Without warning, New England Motor Freight (NEMF) and 10 related entities filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Newark, New Jersey, on February 11, 2019. The company announced that it would commence an “orderly wind-down” of the business. The filing cited rising operating costs, a shortage of drivers and financial difficulties in the bankruptcy decision. The company officially closed its doors one year later.
New England Motor Freight’s origins can be traced to a small motor company that delivered products for the National Biscuit Company (better known as Nabisco) as early as 1918. The company also hauled dairy for Fair Lawn Dairies, which eventually was acquired by the much larger Farmland Dairies.
It acquired the New England Motor Freight name at about the time it was bought by Farmland Dairies, which was based in Bergen County, New Jersey. Farmland sold the carrier in 1977 to Myron (“Mike”) Shevell, a New Jersey trucking executive.
NEMF became part of the Shevell Group. Over the years it grew, and was a major provider of less-than-truckload (LTL) freight services in the New York/New Jersey metropolitan area, although the company’s services extended as far west as Chicago and included handling shipments into Canada and Puerto Rico.
Shevell entered the trucking industry in the 1950s as vice president of Apex Express. Later, he received a temporary grant of authority from the Interstate Commerce Commission to operate and manage Associated Transport in 1974. At one time, Associated Transport had been the largest trucking company in the United States. Two years later, it was apparent that the intrinsic financial difficulties experienced by the family of companies were too much to overcome, and the companies entered bankruptcy.
Purchase of NEMF
Following the Associated Transport bankruptcy, Shevell purchased NEMF from Farmland Dairies. By then, the carrier was barely scraping by as an LTL carrier in the competitive Northeast. While several companies did not survive the deregulation that followed in 1980, NEMF thrived. It was a unionized company, and its success during deregulation raised some suspicions. As observers wrote, while it wasn’t “impossible for a unionized carrier to thrive” in the deregulated environment, it was “unlikely.”
Shevell was accused of cultivating a corrupt relationship with Teamsters Local 560 through the Mafia in 1988. Shevell was accused of having an 11-year relationship with a Genovese family mobster and union leader, Anthony Provenzano, who was convicted of racketeering and murder. According to the case, officials at Local 560 conspired with Shevell to “sabotage grievances” against NEMF, in order to resolve union problems before they resulted in strikes and lost earnings. The matter was settled, however, with no admission of guilt or wrongdoing.
When NEMF filed bankruptcy it was the 19th-largest LTL carrier in the U.S. A privately held company based in Elizabeth, New Jersey, NEMF reported revenues of over $400 million in 2017. However, it also owed tens of millions to creditors, including banks, a union pension fund and fuel distributors. When it filed for bankruptcy protection, NEMF listed assets of $100 million to $500 million and debts between $50 million to $100 million.
The company listed four banks – JPMorgan Chase & Co., TD Bank, East West Bank and Santander Bank – as its four largest unsecured creditors. It owed the banks more than $59 million, according to the NEMF filing.
At the time of the announcement, NEMF’s bankruptcy was the largest transportation bankruptcy since Consolidated Freightways declared bankruptcy in 2002. NEMF employees alleged they received no notice of the shut-down, violating the federal WARN Act, which requires at least 60 days notice before such shut-downs.
As described by FreightWaves’ Mark Solomon at the time of the bankruptcy, “A unionized LTL carrier operating in a high-cost, super-congested region beset by weather problems for one-third to 40% of the year. Tough competition, mostly from non-union carriers, that got much tougher with the entry into the region two years ago of the ninth-largest LTL carrier. Shippers and third-party logistics providers (3PLs), businesses that work on behalf of shippers, squeezing it for every last nickel.
It’s a problematic recipe that’s become all-too-familiar. The brutal Northeast market has claimed many an LTL carrier since trucking was deregulated in 1980.”
The decision to declare bankruptcy
Mike Shevell almost certainly was the one to decide to declare bankruptcy. NEMF and the 10 affiliated companies in the bankruptcy filing were controlled by Shevell and his family company, Shevell Group.
The bankruptcy filing in early 2019 followed what many considered the best year for trucking companies in recent history. During 2018 strong freight volumes and tight capacity sharply increased the prices shippers paid for truck transportation.
However, at NEMF, it had absorbed two years of “significant losses,” according to Vincent Colistra, senior managing director at Phoenix Management Services and chief restructuring officer for the trucking company.
“We have worked hard to explore options for New England Motor Freight,” Colistra explained in a statement posted on the company’s website on February 11, 2019 (the day of the bankruptcy filing) “but the macroeconomic factors confronting this industry are significant.”
Colistra’s statement continued, “Following two years of losses, and with continuing and unsustainable rises in overhead as well as a severe shortage of drivers, we have concluded that the company has no choice but to proceed with an orderly wind down of operations.”
In the years before its bankruptcy filing, NEMF handled LTL shipments for many large retailers (including Amazon) and according to several industry observers, that may have contributed to its demise.
Evan Armstrong, president of Armstrong & Associates, a logistics industry research firm, said, “NEMF was burdened by several large underperforming contracts, including Amazon.com.”
The NEMF closure affected more than 1,300 drivers, as well as other NEMF employees, at 40 terminals in the Northeast, Midwest and Puerto Rico. The company employed 3,745 people and operated 1,500 company-owned tractors and 247 owner-operator tractors.
The company’s terminals were owned by the Shevell family, and many were located in areas with rising real estate values. According to the company website at the time of the bankruptcy filing NEMF controlled about 10,000 pieces of equipment, including about 1,500 power units and nearly 5,600 trailers.
According to analysts and others close to the company, NEMF’s business and financial condition eroded significantly during 2017-18. The erosion coincided with competition from Saia, Inc., (NASDAQ:SAIA), the ninth-largest LTL carrier, which began competing with NEMF and other Northeastern-based LTL carriers. Saia opened terminals in the Northeast and made the competitive markets in the Northeast more competitive.