A top trucking company just declared bankruptcy - and Amazon may have helped usher its downfall
- New England Motor Freight, the 19th-largest less-than-truckload trucking company in the US, filed for bankruptcy protection on Monday.
- Several top freight analysts say one of NEMF's challenges were its contract with Amazon, which tends to provide lots of packages that are relatively low value.
- "Amazon contracts are pretty demanding," one analyst told Business Insider. "Because they're growing so rapidly, they can suck up a lot more of your capacity that you planned to make available to them."
One of the less-than-truckload sector's largest companies declared bankruptcy on Monday.New England Motor Freight, whose 2017 revenue totaled $402 million, intends to have an "orderly wind-down of its operations." The announcement struck transportation insiders as surprising, considering that trucking grew at a wild pace in 2018 and is still making decent gains this year.
But analysts say NEMF's challenges can't be attributed to the market, but rather other trends that are plaguing trucking companies nationwide.
SJ Consulting Group principal consultant Satish Jindel, who has more than 30 years of logistics experience, said NEMF had two leading issues that drove it to bankruptcy. One was its unionized driver pool, which can set "onerous" demands on trucking companies who have to pay overtime or ensure labor contract negotiations are fair.
The other was its contract with large shippers - particularly Amazon.
"Amazon contracts are pretty demanding," one analyst told Business Insider. "Because they're growing so rapidly, they can suck up a lot more of your capacity that you planned to make available to them."Neither Amazon nor NEMF returned Business Insider's request for comment.
Amazon isn't as fortuitous to truckers as you might think
The e-commerce magnate, which delivered more than a billion packages over last year's holiday season alone, may seem like a boon to trucking companies.
While there are many Amazon packages to be delivered, these aren't the sort of high-revenue parcels that transportation companies prefer to handle. UPS and FedEx, for instance, have capped how many deliveries they'll fulfill for Amazon because the profit margins are much lower for those plentiful, small packages.
Cowen managing director Helane Becker previously told Business Insider that servicing consumer delivery clients like Amazon is "very cost intensive" for trucking companies. It's also why UPS is moving towards business-to-business service over customer deliveries - the former has a much higher profit margin.
Seaport Global Securities alluded to that issue in its note to investors on Wednesday about NEMF's bankruptcy.
"Multiple industry insiders pointed to NEMF's over-exposure to a very large online retailer, where volumes may have been high but margins very thin," Seaport Global analysts Willard Milby and Kevin Sterling wrote.
And catering to Amazon or other "very large online retailers" can be especially challenging when their demands peak during holiday seasons. Seaport analysts added that "surges in volumes can disrupt current operations, customer service levels, and therefore margins."NEMF Chairman Myron Shevell has often complained about "cheap shippers," as industry publication FreightWaves reported on Tuesday. The 83-year-old founder of NEMF did credit Amazon for making the company stronger, albeit not paying enough, according to FreightWaves.