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Trucking downturn saw 85% failure rate for many new carriers
An equipment price bubble drove carriers underwater, and Mitsubishi HC Capital says it restructured about 75% of loans during its 2020 COVID customer assistance program.
The freight downturn over the past roughly three and a half years has contributed to a sharp rise in motor carrier failures, with a FreightWaves interview cited by Yahoo Finance saying an average three-year failure rate of 85% for motor carriers with less than two years of operating experience and their own ICC authority.
The elevated failure rate is tied to an equipment bubble inflated during 2021 and 2022. Kirk Mann, EVP and GM of Transportation and Vendor Solutions at Mitsubishi HC Capital America, pointed to how used equipment values and financing levels diverged, describing examples such as a four-year-old Freightliner Cascadia valued at about $45,000 by a risk officer but financed at roughly $100,000 to $110,000, while pre-COVID prices for similar equipment had been around $34,000 before rising as high as $120,000 at the peak.
When freight rates collapsed, carriers that bought equipment at inflated prices were left underwater as defaults mounted. Rather than immediately repossessing, Mitsubishi HC Capital emphasized workout tools, restructuring about 75% of loans during its 2020 customer assistance program, with 95% of those borrowers resuming payments within 90 days, though the lender still held repossessed inventory for an extended period.
Mann said the recovery is real but uneven, with medium and large fleets showing tighter but improved balance sheets, while smaller participants faced the hardest effects of the prolonged downturn and its earlier over-financing of assets and equipment.