Tuesday, December 13, 2016

A tale of two (failed) truck companies – and the carnage they left behind

Remember Jevic Transportation? The New Jersey-based carrier was around for 27 years mostly in the Northeast before it suddenly closed its doors in 2008, leaving 1,800 employees without work and stranding a few drivers on the road

Now the ghost of Jevic is in the headlines. A dispute over who gets paid first out of Jevic's bankruptcy assets has finally worked its way to the U.S. Supreme Court. Seems the Jevic holding company and some lenders reached a settlement that left one group out in the cold. Guess who? Unpaid drivers, of course.

The settlement between financial institutions even blocked the drivers’ ability to sue the company some blamed for Jevic’s demise – Sun Life Financial.

The Supreme Court heard arguments in the case on Dec. 7. A lawyer for the drivers pointed out that by law and custom, employees should be paid before some lenders. The corporate lawyer argued that the Jevic case was an exception.

From the transcripts it’s hard to tell what the justices were thinking, except for Justice Sotomayor. Speaking of the drivers, she told the corporate lawyer, “You took away a legal right from them. They had a legal right to sue Sun Life. They had a legal right to pursue their other claims. And the settlement extinguished those claims.”

Do any other justices see it that way? We’ll have to wait to find out.

Jevic wasn't your everyday truckload carrier. In fact, it described itself as an LTL, but it was really both.

Jevic specialized in large LTL shipments, say 3,000 pounds or more. At its purest, the idea was to pick them up in sequence and then deliver starting in the reverse order with the last pickup coming off first. Jevic called it load-to-deliver. It didn't always work that way and many shipments were switched around at the terminal, but even then shipments were handled less than they would be in other LTL systems.

It was complicated, specialized business, but it worked well for 27 years – so well that in 1999 YRC, then known as Yellow Corp., bought Jevic for $200 million. Harry Muhlschlegel, who started Jevic in 1981, took the money and retired at 52 – not bad for a guy who was an owner-operator before hitting the big time.

But Jevic was a poor match for YRC, which spun off Jevic's holding company just three years later in 2002. In 2006, that company sold Jevic to a private equity firm associated with Sun Life Financial for $40 million, $80 million less than it had been worth in 1999. But the $40 million was borrowed money, debt Jevic was obligated to pay. Soon that debt overwhelmed Jevic.

That would be the end of the story, but for one thing: by that time Jevic had a young cousin.

Let's back up to 1999. Muhlschlegel didn’t like retirement, so in 2000 he launched a truckload carrier he aptly called New Century Transportation. Before long New Century was also handling large LTL, and Muhlschlegel was back in the load-to-deliver business – directly competing with Jevic. The two companies were headquartered only a few miles apart

Things looked good for New Century, and Muhlschlegel was giving interviews to the press. New Century’s load-to-deliver freight came from shippers in the northeast, he told Heavy Duty Trucking in 2006. “We pick up LTLs in the Northeast and send them throughout the country. Then we return with truckloads,” he said. “Most truckload carriers don’t want to come here, and return loads out of the Northeast are poor.”

But it was the perfect situation for New Century, which was growing even as Jevic was struggling. In 2008 when the end came, some Jevic people found jobs at New Century. It was as if Jevic had been reborn as New Century, at least in a manner of speaking.

So all’s well that ends well?

Not in this case.

In 2012 when New Century was rated as the 24th largest LTL carrier with almost 1,000 drivers, Muhlschlegel retired again. That same year, New Century’s revenue began to decline. Their inability to attract drivers was squeezing New Century even as the classic LTLs were taking a larger share of the large shipments, New Century’s bread and butter.

In just two more years, New Century’s new management was struggling to keep operations going. In June of 2014, a major creditor said enough was enough and pulled the cash-flow plug. Just as Jevic had done six years before, New Century closed its doors with virtually no notice at all.

“Last week I had an eerie feeling that this was going to happen,” New Century dispatcher Matt Huber told Land Line at the time. “While we were getting reassurances that this wasn’t the case,” he said. “Things were very similar to when Jevic closed its doors.”

Huber had come to New Century from Jevic in 2008. As Yogi Berra once said, it was déjà vu all over again.

That’s not the only coincidence. The same law firm that sued the Jevic estate on behalf of drivers in 2008 is also representing short-changed drivers against the estate of New Century. The next hearing on the New Century case is set for March in U.S. Court for the District of New Jersey.

And where is Harry Muhlschlegel? According to his LinkedIn entry, Harry, at 67, is retired and living in Florida.

No, he’s not the bad guy. Both debacles occurred when others were running the companies he started. When Muhlschlegel was running them, both Jevic and New Century were regarded as driver friendly fleets, at least compared to many others.