Summary
As the market value of trucking equipment continues to fall, lenders are loth to repossess, thus many trucking companies are turned into Zombies.
Analysis
Eric Starks, of FTR Assoc., defines a Zombie Trucker as one who is under financial stress and stops making payments on their equipment. Due to the incredibly soft used equipment market, lenders are unwilling to repossess equipment and allow these stressed carriers to continue to operate. These carriers become the living dead or zombies.
What effect does the trucking zombie have on the market?
First, they are suppressing rates. In a normal market, when a carrier can not meet it's obligations, they exit the market. Capacity is removed, and this helps rates stabilize as the surviving carriers take up the slack. But Zombies don't die, they just keep going on and on, chasing the living trying to consume them.
I don't think we will see trucking rates stabilize until the zombies are removed from the market. It's tough to compete on price with someone who ignores their fixed cost.
In the mean time, beware the zombie trucker!
Joel Adams consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
