Chapter 11 filing and employee letter shed more light on NEMF’s bankruptcy development

While the shockwaves stemming from regional less-than-truckload (LTL) New England Motor Freight (NEMF) announcing this week it voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of New Jersey in Newark on February 11 are still intact, documentation surfacing in recent days helps to tell the story of what led the fabled 101-year Elizabeth, N.J.-based carrier to make this decision.

A February 11 letter to NEMF employees from NEMF President and Chief Operating Officer Tom Connery explained that the costs of running an asset-based trucking company have soared, with labor and benefits consuming an ever larger portion of revenue.

“Add in the high cost of equipment, a severe industry shortage of drivers, ever increasing regulations and tolls, technology investments and the overall risk environment to our business,” wrote Connery. “After much discussion as well as consultation with outside financial advisors, it was concluded that it does not make sense to continue operations to support a business in which our margins continue to shrink, thereby resulting in significant financial losses.”

The NEMF Chapter 11 filing noted that several factors led to profitability being impacted for the company.

It explained that while its operations were profitable for decades since the current ownership, the Shevell Group, acquired NEMF in 1977, the company suffered a downward trend in recent years, “which was exacerbated in late 2018 by the unexpected loss of key accounts, the shortage of drivers, a new Union contract with onerous retroactive terms, and the L/C Lenders’ ultimate unwillingness to restructure [NEMF’s] letters of credit obligations under terms acceptable” to the company. 

The filing also explained how changes and competition within the industry “have had an ongoing negative impact” on NEMF’s revenues.

A count of NEMF’s assets and employers were listed in the filing, which included:

• 3,450 full-time and part-time employees;
• a Union workforce of roughly 1,425 truck drivers and 475 dock workers for a total of around 1,900 Union employees; and
• a non-union workforce comprised of roughly 145 drivers at NEMF’s Eastern subsidiary, 600 part-time workers (mainly dock workers) and 805 other employees for roughly 1,550 non-union employees

Employee costs at NEMF, the filing stated were, in aggregate, substantially above industry norms, adding that most competing LTL carriers are non-union, coupled with an industry-wide shortage of drivers, which put NEMF with an aging fleet of vehicles at a severe disadvantage.  These cumulative factors led to severe liquidity constraints for NEMF, despite extensive efforts it made to reduce costs and refocus its business. But the filing said these efforts were not enough to effectively reduce losses and stave off a bankruptcy filing.

As NEMF exits the market, Stifel analyst Dave Ross wrote in a research note that NEMF’s 39 Northeast-based terminals could be acquired by public LTL carriers looking to expand density in areas that NEMF served, in the form of purchase of leases if and when those assets come to market.

In an interview earlier this week, Mike Regan, chief relationship officer of TranzAct Technologies, said NEMF’s cessation would have major ripple effects throughout the LTL sector.

“There are some really significant ramifications, and it is being reflected in the pricing decisions we are seeing by the LTL carriers,” said Regan. It is going to have a very significant impact for shippers. Right now, we are seeing LTL pricing decisions that reflect the fact that capacity is tight. And we are also seeing pricing decisions that reflect a decision by the carrier to use pricing to reflect alignments within their networks….so that if you have freight that is good and fits with the carrier’s network, you will get great pricing. And if your freight is not good within a network, you are going to pay a premium.  I would say that the service area that NEMF represents is probably one of the more challenging ones to service from an operational perspective. I think that is going to have a huge impact on rate structures in the Northeast, and also surrounding areas like the Mid-Atlantic and others. If you take capacity out, who are the carriers that are going to fill in for NEMF? The networks for its main competitors are already full. It is a huge problem, in my opinion.”