Market Overview

New England Motor Freight Plowed Under By A Relentless LTL Nor'easter

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New England Motor Freight Plowed Under By A Relentless LTL Nor'easter

A unionized less-than-truckload (LTL) carrier operating in a high-cost, super-congested region beset by weather problems for one-third to 40 percent of the year. Tough competition, mostly from non-union carriers, that got much tougher with the entry into the region two years ago of the ninth-largest LTL carrier. Shippers and third-party logistics providers (3PLs), businesses that work on behalf of shippers, squeezing it for every last nickel.

It's a problematic recipe that's become all-too-familiar. The brutal Northeast market has claimed many an LTL carrier since trucking was deregulated in 1980. Late on February 11, it took down one of the big ones – New England Motor Freight, Inc. (NEMF). In business since 1977 but a company's whose roots date back more than a century, NEMF announced that it and 10 related entities had filed for Chapter 11 bankruptcy protection, and that it would commence an "orderly wind-down" of the business. https://brian-straight.squarespace.com/news/ltl-nemf-to-shut-down-after-filing-4tklj

The news shocked everyone, including those who knew that NEMF was having problems and were aware that, at 83, its Chairman, Myron P. Shevell, was eyeing a way out of the business. NEMF executives had recently talked about investing in power units and trailers, and last month it announced a 5.4 percent general rate increase that took effect on February 4. Now the company is about to disappear in what will be the largest U.S. trucking shutdown since Consolidated Freightways, Inc. closed its doors in the fall of 2002.

The closure – no timetable has yet been announced – will affect more than 1,300 drivers, among other NEMF employees. It will also who put in play 40 terminals in the Northeast, Midwest and Puerto Rico. The company's facilities, many in areas with soaring real estate values, are owned by the Shevell family and could fetch a princely sum, especially in areas where there is carrier overlap, according to one source. Elizabeth, New Jersey-based NEMF controls about 10,000 pieces of equipment, including about 1,500 power units, according to information on the company's website.

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The 19th-largest LTL carrier, privately held NEMF had 2017 revenues of $402 million. The company's bread-and-butter business, most of which travels 200 to 400 miles although some Midwest lanes have 600-mile stage lengths, will be looking for new homes. However, those responsible for placing that traffic, whether they be direct shippers or 3PLs, may be in for a rude awakening. The hyper-competitive regional LTL market has been a bonanza for users, in particular large companies like Amazon.com. Inc., (NASDAQ: AMZN) which, according to Satish Jindel, head of consultancy ShipMatrix, has long held the upper hand with carriers on contractual terms.

NEMF's demise may trigger a significant pricing uptick as the freight recirculates through one less, and large, carrier. "A lot of bad freight is going to get re-priced," said Tommy Barnes, president of information technology provider project44 and who spent many years in the LTL business. None of the freight is a conversion candidate to intermodal because of ultra-short distances and the fact that an LTL tractor-trailer needs to make multiple stops to service the business. "It is not rail freight," said Anthony B. Hatch, a veteran rail analyst.

Shevell has, in interviews through the years, complained about "cheap shippers." However, he doesn't lump Amazon into that category, at least directly, according to a source who spoke with him in the past couple of months. While Amazon could have paid NEMF more, it made NEMF a better carrier, Shevell told the source.

Shevell also disputed that he was stuck with bad contractual terms with Amazon or any other customer, saying that a 90-day exit clause is written into every contract, according to the source. NEMF executives didn't respond to a request for comment.

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NEMF's business and financial condition has been eroding for about two years, according to those familiar with the situation. This coincided with Saia, Inc (NASDAQ: SAIA) the ninth-largest LTL carrier, entering NEMF's backyard. Saia plans to have 10 terminals in the Northeast during 2019, according to company executives. As current Saia customers see the value of a Northeast connection – CEO Rick O'Dell said last week that three- quarters of its Northeast freight is tendered by customers already using Saia in other markets – more demand may come its way, requiring further terminal expansion. It is lost on no one that, as a non-union carrier, Saia could offer lower prices than NEMF. Saia executives didn't return a request for comment.

The call to shut down NEMF was almost definitely Shevell's. With no family succession plans in place, contending with a brutal operating environment, and a weather climate increasingly inhospitable to a man in his 80s, Shevell may have simply decided that enough was enough. According to the source who spoke to him, Shevell spent some weeks this winter in California, reveled in the comfortable conditions, and talked with no longing of returning to New Jersey. Still, it must be devastating to Shevell to witness the the demise of the company that he rescued from the trucking boneyard in 1977 and built into what, at one time, was the country's fastest-growing, family-owned LTL carrier, sources said.

However the shutdown evolves, Shevell, a proud man, will see it through to the end, according to Charles W. Clowdis, a long-time transport consultant who knows him. "He'll make sure that every last piece of freight moves through the pipeline, and that people and assets are properly taken care for," Clowdis said. "Because that's the kind of man he is."

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