The global economy cannot succeed without the transportation industry. With 72.2% of all goods moved in the US alone, it is the backbone of business. But over the past ten years, the sector has seen an alarming trend: a rise in transportation companies closing their doors permanently.
Why is there a surge in closures in this vital industry? Below, we explore the main issues causing trucking companies to go out of business and make recommendations for how the sector might bounce back.
In this post we will learn in detail about Why Are Trucking Companies Going Out of Business.
Economic Challenges in the Trucking Industry
Rising Fuel Costs
Although fuel prices constantly change, trucking companies will face problems if they remain high. Many trucks run on diesel fuel, accounting for 20–25% of total operating expenses. As soon as fuel prices rise, profit margins instantly decrease. For example, in June 2022, the average cost of diesel nationally reached $5.816 per gallon, making it difficult for many businesses to remain in business.
Larger fleets have cash reserves that small businesses, in particular, do not. Many are forced to close because they cannot withstand high fuel prices.
Inflation and Operating Expenses
Inflation affects the shipping business almost as much. Operating costs have increased due to rising workers, insurance, repair, and part pricing. For example:
- The cost of truck tires spiked 20% in 2022.
- Truck insurance premiums rose 10-20% across the same year.
Small businesses disproportionately feel the impact, which accounts for 90% of all trucking operations. Smaller operators must deal with uncontrolled costs that reduce revenues, while bigger fleets can spread costs.
Overcapacity and Market Saturation
Too Many Players in the Market
The trucking industry has become saturated with companies vying for a piece of the market. While competition typically benefits consumers, extreme saturation has decreased prices and profit margins. Small carriers undercut rates to win business, while larger fleets can afford to hold firm. This dynamic leaves smaller firms financially vulnerable over time.
Businesses that cannot differentiate themselves or offer value often survive in this competitive market.
Also Read: What is the Difference Between a Business and a Company?
Falling Freight Rates
Since mid-2022, freight rates have plummeted dramatically due to declining demand and oversupply among carriers. For example, the national average spot rate for dry van trucking fell from $2.69 per mile in January 2022 to $1.70 per mile by July 2023. These lower rates leave carriers struggling to maintain profitability, with small businesses feeling the brunt.
The oversupply of trucks and inconsistent freight demand have created a challenging financial landscape.
Regulatory Challenges
ELD Mandates and Compliance Costs
The sector is under additional operational and financial strain due to the FMCSA’s (Federal Motor Carrier Safety Administration) electronic logging device (ELD) regulation. These devices are expensive to install, maintain, and monitor, but they guarantee compliance with Hours of Service (HOS) requirements. While larger fleets absorb these costs more easily, smaller operators face financial burdens that sometimes force closure.
Environmental Regulations
Environmental policies aimed at reducing emissions are creating new hurdles for the industry. Many mandates now require trucking companies to upgrade to newer, more eco-friendly equipment. While great for the planet, the price tag on new compliance-ready trucks and retrofitting existing fleets can range from $50,000 to $150,000 per truck.
Smaller operators often can’t afford upgrades, pushing them out of the industry entirely.
Driver Shortages and Retention Issues
Difficulty in Hiring and Retaining Drivers
The growing driver shortage intensifies operational challenges. In 2022, the sector experienced a driver shortage of over 80,000 positions, according to the American Trucking Association (ATA). Incentives for more significant benefits and wages are sometimes required to recruit and retain drivers, which raises labor expenses.
As smaller companies can offer fewer perks than corporate fleets, many lose drivers and face disruptions.
Aging Workforce and Lack of New Talent
Truck drivers average over 50, and younger generations show less interest in entering the profession. Factors like long hours, demanding schedules, and lifestyle challenges deter prospective drivers, worsening the labor crunch.
Technological Disruption
Increased Competition from Tech-Driven Logistics
The trucking industry has changed due to advancements in logistics technology. Traditional trucking companies, especially tiny ones, struggle to compete with digital freight platforms like Uber Freight, Convoy, and Flexport, which can connect shippers and haulers in real time and offer cost and efficiency advantages.
Cost of Adopting New Technologies
Using cutting-edge telematics, GPS tracking, and fleet optimization software is often required to stay ahead of the competitors in the market. Despite their advantages, these investments have high prices that are hard for smaller players to afford.
Falling behind on technology only makes traditional players less competitive over time.
Economic Downturns and Global Events
Recessionary Pressures
Economic downturns, such as the recession brought on by the COVID-19 pandemic in 2020, reduce demand for freight transportation. Consumer buying decreases, freight loads drop, and smaller businesses that rely on steady contracts often lose money during downturns.
For example, Yellow Corp., one of the largest US trucking operators, declared bankruptcy in August 2023 after years of debt accumulation worsened by recessionary pressures.
Supply Chain Disruptions
Pandemics, trade wars, and natural disasters have repeatedly disrupted global supply chains. Trucking operations have faced uncertainties impacting profitability, from delayed shipments to port congestion. Adjusting to these conditions adds stress to already burdened carriers.
Case Studies of Recent Failures
- Yellow Corp. filed for Chapter 11 bankruptcy in August 2023 due to mounting debt, pension commitments, and difficulties brought on by the global epidemic. The business also mentioned pressure from rivals in the less-than-truckload (LTL) market.
- Celadon Group collapsed in 2019 due to financial management and excessive debt. It continues to rank among the biggest trucking bankruptcies ever.
These incidents show how altering industry dynamics, financial mismanagement, and operational ineffectiveness interact.
Opportunities and Potential Solutions
Embracing Innovation
Trucking companies must adopt technologies that cut costs and enhance efficiency to thrive in today’s market. Tools like automated routing, predictive maintenance software, and fuel optimization systems can provide a critical edge to struggling businesses.
Diversifying Services
Carriers can expand their offerings to include unique freight solutions such as last-mile delivery, hazardous material handling, and refrigerated transport. Tapping into niche markets can help carriers secure steadier revenue streams.
Securing the Future of Trucking
Economic pressures, labor shortages, regulatory burdens, and rising costs require strategic responses. Still, the trucking industry’s problems are manageable despite their complexity. By utilizing cutting-edge technologies and optimizing operations, businesses can remain competitive and adapt to market shifts.
For a sector as important as trucking to remain viable and maintain its critical role in the economy, fleet managers, politicians, and logistics experts must work together to achieve sustainability.
There’s no easy fix, but proactive adaptation will ultimately pave the way.
FAQs
What is the biggest issue in trucking?
The biggest issue in trucking is the driver shortage. Many companies struggle to hire enough drivers.
Who is the largest trucking company?
The largest trucking company in the US is UPS. It handles large freight volumes daily.
What is the oldest trucking company still in business?
Jones Motor Group, founded in 1894, is the oldest trucking company still operating today.
How do I shut down a trucking company?
To shut down a trucking company, cancel permits, settle debts, and inform regulatory authorities.
