Celadon shutdown to create shipping headaches for Fortune 500 firms

Celadon Group Inc.’s sudden shutdown will create logistical headaches across corporate America, as customers race to find new shippers to move their freight across the country and into Canada and Mexico.

The Indianapolis-based company, which filed for bankruptcy Monday and announced it was shutting down, has moved goods in recent years for many well-known companies, including Alcoa, General Electric, John Deere, Philip Morris, Procter & Gamble, Target and Walmart.

The company—which was the largest provider of international truckload services in North America, with more than 150,000 annual border crossing—notified drivers early Monday that they should complete shipments that were in progress and would later receive information on where to turn in their equipment.

FreightWaves.com, a trucking-industry news website, reported Monday that rumors began swirling last Thursday that lenders had begun repossessing equipment from Celadon. The next day, Celadon began advising large customers to seek out alternative transportation providers.

According to FreightWaves, by the end of last week, FedEx and some other accounts had cut the company off. Meanwhile, Conagra, MillerCoors and Walmart had begun canceling preplanned loads, the website reported.

In an email to Supply Chain Dive, a Walmart spokesperson played down the impact of losing Celadon as a shipper.

“We’ve been in contact with Celadon and have a transition plan,” the spokesperson said. “Walmart is very fortunate to have a large network of third-party carriers as well as 9,000 private-fleet drivers that help us keep our supply chain moving smoothly without disruption.”

Prior to Monday’s shutdown, Celadon had nearly 4,000 employees and was operating a fleet of about 3,300 tractors and 10,000 trailers. Many of the drivers are likely to be awash in job offers, thanks to a severe driver shortage industrywide. On Facebook on Monday, rival companies already were courting drivers.

Celadon, which was founded in 1985 by Stephen Russell, ran into a host of operational and legal problems after Russell stepped down in 2012, four years before his death at age 76.

The company’s multi-year effort to right itself appeared to turn a corner in July, when it obtained $165 million in new financing—a development that CEO Paul Svindland described at the time as “a solid platform for the next stage of our business turnaround.” The company said it intended to use the financing to update its aging trucking fleet.

But in a filing in bankruptcy court on Monday, Celadon Treasurer Kathryn Wouters said that around that time, business conditions for Celadon and other trucking companies took a precipitous turn for the worse.

“In mid-2019, the trucking freight market began to soften. The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates,” Wouters wrote.

“Compared to the year immediately prior, 2019 showed a steady decline in freight rates, including spot freight rates and contractual rates. In addition to declining freight rates, volumes of loads in freight have experienced decreasing numbers for a significant portion of 2019.”

Adding to the challenge were the costs and distractions of a multi-year federal probe into allegations of accounting fraud at the company.

In May 2017, the company announced that its auditor, BKD LLP, had lost confidence in Celadon’s recent financial reports, and that investors should not rely on the accuracy of those reports.

On Thursday, the U.S. Department of Justice announced that Celadon’s former president and chief operating officer, William Eric Meek, 39, and its former chief financial officer, Bobby Lee Peavler, 40, had been indicted on multiple charges of fraud.

The U.S. Securities and Exchange Commission filed a civil suit against Meek and Peavler the same day.

Both the civil and criminal cases allege that the former executives were involved in buying and selling trucks at inflated values through Celadon subsidiary Quality Cos. in 2016 to make Celadon’s financial condition appear stronger than it actually was.

In April 2019, former Quality Cos. President Danny Williams, 36, pleaded guilty to conspiracy to commit securities fraud, make false statements to a public company’s accountants, and falsify books, records, and accounts of a public company.

Also in April, Celadon entered a deferred prosecution agreement with the government under which it agreed to pay restitution of $42.2 million.

Celadon admitted last July that it was under criminal investigation over financial reporting issues dating back to 2013.

In October 2017, the company revealed that it was under investigation by the SEC. And, in April 2018, Celadon said its problems were much older and deeper than expected, and that the company had likely overstated earnings by as much as $250 million during a three-year period that ended in 2016.

The company replaced most of its senior leadership team, including its CEO and chief financial officer. The firm also refocused on its core trucking business and exited several other lines of business.

Celadon filed its Chapter 11 petition in Delaware. In the filing, the company said it has assets of about $427 million and debts of $391 million. The company estimated it has 5,000 to 10,000 creditors.

Celadon said all of its more than two-dozen business units will cease operations Monday except for Taylor Express, a trucking division based in Hope Mills, North Carolina. That division will continue to operate while Celadon seeks a buyer for it.

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