With data out about the impact of the Paycheck Protection Program (PPP) on the trucking sector, the debate can now turn to how big an impact it has had on capacity and keeping companies alive.
While the attention on the first day of the data’s release was on the list of companies that were identified by name because they received PPP loans of $150,000 or more, a lot of companies received less than that.
The data on those loans was released at the same time as the figures on the bigger loans, though the identities of the smaller borrowers were not disclosed. The Small Business Administration release of state-by-state spreadsheets of the loans under $150,000 are set up exactly like those for the larger loans, with only the identities of the borrowers missing.
Through June 30, the final day of the PPP before its recent extension, the transportation and warehousing sector had received just over $17 billion in PPP funding, 3.82% of all funds disbursed.
A quick glance at the data creates the impression that a large chunk of the trucking industry has been kept afloat by PPP money. And that was the point of the entire PPP program: to keep employees employed and companies operating as the country closed down to throttle back the pandemic.
But if you take time to do the math, as Aaron Terrazas, the director of economic research at Convoy, did, the picture changes.
Terrazas, in an email to FreightWaves, compared the number of companies that received PPP loans of all types — under $150,000, where the identity is not disclosed, and above $150,000, where it is — and came to this conclusion: About 8.5% of all trucking companies in the U.S. got money from PPP. (To get the number of companies under $150,000, as Terrazas did, you would need to aggregate the state-by-state spreadsheet of all 50 states.)
He came to that 8.5% by comparing the number of companies that got PPP loans to the total number of Federal Motor Carrier Safety Administration (FMCSA) registrations. That FMCSA number is as of February.
“Obviously that comparison is not quite apples-to-apples, since some trucking companies that got loans might not be interstate carriers,” he wrote in his email. “But it gives you an approximate sense of the scale.”
Keeping some company doors open
Are those companies being kept alive by PPP funds? In an email to FreightWaves, Greg Feary of the law firm Scopelitis Garvin Light Hanson & Feary said the data shows that while there are “many mid to small over the road companies that apparently got PPP loans, I would not be too quick to concluded the majority of trucks or trucking capacity, or even a substantial minority, are currently being propped up by PPP loans.”
Josh Enger, the managing principal of industry for CLA Minneapolis and a specialist in the trucking field, dealt with some of the companies that are not in that 8.5% cited by Terrazas.
The PPP wasn’t a free-for-all. Companies will need to show during the period for which they seek forgiveness of the loan that they spent at least 60% of the money on keeping workers employed; that figure originally was 75%. Some rules were not clear and a rolling series of clarifications did not answer all questions about whether a company was qualified to receive the loan. (Public companies could originally receive money under PPP, but the SBA and the Treasury Department changed that.)
“I had a number of clients that I would say were in the gray or on the border of being able to apply but didn’t feel like the program was intended for them,” Enger said in an interview with FreightWaves. “They didn’t feel like they met the criteria and chose not to apply.”
Enger also said he had clients who initially received funds under PPP but chose to return the money as they concluded the program wasn’t suited to them.
That was always a risk for a company and remains so as the PPP process will shift more now to the question of loan forgiveness: If it turns out a recipient wasn’t supposed to get the money, or can’t prove adequate justification for certain expenditures, they will need to pay it back.
Whether the PPP program kept capacity alive that might have disappeared is a difficult question to answer.
Enger of CLA said some companies might have been in tight financial shape going into the pandemic, but he pushed back against a suggestion that the program was keeping “zombie” companies alive.
”A lot of companies would have been able to get through and would have survived, but it would have been difficult,” he said. “But I would not classify them as zombie companies going in.”
Terrazas of Convoy largely agreed. The PPP program, he said, was a “short-term bandage to help companies survive a temporary shock.” He said he doesn’t expect it to become a “long-term feature” of the economy.
Secondly, according to Terrazas, the trucking market had already been through a difficult year to 18 months going into the pandemic and the PPP program. “Bankruptcies in trucking were already rising starting mid-2019 meaning that many unprofitable or unviable carriers had already exited the market before March,” Terrazas said.
“Whether some truck companies with PPP Loans are truly the walking dead won’t be known until we reach a stage where the economy is back in a stable and growing mode, which optimistically would still be late this year,” Feary said. “Our straw polling though does not indicate a lot of dead and dying truck companies.”
Feary did concede that such a “poll” would be conducted among companies seeking legal advice from Scopelitis, so there might be what pollsters call selection bias.
Chris Henry was less optimistic about keeping companies alive post-PPP. Henry is a vice president at FreightWaves and is manager of the Truckload Carriers Association (TCA) Profitability Program (TPP) and TCA InGauge. FreightWaves is the exclusive benchmarking software provider for the TCA Profitability Program.
Henry said every company he knows of in the TPP program that sought a PPP loan got one. “However, I have heard about severe difficulties for small carriers and owner-operators getting approved and funded,” he added.
He also is of the school of thought that PPP kept some companies alive that might be facing problems down the road. “Once the tap is finally dry, there will be a major reduction in capacity if the estimate about average fleet size for for-hire is true,” Henry said. “The only advantage the smaller fleets have is much less fixed overhead.”
Going for more money
While the PPP program has been extended to Aug. 6, using about $130 billion in unclaimed funds left over when the program expired June 30, there also is talk of allowing companies to take a second PPP loan. There has been a bill introduced in the House of Representatatives with that goal.
Enger, discussing that prospects, said some trucking companies might go in for a second chunk of money but that there would be other, unknown factors behind that determination. “I think trucking companies would look hard to see if they met the criteria,” he said. But such factors as whether the country undergoes a second shutdown or conversely, whether restaurants or other businesses will ramp up, would need to play out before such a determination could be made, he said.