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Celadon bankruptcy could aid survivors in truckload freight market

Roadrunner also sells off flatbed unit for $30 million as sketchy accounting practices leave fleets vulnerable.

The turbulent business cycles whipsawing the truckload freight sector claimed their biggest victim to date today, as troubled Celadon Group Inc. declared bankruptcy, four days after two former executives were charged in an accounting fraud scheme.

Weakened by its legal and financial woes, the company lacked the immune system to withstand stormy economic conditions that have seen freight rates spike high in 2018 then sink low in 2019, all while fleets struggled to find enough drivers to move their vehicles.


In response, Indianapolis-based truckload and logistics provider Celadon has suddenly filed for Chapter 11 bankruptcy, costing the jobs of some 3,000 drivers and another 500 administrative workers. As one of the country's top-20 largest truckload operators, Celadon's expiration also slams the brakes on the movement of some 3,000 trucks and 10,000 trailers.

Although the end came swiftly, the patient had been sick for several years. Ailing Celadon said in 2018 that it would be forced to restate four years of financial results due to those accounting regularities, and to have its stock delisted from trading on the New York Stock Exchange.

In an effort to recover from those fatal errors, the company shuffled its executive ranks and brought on Paul Svindland as its new CEO in 2017. He promptly sold off its flatbed trucking division for an undisclosed amount in 2017, and sold its A&S Kinard and Buckler Transport subsidiaries for $139.5 million in 2019. The plan was to use proceeds from those moves to pay down debt, reduce borrowings under the company's revolving credit agreement, and to provide additional liquidity, he said at the time.

However, those emergency measures proved insufficient to cure the company's ills once the conspiracy indictments of former president and CEO William Meek and former CFO Bobby Lee Peavler were unveiled Dec. 5.

In a statement, Svindland noted that Celadon has faced significant costs related to the federal investigation of its fraud scheme even as it dealt with debt and "enormous challenges" in the industry. "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," Svindland said.

Those headwinds have been stirred up by some of the industry's most volatile business conditions in a decade, according to a recent panel of truck fleet CEOs held at the CSCMP EDGE 2019 annual meeting in Anaheim, California. Wild conditions peaked in 2018 and the first half of 2019 as driver shortages hit a pinnacle, helping to force trucking rates up to historic highs, the panel said. Those conditions inspired many fleets to boost driver wages and buy new vehicles, adding a burst of excess capacity to the system. In turn, that led to a sharp drop in spot market rates, forcing the bankruptcies of dozens of fleets.

Another victim of the dizzying changes was Roadrunner Transportation Systems Inc., the the Downers Grove, Illinois-based transportation and logistics provider that today announced it had sold off its flatbed business unit for $30 million in cash.

Similar to Celadon, Roadrunner had committed several business fouls in recent months that left it vulnerable when the going got tough. Management stumbles at the company including being compelled in 2018 to restate its unrealistic 2016 earnings report and admitting that computer hackers had stolen data from company accounts.

"The divestiture of the flatbed business unit is another step forward in our strategy to simplify our portfolio by focusing on our value-added logistics and asset-light LTL segments," Roadrunner CEO said Curt Stoelting said in a release. The Clearwater, Minnesota-based unit had operated as D&E Transport and booked revenue of over $50 million for the trailing 12 months ended September 30, 2019. It has pledged to use the proceeds to repay finance leases and debt and pay transaction costs, with the remaining amount available for general corporate purposes.

In the context of the full truckload freight market, Celadon's shutdown actually offers some much-needed demand to the remaining carriers, as competing carriers are expected to move to assist and recruit stranded drivers, according to a statement from Benjamin Hartford, transportation analyst at the investment firm Baird.

While Celadon's estimated 3,300 trucks across North America sounds large at first glance, it represents less than 1% of the addressable U.S. truckload market in a highly fragmented industry, he said.

Therefore, the announcement could be a shot in the arm for a spot market that has been limping through what has been a soft [fourth quarter] peak season to-date, he said. "Dislocations of capacity stemming from the shutdown of Celadon's trucking operations could be a catalyst for higher spot rates over the next couple weeks, before entering the seasonally weak [first quarter] period," Hartford said.

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