85% of New Carriers Failed in Three-Year Downturn
Equipment bought at $110,000 in 2021 is worth $45,000 today. The longest freight downturn in recent memory wiped out most carriers who started during the bubble.
The average three-year failure rate for motor carriers with fewer than two years of operating experience hit 85% during the freight downturn that began in mid-2022, according to Kirk Mann, EVP and GM of Transportation and Vendor Solutions at Mitsubishi HC Capital America. That figure marks one of the starkest measures yet of how the roughly three-and-a-half-year slump devastated the smallest participants in the for-hire trucking market.
Why did so many new carriers go under?
The failure rate traces directly to the equipment bubble that inflated during 2021 and 2022. Mann recalled a conversation with his chief risk officer about a four-year-old Freightliner Cascadia with fewer than 500,000 miles. The risk officer valued the asset at roughly $45,000, but the company was financing it at $100,000 to $110,000. Pre-COVID prices on five-year-old equipment ran around $34,000, climbing to as high as $120,000 at the peak. Carriers that entered the business buying equipment at those inflated values were immediately underwater when rates collapsed.
When defaults mounted, Mitsubishi HC Capital leaned on workout tools rather than immediate repossession. Mann said the company restructured approximately 75% of its loans during its 2020 customer assistance program launched at the onset of COVID-19, and that 95% of those borrowers resumed payments within 90 days. Even so, the lender accumulated repossessed inventory it held "for quite a long time" before conditions improved enough to move units through dealer networks, auctions, and internal sales channels.
What made this downturn different?
Mann described the downturn as the longest he has seen. He stopped short of calling it the worst ever but noted that the combination of duration, an asset bubble, pandemic-era stimulus that kept marginal capacity alive, and the entry of private fleets into the for-hire backhaul market made it unusually difficult for independent lenders. The downturn lasted roughly three and a half years, longer than the typical freight cycle.
The equipment bubble compounded the problem. Carriers who bought trucks at peak prices in 2021 and 2022 found themselves financing assets worth half what they paid. A $110,000 loan on a truck now worth $45,000 leaves no equity cushion when freight dries up. The math doesn't work when spot rates drop and the truck payment stays the same.
Where do spot rates and financing stand now?
Mann said the current recovery is real but uneven. Balance sheets at medium and large fleets are tight but better than expected, and spot rates have firmed alongside higher freight rejection rates over the last six months. Still, he said freight demand, not equipment availability, remains the binding constraint. "For us to get to that growth phase again, I think folks are looking for the freight side or the demand of freight to increase before they decide to increase the size of their fleet or even replace some units," he said. Replacement demand exists, but he described it as less than 100% of what would be expected in a normal expansion.
On the lending side, financing rates today range from roughly 5.25% for investment-grade private fleets up to approximately 12% or higher for lower-credit small operators. Small operators are also typically required to put down a deposit to preserve equity and keep payments manageable. Mann said fleets of 50 to 200 units are increasingly approaching Mitsubishi HC Capital through dealer relationships, a sign that liquidity constraints among traditional lenders are pushing mid-size carriers toward alternative capital sources.
What does the 85% failure rate mean for carriers still standing?
The 85% failure rate applies specifically to carriers with fewer than two years of operating experience and their own ICC authority. That cohort entered the market during the 2021-2022 boom, when spot rates were high and equipment was expensive. Most didn't survive the correction. The carriers that made it through the downturn are the ones who either entered with enough capital to weather the storm or who had been in business long enough to have equity in their equipment.
For fleets still operating, the lesson is straightforward: buying equipment at inflated prices during a rate spike is a bet that rates will stay high. When rates collapse, the truck payment doesn't. The carriers who survived either bought used equipment at reasonable prices, leased instead of financing, or had enough cash reserves to cover the gap between revenue and expenses during the downturn.
When will lenders expand capacity again?
Mann said his Japanese parent company's preference for "controlled, profitable growth" positions the lender to expand lending volume as the market tightens, but only once freight demand catches up to support healthier carrier economics. The signal he's watching is freight demand, not equipment prices or interest rates. Until shippers need more trucks, adding capacity doesn't make sense.
The 85% failure rate among new carriers is a reminder that the freight market punishes overleveraged entrants when rates turn. The carriers who bought trucks at $110,000 in 2021 and financed them at 8% or 10% found themselves holding assets worth $45,000 when spot rates dropped. The ones who survived either had equity, cash reserves, or contract freight that kept them solvent. The rest are out of business.
