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3 Trucking Veterans Reveal Why They Closed Their Businesses Amid The “Great Purge”

3 Trucking Veterans Reveal Why They Closed Their Businesses Amid The “Great Purge”

By Rachel Premack of FreightWaves

Back in 2018, when trucking was red-hot, Texas native Mike Dow got famous — if just for a moment. An article in The Washington Post featured his insights on why companies were struggling to retain truckers

Dow was as confident as ever. That year, he and his brother founded their own trucking company. He told the Post reporter he was planning bringing in a serious salary: up to $120,000.

That turned out to be a modest estimate. In 2021 alone, Dow grossed up to $375,000, thanks in part to retail’s wild uptick. Retail sales grew by 14% in 2021, while it increased on average 3.7% annually from 2010 to 2019. “When you run your own business, it’s a 24-hour-a-day job,” Dow told FreightWaves. “It consumes your life.” 

Business slowed down as the months went on — and not for the better. Spot rates for dry van, which is what Dow Brothers Transportation specialized in, declined by 24% from the beginning of the year to the week of July 17, according to data from load board Truckstop.com. Expenses, meanwhile, have soared. The break-even cost to run a truck in 2022 is $3.27 per mile, significantly up from $2.16 per mile last year. 

That spelled the end for Dow Brothers Transportation. Dow and his brother ultimately shuttered their company, sold off their trucks, and got regular jobs earlier this year. Now Dow hauls construction equipment around the bustling Dallas area. He’s home every night for dinner. 

Big, public trucking companies are reporting their second-quarter earnings. So far, it’s been gangbusters. But small trucking companies are suffering amid the collapse in spot rates, increase in diesel prices and ongoing challenges in finding equipment. Despite rates still being historically high, truckers say that they’re not high enough to deal with the inflated cost of everything else.

“Nobody has the same cost structure on anything,” Thom Albrecht, chief financial officer of transportation insurance agency Reliance Partners, told FreightWaves in June. 

It’s sparking what one freight broker called trucking’s “Great Purge,” with small trucking companies going out of business at a historically high rate. Dry van companies like Dow’s are particularly at risk as the pandemic’s unhinged retail spend cools. Truckers that haul more specialized freight, like grain feed, are still chugging along. 

FreightWaves spoke to Dow and two other longtime truckers to learn why 2022 has been the year that killed their businesses — and what they think it means for the industry.

Why the ‘Great Purge’ is hurting small truckers more than big ones

The three truck drivers all operated in different parts of North America and in different industries. But they shared one common fear: Big trucking companies are getting bigger, and it’s at the expense of the owner-operator. 

“Those small mom and pops have to compete with the big boys,” Dow said. “They’re not always successful. There will always be a need for small companies, but those conglomerates are trying to push us out.”

Data enthusiasts might disagree with Dow’s assessment. Trucking has become increasingly dominated by smaller carriers since the pandemic. One particularly stunning number shows that. Avery Vise of FTR Transportation Intelligence previously told FreightWaves that almost 195,000 new trucking companies entered the industry from July 2020 to June 2022. Just 86,000 new carriers entered the industry during the second-highest 23-month period. 

What’s more, about 70% of those new carriers consisted of just one truck, Vise said. Big carriers haven’t grown by the same rate. In fact, Vise estimated that 6-7% of capacity shifted from fleets with more than 100 drivers to fleets with fewer than 100 drivers in the past two years.

Many of the small, new carriers signed on to operate on the spot market. (A quick note for trucking newbies: The spot market consists of loads that are available on demand, while the contract market is, yes, contracted freight. Small trucking companies are bigger on the spot market, and large ones are bigger on the contract market.) 

Rates on the spot market seemed to break a new record each month of 2021, diverting more and more cash to small trucking companies. Contract rates didn’t climb at the same rate, and mega-fleets didn’t either

Now the big carriers seem to be regaining their share. Large fleets are better able to navigate market downturns as they’re more likely to have hefty cash reserves, long-standing contracts with deep-pocketed customers and, perhaps most importantly for this downturn, bulk discounts when buying fuel and equipment. 

Unable to weather this downturn, we saw a record number of trucking companies shutter this spring, with more likely to come. Many are expected to join larger trucking companies.  

In May, net motor carrier revocations hit a record high, according to an analysis of federal data by FTR. January and March of this year were the previous records. 

As the above graph shows, revocations of trucking authorities reached a record high in May, hitting nearly 9,300. The yellow bar represents some 4,000 revocations due to a processing company that unexpectedly shuttered. Even counting that out, though, the net revocations peaked. 

Meanwhile, big truckers are enjoying record quarters. According to the FMIC-Cowen Index, which tracks tens of billions of freight spend dollars annually, rates on the spot van market are 15.3% down from this time last year. Meanwhile, contract van rates are up 34.8%. 

