Autopsy Report: How Central Freight Fell Into a 5-Year 'Death Spiral'

Analysts, industry insiders and some of Central Freight Lines' executives and truck drivers liken the LTL carrier's demise to a "five-year death spiral" after the company lost a major customer, then acquired two failing companies.

The end of the 96-year-old company was the biggest shutdown in trucking since Celadon in December 2019. It leaves 2,100 workers, including 1,325 drivers, seeking employment with Christmas just around the corner.

Many of this month's holiday gifts will arrive via Amazon, the e-commerce giant — and former CFL customer.

CFL first began hauling freight for Amazon in 2011, but the relationship ended after a pricing dispute in 2016 and ensuing litigation. Court filings state that Amazon "attempted to wield its economic power to force through billing and procedure changes that Central Freight never agreed to." A jury awarded CFL more than $2.4 million against Amazon in November 2019. 

Prior to the two companies severing ties, CFL had built new terminals, replaced its aging fleet and taken out a bigger debt load to handle Amazon's growing freight volume. 

"When they left, they took 30% of our business with them," Bruce Kalem, president of CFL, told FreightWaves. "They became a major part of us and that was our fault really to have all of our eggs in one basket. We never really recovered from that loss."

Kalem said the loss of such a major customer started the "five-year death spiral" that led CFL to acquire the assets of Wilson Trucking in February 2017 and Tennessee-based Volunteer Express in 2020 — even as CFL was bleeding cash and both LTL carriers it purchased were losing money as well.

"It was like two drunks getting together — it wasn't a good idea, didn't help anything and made things a lot worse," Kalem said in an exclusive interview. "We already didn't have enough freight density as it was."

Kalem said the company's revenues were around $262 million for fiscal year 2020, but that the carrier lost over a quarter of a billion dollars in a five-year span after losing the e-commerce giant's business, combined with the losses it incurred after acquiring Wilson Trucking and Volunteer Express.

Moyes taps Kalem to ‘right the ship'

Kalem was first hired as an operations analyst in 2019, then later promoted to president by CFL owner Jerry Moyes, founder and former owner of Swift Transportation, "help right the ship." 

Moyes purchased the LTL carrier in 2006 and pumped millions of dollars of his own money to keep the struggling company operating, Kalem said.

Nearly a year ago, the carrier reshuffled its executive team in an effort to stay afloat, naming Moyes as interim president and CEO. Moyes remained CEO after Kalem was elevated to president in July. Moyes also invested around $76 million in brand-new facilities in the carrier's western division in October 2020. Those terminals were later sold.

"We started working on operations, working on the rates, working on price to try and get more revenue into the system," Kalem said. "We did cut the operating loss some, but it was still too much. Our rate of loss was cut by 30-40% over the last six or seven months, but it was too late."

Kalem said the company had lost 25% of its drivers in the preceding three or four months before he assumed the role as CFL president. Despite raising linehaul pay by 20% in August, few drivers signed on to work for the struggling carrier.

"That was a double whammy when we couldn't get linehaul drivers in the seats to be able to move the freight," he said. "Even though our volume was descending, we couldn't even handle the freight that was descending because we kept losing the drivers. We had stopped the turnover with rate increases in July, but we couldn't attract any new drivers."

Service disruptions because of the lack of drivers led to customers leaving CFL for other LTL carriers, Kalem admits.

Despite diligent efforts, CFL "was unable to gain commitments to fund ongoing operations, find a buyer of the entire business or fund a Chapter 11 reorganization," another source familiar with the company told FreightWaves on Saturday.

Kalem said the company had 65 terminals prior to its decision to shutter operations. 

FreightWaves received a tip from a source nearly two weeks ago that CFL wasn't renewing its East Coast terminal leases but was unable to confirm the information with company executives. 

Another source told FreightWaves that some of the LTL carrier's West Coast terminals had been sold recently, but that no reason was given for the transactions.

After FreightWaves broke the news late Saturday that Central Freight Lines planned to cease operations on Monday after 96 years, other LTL carriers have stepped up recruiting efforts over the past few days to hire more than 2,100 drivers and employees who will lose their jobs right before Christmas.

Kalem told FreightWaves late Monday that rival LTL carrier Estes Express Lines, headquartered in Richmond, Virginia, which has nearly 8,100 drivers and 7,300 power units, is looking to add many of CFL's 1,325 drivers to its fleet and is seeking to buy some of its equipment.

Insiders weigh in 

Industry analysts and 3PLs say poor acquisitions and a lack of understanding of the LTL business model were key to CFL's demise. Rival carriers were surprised CFL held on as long as it did as rumors have been swirling for years that the company was on the verge of going out of business.

During the onset of the pandemic, Central Freight Lines was one of four trucking-related companies that received the maximum award of $10 million through the U.S. Small Business Administration's Paycheck Protection Program (PPP). This occurred around the time that CFL drivers and employees were forced to take pay cuts, a move that didn't go over well with drivers.

"It all went to payroll," Kalem said about the PPP funds. "Yes, our employees and drivers did take a pay cut over the past few years, and we gave most of it back, even raised pay over the past several months, but it just wasn't enough to attract drivers."

With Moyes' deep pockets, some of Central Freight's tenured drivers were hopeful that he could make the LTL carrier profitable again.

"Jerry Moyes is a guy you don't want to bet against as an entrepreneur, but he didn't understand the LTL business and how widely it differed from full truckload," a source familiar with the company told FreightWaves. "LTL is a different hub-and-spoke model than full truckload and obviously has a bigger labor component in terminal service centers and door pressure, door management and linehaul management. Those are paramount in LTL."

Another issue was pricing, said the logistics expert, who spoke to FreightWaves on condition of anonymity. 

"Central Freight didn't have the controls, the technology to know what their costs were," the source said. "So what they did was, they had artificially derived pricing which was then exacerbated by the fact that once they couldn't get enough market share, they went after 3PLs."

The industry expert said prior to CFL's decision to close, 3PLs made up more than 70% of its revenue.

"What happened is CFL turned into a transactional 3PL carrier," the logistics expert told FreightWaves. "Combine the fact that the management's logic, the lack of cost in pricing, lack of understanding of the LTL model and acquiring companies that were already losing money, thinking bigger was better, then couldn't integrate those companies, this led to the death spiral." 

A source familiar with the company said he is unsure whether CFL will file Chapter 7 or "liquidate outside of bankruptcy" but that the LTL carrier has no plans to reorganize.

Kalem agreed.

"It's just horrible," he said.

"I'll be here for a few months or whatever it takes to wind it down and we'll see what happens after this. We are trying to get freight delivered, self-liquidate, get the equipment sold and make everyone whole. That's all I'm trying to do."

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Watch: Central Freight Lines ceases operations

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See related coverage:

Exclusive: Central Freight Lines to shut down after 96 years
Reaction to news of Central Freight Lines shutting down
Central Freight confirms Estes Express offering to snap up drivers, buy equipment

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