For all the changes in the logistics sector wrought by new markets and new technology there are still things that don’t change that much. One of them is the problems of car hauliers serving the big vehicle manufacturers.
The leading US finished-vehicle trucking company, Jack Cooper, filed for Chapter 11 bankruptcy protection last week, with the objective of “restructuring the company” and in particular restructuring its debts which run into several hundred million dollars. The company assured both its customers and its workers that it would be “business as usual”. The company employs around 2,000 people and has had revenues of around $500m.
What appears to be happening is that a distressed assets specialist, Solus Alternative Asset Management, is engaging in a ‘debt-for-equity swap’, effectively giving its control of the company. Solus is promising to invest in Jack Cooper by buying new trucks and trailers.
The core Jack Cooper Transport business has been owned for the past two years by Jack Cooper Ventures, a private company itself controlled by Jack Cooper’s senior management. This move may have added to the debt burden. The company was also characterised by significant pension liabilities to its unionised workforce. These pension liabilities are the subject of continuing negotiations with the Teamsters Union.
The underlying problem that companies such as Jack Cooper and many others have faced over the years is that they have a small number of large vehicle manufacturers as customers who tend to be very aggressive in their approach to suppliers. Although the vehicle manufacturers often need larger more sophisticated truck companies to support their highly outsourced operations, they are more than willing to play one provider off against another in order to drive down prices to an unsustainable level.
When a provider has fixed costs, such as debt servicing or pensions, the danger is that even a modest fall in revenue will result in negative cash-flow. In the case of Jack Cooper, it was the downturn in car and SUV sales in the US over the past year that spelled the end.
Source: Transport Intelligence, August 13, 2019
Author: Thomas Cullen
