Rival carriers chase former Central Freight customers as tight LTL market shrinks

The $46 billion less-than-truckload market tightened considerably with the sudden closing of venerable Waco, Texas-based Central Freight Lines, the nation’s 23rd-largest LTL carrier with $256 million in revenue last year.

“Central Freight's closure further consolidates the LTL oligopoly in the U.S. and is likely to further support an already strong pricing environment,” stated a research note published by Cowen, which closely tracks transportation stocks.

Cowen estimated LTL carriers most benefiting from this closing include Saia, Arkansas Best’s ABF Freight System, XPO, the LTL unit of TFI International (the former UPS Freight unit) and market leader Old Dominion Freight Line. The units of rival Yellow, Estes, Averitt Express and Daylight Transportation could also benefit from hiring ex-Central drivers.

In addition, Cowen said the closing “should provide further benefit” to Knight-Swift Transportation, a major truckload carrier who entered the LTL market with its acquisition of AAA Cooper last July.

What this means for shippers is less choice and likely higher rates, especially for shippers in the Southern and Southwestern regions.

“While the LTL pricing market is already strong, further industry consolidation will likely bolster that strength and potentially elongate its duration, in our view,” the Cowen note to investors said. “We see their closure as a positive for the entire market.”

Central’s closing comes after 96 years of operation. It was a major player in the Southwestern and Southern regions, but its operations were hampered by millions of dollars of debt, analysts said.

The sudden cessation of Central is the largest trucking company to close since Indianapolis-based truckload giant Celadon closed in 2019. Central had more than 2,100 employees, including 1,325 drivers, and 1,600 power units. It operated 65 terminals.

To accommodate its debt load, Central was leasing some terminals for which it had sale-lease-back agreements. Central lost approximately $67 million last year and reportedly lost upward of $250 million in the past decade or so.

Central juggled its executive team last year. Those moves included adding former Swift Transportation founder Jerry Moyes as Central’s interim president and chief executive officer. Moyes remained CEO after Bruce Kalem was named president in July.

During the outset of the COVID-19 pandemic last year, Central was one of four trucking companies that benefited from the awarding of $10 million through the U.S. Small Business Administration’s Paycheck Protection Program (PPP). Central had initiated pay cuts for drivers during that period.

In a time of an acute truck driver shortage, it is expected that Central’s 1,325 drivers will be recruited by rival carriers in the LTL industry and perhaps in TL as well.

 It is unclear when Central will liquidate its terminals and trucks. But sources within the trucking industry said it is unlikely that Central will reorganize its operations under Chapter 11 of the Bankruptcy Code.

Central’s closing could be a boon for Knight-Swift, the largest TL carrier which now gets about 15 percent of its revenue from LTL freight thanks to the AAA Cooper acquisition.

“We expect Knight-Swift to grow its LTL coverage over the next three years, further growing its overall corporate LTL exposure which should coincide with a higher multiple for the stock,” the research note from Cowen added.