Second-quarter results are just rolling in, and they’ve already been strong, with mega-carriers like Knight-Swift, J.B. Hunt and Marten all crushing expectations. Each company saw the biggest gains from the parts of their companies that aren’t traditional trucking; Knight-Swift earned big on its less-than-truckload division, J.B. Hunt on intermodal and Marten on brokerage. 

Even amid what Susquehanna Financial Group’s Bascome Majors called the “coming freight recession” in a Tuesday note, trucking and logistics stocks are outperforming the larger stock market. 

“What’s going to happen is going to be tough,” said truck brokerage owner Chris Tucker, who was first to keenly dub the current market conditions the “Great Purge.” “It’s going to be painful for a lot of people. Very few people will be left standing.”

Longtime truckers have already shut down. We talked to three of them:

Dan Chidester, owner-operator since 1981: ‘Fuel has to come down to $3 a gallon to survive’

For a young Dan Chidester back in the 1970s, it was time for a “real job.” He tuned up race cars and was a salesman for a high-performance Chevrolet dealership. But when he got married, Chidester took a job fixing trucks in a field that is about as different from drag racing as you can get: a local bread factory. 

“I hated to go punch in that clock every day,” Chidester, now 71, said. “That was the reason I got into trucking. I wanted to work for myself. I’ve been that type.”

A friend told him about the opportunities hauling freight. He quit the bread company and got a CDL. Suddenly, the western Michigan native was traveling the country — loading up on potatoes from North Carolina and grapefruit from South Carolina, talking to people from all over. 

Being an independent truck driver was challenging. His marriage ended in 1987, the same year his truck literally burst into flames. Chidester found himself once so down on his luck that all he could afford was a loaf of bread, a bottle of mustard and a pack of bologna. He’s outlived recession after recession; the trucking industry goes into downturns twice as often as the rest of the economy.

His luck has changed. In 2021, Chidester only worked three or four days of the week and frequently ran empty when driving back up to his home. But he said his rate averaged around $4 per mile, even with the empty miles. 

Chidester mostly hauled refrigerated goods from Michigan to major retail warehouses around the Upper Midwest, like a Walmart near Fort Wayne, Indiana, or a Costco near Detroit. 

“For me, every trip is an adventure,” Chidester said. “I’ve been doing it since 1981, but I’m just like a 10-year-old kid on Christmas Eve when I know I’m going trucking tomorrow.”

But Chidester curtailed his trips in 2022. Rates began to decline in March. By May, they didn’t make up for the cost of running his truck. “Fuel has to come down to $3 a gallon again to survive, to make any money,” he said. 

On June 10, Chidester quietly let his decades-old trucking authority go and canceled his insurance.

There’s a creed among some owner-operators: Don’t haul cheap freight. The idea is that if no one takes poor-paying jobs, brokers will be forced to raise their rates. But with an intensely fragmented trucking industry, it’s hard for small truckers to organize. 

It wasn’t always like this. When Chidester started in trucking, the industry was still regulated, which meant that the federal government had limits on the companies that could haul most types of freight. Only 17,000 trucking companies existed. Now there are more than 350,000 owner-operators alone, according to the Owner-Operator Independent Drivers Association. 

“They can’t agree on anything, it’s all broken up. Everybody started fighting for freight and the whole business went down a rathole,” Chidester said. 

As a result of deregulation in 1980, freight rates tumbled and trucker pay has decreased by up to 50%, according to estimates by Wayne State University’s Michael Belzer. Experts say deregulation and cheap trucking have made it possible for big-box retail to build robust supply chains and quickly scale, edging out local businesses.

Chidester has counted some of those retail behemoths as his biggest clients. This spring, they slashed pay. The pay for one 150-mile trip dropped from $1,400 to $900 in just two weeks. Uber Freight economist Mazan Danaf previously told FreightWaves that this spring saw the fastest declines in spot market pay in recent history.

Chidester can stay home and refuse cheap freight, but he knows he’s in a unique position. After all, his equipment is paid off. 

“Most of these guys are running, running, running,” Chidester said. “The more they run, the longer this [fall in rates] will continue to go.

“They’ve got families, payments, bills,” he added. “I was in their shoes back in the early ’80s. I didn’t make any money. I just barely hung on.”

He could make a killing selling his truck, as prices for used trucks are still unusually high, though they’re quickly declining. But Chidester is still scheming to get back out on the road.  

“I miss it, oh man,” Chidester said. “I’d like to get out for just a couple days. It’s not about the money so much. I just like to drive and I like playing the game. And I’m good at it.” 

Jason and Kerry Kraft, owner-operators since 2007: ‘She doesn’t even want to say the word truck anymore’

Jason and Kerry Kraft decided to become truck drivers for a simple reason: They wanted to be together all the time. So 15 years ago, they opened their own trucking business. 

