2019 was a challenging year for the trucking industry. As a result, many trucking firms were in the red on their balance sheets. A whopping 795 trucking firms declared bankruptcy, according to Broughton Capital’s industry data.
Amid these poor market conditions, the largest trucking bankruptcy in history occurred.
The Celadon Group declared bankruptcy on December 9, 2019. While they faced similar obstacles to other companies, fraud played a critical role in their demise. But what impact does this have on the trucking industry as a whole?
What is The Celadon Group?
Founded in 1985, The Celadon Group was one of the largest trucking carriers in North America. During its 34 years of business, Celadon became the largest international trucking service in North America, crossing the border over 150,000 times each year.
After enjoying notable success, the company went public in 1994 and joined the New York Stock Exchange in 2009. As a publicly-traded company, Celadon had a duty to its investors and shareholders, which it failed to uphold, resulting in an accounting fraud investigation this year.
In a Supply Chain Drive interview, Donald Broughton of Broughton Capital said: "It’s noteworthy because less than 10 years ago Celadon was known as one of the most active, prolific and successful at salvaging small fleets that were struggling and in trouble."
Breaking Down The Celadon Group Bankruptcy
The Celadon Group and its affiliated entities filed for Chapter 11 reorganization, a voluntary petition for bankruptcy relief. Furthermore, they announced that the business will be shut down. The only affiliate spared was Taylor Express, which will continue operations.
According to the Federal Motor Carrier Safety Administration, at the time of the shutdown, Celadon’s fleet included:
2,771 trucks
2,553 drivers
5,500 employees
Fraud: The Straw That Broke The Camel’s Back
As noted, the trucking industry has had a tough year. While many trucking companies have gone under, Celadon’s tipping point was their expensive fraud investigation. It cost them $33 million.
William Meek, COO, and Bobby Peavler, CFO, were charged with accounting fraud, resulting in a loss of $60 million to their shareholders and investors. They inflated Celadon’s truck values, all in an attempt to hide how the company lacked adequate cash reserves to meet lender requirements. The company has tried to acquire more financing from its creditors but to no avail.
Due to this costly investigation, the company could no longer stay afloat. Celadon’s listed assets and debts at the time of closure were as follows:
$427 million in assets
$391 million in debt
Celadon CEO’s Statement
Celadon’s CEO, Paul Svinland, released the following statement:
"We have diligently explored all possible options to restructure Celadon and keep business operations ongoing, however, a number of legacy and market headwinds made this impossible to achieve.
Celadon has faced significant costs associated with a multi-year investigation into the actions of former management, including the restatement of financial statements. When combined with the enormous challenges in the industry, and our significant debt obligations, Celadon was unable to address our significant liquidity constraints through asset sales or other restructuring strategies.”
The Impact of Celadon’s Bankruptcy
Things are looking down for Celadon. However, the lasting impact of this momentous bankruptcy range from negligible to positive for the rest of the trucking industry.
Let’s explore the bankruptcy’s impact on the following market players:
Shippers - Celadon’s shutdown won’t cause much disruption for the majority of shippers. There’s a surplus of other trucking companies to work with. Finding carriers to take over Celadon’s scheduled freight should not be an issue. Furthermore, powerhouses like Walmart have private fleets at their disposal to take on the load.
Competitors - Celadon’s cross-border competitors, like CFI and PAM, will benefit from the removal of Celadon’s presence in the market. It presents a wonderful opportunity for them to absorb the open market share.
Drivers - Celadon’s drivers may have the most to gain, due to the industry’s driver shortage. Laid-off Celadon drivers are in high demand at the moment. Trucking companies have sent over recruiters to entice newly laid-off drivers, even providing them with food and bus tickets home. The CEO of Dart Transit promised to match or exceed Celadon’s salaries.
The Impact of Celdadon’s Bankruptcy on The Holidays
Celadon’s shutdown occurred during the busiest time of the year: the holidays. Fortunately, it should not have any noticeable impact on holiday shipments.
Most shippers using Celadon canceled their loads in time to find alternative carriers. Furthermore, Celadon committed to completing any en-route loads during the time of the shutdown.
The Rise and Fall of The Celadon Group
Celadon going out of business is a testament to 2019’s trucking challenges. While accounting fraud pushed them over the edge, they were struggling with many of the same issues other carriers experienced this year. Most trucking firms can relate to the inflated costs of running a business, due to the oversupply of trucks and shortage of drivers.
Fortunately, with Celadon out of the market, new opportunities present themselves for competitors and drivers alike.
If you are a trucking owner and want to learn more about how Trucking Proud Insurance Agency (TPIA) is leading innovation in this space, please contact jamie@truckingproudins.com. If you are an insurance broker interested to learn more about joining the TPIA team to leverage these unique tools, please contact team@truckingproudins.com.
Sources:
The Wall Street Journal. Trucker Celadon Group Files for Bankruptcy. https://www.wsj.com/articles/trucker-celadon-group-files-for-bankruptcy-11575885873
PR Newswire. Celadon Group, Inc. and Affiliates Commence Voluntary Chapter 11 Cases. https://www.prnewswire.com/news-releases/celadon-group-inc-and-affiliates-commence-voluntary-chapter-11-cases-300971115.html
Transport Topics. Bankruptcy Judge OKs Plan to Keep Celadon’s Taylor Express Operating. https://www.ttnews.com/articles/bankruptcy-judge-oks-plan-keep-celadons-taylor-express-operating
Transport Topics. Federal Judge Approves First Stage of Celadon Bankruptcy Plan. https://www.ttnews.com/articles/federal-judge-approves-first-stage-celadon-bankruptcy-plan
