July 25, 2023

Freight broker Surge Transportation files for bankruptcy


Surge Transportation, a digital freight brokerage founded in 2016 by Omar Singh and based in Jacksonville, Florida, has filed for Chapter 11 bankruptcy protection in the Central District of Florida, according to filings. Thirteen of its top 20 creditors are factoring companies that pay small carriers.

Officials at Surge told FreightWaves that the company is working with a financial sponsor and hopes to get its bankruptcy plan approved at a hearing on Wednesday.

Over the past seven years, Surge grew to a workforce of more than 100 people and earned gross revenues of approximately $150 million in 2022. The bootstrapped 3PL built automated load-matching and pricing technology similar to its venture-funded competitors Uber Freight and Convoy and offered a suite of direct integrations into transportation management systems.

Since the beginning of last year, the freight market has experienced a significant downturn. The fading of pandemic-era stimulus programs cooled the goods economy, and when combined with the abundant capacity that had built up, sent transportation prices through the floor.

FreightWaves’ National Truckload Index, a truckload spot rate benchmark that includes the price of diesel, stood at $3.55 per mile on Dec. 26, 2021. By July 24, 2022, the NTI had fallen to $2.80, and today it’s at just $2.23 — again, inclusive of fuel.

At the same time, tender rejection rates dropped from 21% in the first quarter of 2022 to approximately 3% in recent months as capacity in the trucking industry exceeded demand. 

These market dynamics have a powerful impact on freight brokerages: Lower contract and spot rates translate to fewer net revenue dollars per load, the lifeblood of any intermediary. And very low tender rejections can mean the end of the lucrative overflow freight that shippers send to brokers when their contracted asset-based providers don’t have a truck available.

When the market is soft for brokers, it’s very soft indeed: Not only are rates much lower and margin dollars harder to come by, but spot volume can dry up almost entirely. Freight brokers face other structural financial challenges, too: They normally pay their carriers much faster than their own customers pay them, putting a strain on working capital that is often mitigated through commercial lending instruments like receivables financing.

Typically, freight brokerages manage revenue volatility through flexible operating expenses: Computers and chairs don’t cost much, and incentive-based compensation grows and contracts with market cycles. That’s why hiring sprees and layoffs at freight brokerages are relatively common, but outright failures are relatively rare. It’s also why industry observers will scrutinize Surge’s bankruptcy filings for clues as to how the brokerage got into such a desperate situation.

This story is developing.


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