They weren’t ordinary truckers. The Krafts, who live in Edmonton, Alberta, hauled tanks and other equipment for the Canadian military. They moved refrigerated loads and 6-foot-wide tires for mining vehicles on the infamous ice roads. As team drivers, they could score high-priority loads that need to be moved quickly. 

“We ran hard 24 hours a day,” said Jason, 45. “We don’t take vacations. We haven’t even gone on a honeymoon.”

And they had the cash to prove it. In 2021, they grossed nearly $500,000 — one of their best years. 

It wasn’t bad rates that took down the Krafts. Instead, it was the challenge of getting repairs. Once in Toronto, they needed a truck starter, but the only one they could find was back in Edmonton. Another part took three weeks to source and install, when it would normally be readily available.  

Instead of driving, the Krafts found themselves increasingly staying in hotels and waiting for repairs. “It’s not the price of the part that’s killing you anymore,” Jason said. “It’s the downtime.”

The final straw was a bad — and very expensive — repair. A “shoddy mechanic,” as Jason said, replaced the truck frame with a component that had already been damaged. When they got the truck back, it looked worse than when they left it at the shop — and it cost them $50,000. (By the way, if you want to learn more about the Krafts’ story, listen to their appearance on my colleagues’ podcast, Back the Truck Up.)

The Krafts searched for parts but couldn’t find any. Jason said if he were part of a larger company, it would have been easier to place an order, as he would be buying in bulk.

“All these mega-carriers have all the slots for building a truck for the next three to four years,” Kraft said. “That’s another way I’m feeling the mega-carriers are squeezing out the small guy.” 

The Krafts finally shut down in June. They sold their trailer for more than what they paid for it in 2018, which was a bright spot. 

For Kerry, 39, in particular, Jason said it was demoralizing. “She doesn’t even want to say the word truck anymore.” 

Working regular jobs has been a shock for the couple and their dachshunds, Diesel and Turbo. 

“We worked for 15 years and now we’re at entry-level jobs because we don’t have the verified experience to do anything,” Jason said. “We don’t have the education. Now it’s like you have to sell yourself on paper. We don’t have the credentials to get a job anymore.”

Mike Dow, owner-operator since 2018: ‘Operating at a loss was the biggest deciding factor’

These past few years, it seemed like Dow was the only one working anymore. Federal stimulus checks were a lifesaver for many out-of-work Americans, but it also helped drive unprecedented container volumes into American ports, which were filled with televisions, furniture and clothing that people were spending excess cash on. 

Dow and his brother happily hauled all of those goods. 

“You never saw so many people out in the park bike riding and kayaking,” Dow said. “The money has run out, so now everyone has to go back to work.”

The rapid downturn in consumer spending hurt Dow and his brother, who shuttered their trucking company and got company driving jobs this year. 

Retail spend saw a 1% uptick in June, according to federal data. But there’s still a key mismatch between just how many truckers have flooded the industry versus the amount of freight that’s available for them to haul. Since the beginning of the pandemic, federal data reflects that there’s been a 10% increase in drivers available for hire

For those truckers who are seeing decreased rates and increased costs for everything else they need to buy to operate, it’s challenging to keep going. As the spot market softened and expenses piled up, Dow realized his company was hemorrhaging money. 

He still owed money on his truck, and he couldn’t make the monthly payments. The only way to keep the company, it seemed, was to take out a second mortgage on his home. He didn’t want to do that. The price for a typical used truck doubled and even tripled over 2021. Unusually high truck payments were fine when matched with ultra-high spot rates, but the crash in those rates along with the increase in the price of everything else have left some truckers scrambling. 

Record-high diesel prices also crushed Dow, along with an average insurance cost uptick of 20% from 2019 to 2022. Maintenance costs have increased by 30% over the same time period. 

“Operating at a loss was the biggest deciding factor,” Dow said. “You can try to ride it out for a bit to see if the trend swings back around or you can be ahead of the curve and get out before everyone else starts getting out.”

He chose the latter and was able to recoup some cash by selling equipment. Dow now has more free time than ever. He’s using some of that time to ponder about his life as a trucker, which has left him with two divorces and the inability to spend more time at home as his kids were growing up. He shared the following, somewhat chilling analogy: 

“It’s like going to an amusement park. You’re looking forward to ride it, waiting in line for three or four hours. The ride is 45 seconds, then it’s over. You’re thinking, ‘That was fun. It was cool.’ But in the same breath, you’re like, ‘I waited three hours for that?’ 

“That’s how trucking is. The ride is pretty much over, I’m through the loop-the-loops and they’re pumping the air brakes.  

“I’m 52. I have 10 to 15 years before I retire, if I’m lucky enough to make it to retirement. The thrill of it is gone. It’s just the last little leg before I get off.” 

He’s thinking about opening up a deep-sea fishing business, combining business with pleasure. “The business I’m in now is not so pleasurable,” Dow said, laughing. 

Tyler Durden
Sun, 07/24/2022 – 20:30

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