California-headquartered Kal Freight, which operates 580 trucks and employs 600 drivers, filed for bankruptcy on Dec. 5, as the carrier compiled a debt load of $328.8 million on its balance sheet.
The trucking company cited the unfavorable multi-year macroeconomic conditions for trucking as the chief factor in the Chapter 11 filing which resulted in decreased margins after the company rapidly expanded in 2021.
But the bankruptcy is shrouded in even more scandal, with the company’s largest vehicle finance lender Daimler Truck Financial Services, accusing Kal Freight of committing fraud against it and other creditors.
Daimler Truck Financial Services claims it is owed approximately $139 million in debt secured by titles to 1,625 tractors and trailers.
In one such instance, Daimler said it advanced $16.9 million to Kal Freight to purchase 164 trailers from van trailer manufacturer Vanguard National Trailer. However, the lender claims Kal Freight never received the trailers, while the trucking company never paid Vanguard with the advance loan.
“Nevertheless, the Debtors (Kal Freight) somehow fraudulently delivered Daimler certificates of title to these trailers, and Daimler’s liens are recorded on the titles,” Daimler said in a court filing. “The Debtors made monthly payments on this loan as if the Debtors had purchased and taken possession of these trailers.”
Daimler also alleged Kal Freight transferred ownership of about 366 trailers—which served as collateral for the lender—to Kal Freight’s Canadian affiliate Big Rig Trailers & Leasing. That transfer violated Daimler loan documents, the company said. Big Rig then sold, leased or pledged the trailers to third parties in Canada, but Daimler said it did not receive any proceeds. This may cost Daimler an additional $20 million.
In total, Daimler says the “unauthorized and fraudulent transactions” have placed the recovery of over $40 million of Daimler loans “in serious doubt.”
Beyond the fraud claims from Daimler, Kal Freight still owes its unsecured creditors at least $24 million, according to court filings. The largest sum of those entitlements, $12.7 million, is owed to another trailer manufacturer, CIMC Reefer Trailer Inc.
Kal Freight intends to fund the chapter 11 process with debtor-in-possession financing, which it says will provide the company with the necessary liquidity to maintain normal operations while it restructures.
On a positive note, Kal Freight says it doesn’t expect any layoffs as part of the company restructuring, and that it intends to continue paying its employees in full.
Unfortunately, Kal Freight’s insolvency isn’t the only recent example of a trucking company that caught the bankruptcy bug in recent weeks.
Family-owned RBX Inc., which has 265 trucks and 255 drivers, filed for Chapter 11 on Dec. 13. The Missouri-based trucking company hauls freight through the U.S. Midwest and Southeast, and lists its assets as up to $50,000 and its liabilities as between $10 million and $50 million. The company will still operate, but expects to reorganize.
A month prior, Miami-based Star Transportation and five affiliates filed for Chapter 11, with the move coming after one of its lenders issued an order to repossess 47 of its trucks for which it had provided financing.
The company employs 411 drivers and operates 233 trucks in total, and says it plans to restructure its $27 million in debts and continue operations. The bankruptcy protection filing says Star Transportation has total assets of up to $1 million and liabilities of between $10 million and $50 million.
Victor Khramov, president of Star Transportation, expressed exasperation of the trucking climate in recent years in the bankruptcy filing, noting the rise in fuel costs and insurance claims, as well as the cost to maintain and repair trucks and trailers.
Bankruptcies are still occurring as the industry awaits a presidential transition to an administration with a more protectionist agenda in global affairs. The anticipated increases in tariffs on foreign goods could benefit trucking companies if more businesses felt incentivized to keep product operations closer to home.
The arrow may already be pointing up for trucking. The latest U.S. Bank Freight Payment Index, which was released on Oct. 31, tracked a ninth-straight quarterly decrease in truck freight shipments at 1.9 percent. But this represented the smallest drop in more than a year.
“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” said Bobby Holland, U.S. Bank director of freight business analytics, in a statement. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”
Bob Costello, senior vice president and chief economist at the American Trucking Associations, called it a positive sign that spending dropped less (1.4 percent) than shipments.
“With diesel fuel prices lower, the fact that pricing didn’t erode more tells me the market is getting healthier,” Costello said in a statement.
