Why trucking businesses are prone to bankruptcy

U.S. Xpress CEO Eric Fuller joins Yahoo Finance’s Seana Smith to discuss why some trucking companies are susceptible to declaring bankruptcy amid the coronavirus pandemic.

Video Transcript

SEANA SMITH: Now companies are scrambling to keep supply chains going as coronavirus triggers a surging demand for consumer staples. Now the trucking industry is really at the center of all this. And for more on that, I want to bring in US Xpress CEO Eric Fuller.

And Eric, thank you so much for taking the time to join the show this afternoon. I want to start just with volume and what your company's been seeing. US Xpress, I know that it's been a big story with really across the trucking industry, just in terms of volumes that some companies are seeing a pretty severe drop over the last couple of weeks. What are you seeing at US Xpress?

ERIC FULLER: Yeah, thanks for having me. You know, we at US Xpress, we really focus on grocery consumer products, e-commerce, home improvement, and really, across the board, that group has really seen an increase in volumes. In some cases, some customers are seeing certain items increase two or three or even, in some cases, fourfold.

And so I think you'll see it really depends on what mix or what vertical you're in. Those obviously that are in automotive and other verticals have been affected negatively. But those that are heavy grocery and consumer products like ourselves have seen an incredible surge in business over the last, say, six weeks.

SEANA SMITH: Eric, going into grocery and consumer products, in those two industries in particular, we've been talking a lot here at Yahoo Finance about the disruption in the supply chains. Have you experienced that, and how are you navigating some of those supply disruptions?

ERIC FULLER: Yeah, I think really, it's been based around just kind of urgency to get things on the shelf. So you're seeing buying patterns that have significantly changed over the last six weeks, and those buying patterns have created, in some cases, you know, a lack of product on the shelves.

And so I think that there's a sense of urgency that may not have normally existed, where, typically, customers are able to kind of keep the supply chain in kind of a normal rhythm. And there isn't that sense of urgency. This situation has kind of thrown that out the window and really changed the dynamic.

And so that's created what we call kind of an expedited need, where-- and we have a number of trucks where we have two drivers on the trucks that would be a team. And you can go up to, say, 1,200 miles a day on a team. And so we're seeing more demand for that type of a product. Because the supply chain, as they would normally manage it, is not sufficient during this cycle.

SEANA SMITH: Eric, do you have the staff in order to keep up with that type of demand?

ERIC FULLER: Yeah, but we are hiring. And we have maintained our staff. We haven't done a single furlough or lay-off. And we've been able to maintain and continue operations as is. So for us, anyway, we've stayed consistent throughout this process. And I haven't had to have a single day shutdown.

SEANA SMITH: Eric, I want to talk about. So you released a COVID-19 impact report, and there was a couple of things that stuck out to us in there. But the first thing I want to talk about is you comment on bankruptcies. And you were saying that it occurs most often because the trucking business is cash flow intensive. And that also requires a lot of working capital upfront. So even in a decent market, some carriers only have a few weeks of working capital available. Where does the trucking industry stand now on that, just because coronavirus has been extremely disruptive.

ERIC FULLER: Right. Well, the average truck-- so there's over 200,000 trucking companies in America. The average trucking company has less than five trucks. So a company like ourselves has almost 7,000 trucks. But the average has less than five, so typically, they're living week to week. And if you have a week or even two of disruption from a revenue perspective, then that may be enough to put a company out of business.

You look at this six weeks or longer process, and then depending on how long this drags out, I think you will see some pretty significant bankruptcies on the smaller carrier side, probably those companies that only have three or four trucks, but there's hundreds of thousands of those companies. And so that can be incredibly impactful to the overall trucking industry.

SEANA SMITH: Yeah, it certainly can. Eric, I want to talk about something the trucking industry is doing now and something that really across all industries, I guess, just the emphasis that's being placed on technology at this time, technology's role amidst this coronavirus outbreak. Because in the past, I mean the trucking industry hasn't been known for embracing technology or really pivoting their business in a pretty timely fashion. Do you think that's changing this time around, and what do you think will be different because of coronavirus and the trucking industry going forward?

ERIC FULLER: Yeah, I think if you look at a year or two years, there's going to be a dichotomy between those that had prepared for this and have been investing in technology for the last couple of years and those that haven't. I would say probably one of the best thing that happened to the industry was the influx of VC, so venture capital cash that's come into the industry in the last three or four years.

And that's really pushed those that have been in the industry like ourselves for over 35 years to invest in areas that we probably haven't invested in previously and mainly to keep up with the companies, the new entrants that were coming in that were being supported by venture capital.

And so that has pushed some of the carriers to adapt and adopt technology that is pretty leading edge and really allow those of us like ourselves to easily adapt to this process and not really miss a beat.

I think there's others that have been resistant to spend that kind of capital and investment on that kind of technology. And I think you're really going to see this situation really reflect that. And those that had previous investments are going to do really well for the cycle. Those that didn't are maybe the ones I was talking about earlier that end up in bankruptcy.

SEANA SMITH: All right. Eric Fuller, US Xpress CEO, thank you so much for taking the time.

ERIC FULLER: All right, thank you.