 24,000 long-haul trucks off the road.

It’s also important to discuss the serious and severe truck accidents that occur in the US each year in the context of this conversation. Large truck crashes accounted for 13.8% of all fatal accidents and 8.3% of all non-fatal crashes in 2019. The devastation faced by families of the victims of these collisions with trucks very much shapes our feelings about the regulations and requirements government demands of the trucking industry.

If you or a loved one has experienced a trucking accident you deserve help and legal representation. Ensure that the accident is handled justly and successfully by engaging an experienced truck accident injury attorney. Your questions and your well-being are important and you deserve legal help after a commercial vehicle accident.

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Small Transit Companies Face Significant Financial Challenges

Profit margins in ground transportation are notoriously slim for small transportation companies. Although trucking companies fare better than the restaurant and hospitality industries in terms of profitability, truckers still need to anticipate a net profit margin of less than 20% of their revenue. The profit margin for owner-operator and independent contractor trucking companies is even tighter due to a lack of economies of scale present in larger operations. Additionally, the limitation of collections ability of such operations can be particularly crippling, as they can anticipate only a 5% net profit margin.

Fixed costs are challenging enough to support in the trucking industry, but variable costs cause the most damage to struggling small businesses. Unexpected breakdowns, major unanticipated repairs, damaged shipments, and collisions whereby the truck driver is at fault can create significant financial hardship for a small trucking business.

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Huge Corporations Swallow or Run-Off Small Competitors

The largest fleets in the US are held by massive multi-national logistics operations such as Yamamoto, Seino, and Knight-Swift. Similarly, the largest private fleets are owned by huge corporations like AT&T, PepsiCo, and Comcast. A fleet of trucks is technically a group of 200 or more vehicles. With enormous corporations like Walmart owning a fleet of only about 6,000 trucks, it makes sense that the vast majority of trucking operations in the US fall below that technical fleet threshold, with most actually having fewer than 25 vehicles.

Another unique challenge to truck and transportation companies in 2020 is a wave of changing labor laws related to contract workers. In California, such a law has passed, and another is under review in New Jersey. Such laws redefine the employer-employee relationship requirements, as many large truck corporations have been taking advantage of contractor status workers to minimize the overhead associated with making these contractors employees.

The change to contractor relationship may have serious implications for small company truck drivers, putting thousands of owner-operators out of work and straining the workloads of employee-status drivers. These laws are being contested by the California trucking alliance and others on the basis of the possible job losses, but the outcome is currently undetermined.

The current shortage of truck drivers with commercial driver licenses (CDLs) also plays an important role in this dynamic. When the US unemployment rate was at historic lows – particularly in 2018-2019 –wages and employment benefits for drivers became extremely competitive and thus expensive for the owners of such entities. With such high demand and competition, the larger trucking companies simply have more finances and resources to hire and retain drivers, leaving the small firms with fewer and poorer options. This labor challenge is likely to continue as the projected truck driver shortage is anticipated to balloon, ultimately requiring a need for over 1.1 million more drivers in the United States before 2028.

However, larger trucking organizations aren’t without their own set of difficulties. Celadon Trucking, for example, had to partially credit its 2019 bankruptcy to the fact that a group of former executives was investigated for fraud – an expensive and resource-draining legal battle for the company. While dubious business practices can occur in businesses of all sizes, the scale of graft and fraud at corporate levels can certainly be much greater. This case resulted in 3,000 drivers losing their jobs without warning, some actually stranded mid-route with their company credit card canceled.

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Transportation Companies Struggle with the Gig Economy

Trucking companies are not the only small commercial vehicle ventures that are struggling in today’s economy. Taxi services in many cities and towns have nearly or wholly succumbed to the gig economy structure of ventures like Uber and Lyft.

Much of this change has been a result of consumer demand. As rideshare customers have grown accustomed to the conveniences and benefits of app-based ride-hailing, traditional taxi and car hire services have suffered. Their traditional employee relationship with their drivers is simply too expensive. It’s become difficult to support these overhead costs, let alone the development and operation of sophisticated technologies for customer interface. Uber and Lyft have the best of both worlds, large corporate ventures to support tech and innovation, and a cheap, flexible labor force to meet demand.

The explosion of the use of services like Uber eats and Amazon delivery this year has significantly impacted transportation logistics, completely changing the industry landscape. The changes that we have seen in the rideshare sector of the transportation industry might provide a window of opportunity for the long-haul and cargo trucking if companies are willing to take it. Time will tell how the industry shifts to address the challenges of driver shortages, changing workforce regulation, and emerging technical and logistical demands.

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What the Trucking Industry Means to All of Us

If you don’t know someone who is a truck driver or owns a commercial vehicle company, you may wonder what this has to do with you. The answer is quite a lot. In our increasingly delivery-oriented economy, your ability to get the goods that you rely on is directly tied to the health, efficiency, and function of our country’s commercial vehicle logistics. Your city’s roads may be saturated by certain types of commercial vehicle providers – whether they deliver cargo or people to destinations – that have vastly different impacts from the community to the community.

There is no doubt that the challenges in this industry will continue to shape our way of life in the coming decade. Increasing the safety of large vehicles is absolutely essential to protecting and saving lives on our nation’s roadways. By mitigating these disasters and enforcing safer and superior practices for trucking companies, hopefully, trucking and transportation businesses can become less fraught with catastrophic risk than they are today.

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The Thompson Law Promise

Thompson Law is a Dallas-based, full-service, personal injury law firm. With over 350 years of combined experience, our team is prepared to maximize your case outcome in settlement negotiations or in the courtroom. Our goal is to work hard to provide our clients with the absolute best settlement or case outcome, all while delivering 5-star client care throughout the process.

If you have experienced an injury in an accident caused by the error or negligence of a truck driver or company, reach out for the legal help you need and deserve. Our expert team is standing by 24/7/365 to take your call and get you on the path to physical healing and financial recovery.

CALL (866) 293-4768

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The State of Texas has a statute of limitations of two (2) years for personal injury cases, so if you have experienced any serious injury as a result of an accident, consult with an experienced Dallas injury lawyer. The sooner you know your options, the sooner you are on a smooth path to recovery and your deserved compensation. If you’ve been hesitating to reach out, don’t delay any further. Call Thompson Law right away for assistance with your injury and claim.

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