The Escalating Chapter 11 Bankruptcy Wave in the Trucking Sector: A Systemic Risk to Equipment Finance Lenders?

The U.S. trucking industry is grappling with an unprecedented wave of Chapter 11 bankruptcies, with 21 freight carriers filing for reorganization in the third quarter of 2025 alone, following 20 in the prior quarter. This surge reflects a prolonged freight downturn marked by overcapacity, rising operating costs, and stagnant freight rates. For equipment finance lenders and institutional investors, the implications are stark: a sector in distress is compounding systemic risks, with collateral devaluation, zombie fleets, and tightened credit standards reshaping the risk landscape.

The Drivers of the Crisis

The trucking sector's woes stem from a confluence of macroeconomic and operational pressures. Operating costs have surged to a record $2.27 per mile in 2023, driven by inflation, fuel prices, and regulatory compliance. Meanwhile, freight rates have plummeted by 31% compared to pre-pandemic levels, leaving many carriers unable to cover costs. Overcapacity-exacerbated by fleet expansion during the 2021-2022 boom-has further depressed rates, creating a vicious cycle of declining profitability.

Lenders have responded by tightening credit standards, including larger down payments and reduced loan-to-cost ratios. However, these measures have not stemmed the tide of defaults. Midland, a major equipment lender, reported $5 million in charge-offs in 2025, underscoring the sector's fragility. Smaller fleets and owner-operators are particularly vulnerable, with 35% of owner-operators considering shutting down operations due to compliance costs.

The Rise of Zombie Fleets and Systemic Risk

The proliferation of "zombie fleets"-undercapitalized carriers surviving on minimal cash flow-has become a systemic threat. These operators, often reliant on short-term fixes, like factoring (selling receivables), lack the financial resilience to weather prolonged downturns. Their continued operation exacerbates overcapacity, further depressing freight rates and creating a feedback loop of distress.

For equipment finance lenders, the risk is twofold. First, repossessions have become less economically viable: heavy-duty truck values fell 21.6% year-over-year in October 2023, reducing the recovery value of collateral. Second, the concentration of zombie fleets increases the likelihood of cascading defaults, particularly if macroeconomic conditions worsen.

Hedging Strategies and Reallocation Opportunities

Institutional investors and lenders must adopt nuanced strategies to mitigate these risks. One approach is to segment risk between local and long-haul freight models. Local carriers with higher profit margins and less exposure to macroeconomic swings may offer more stable collateral. Conversely, long-haul operators require rigorous stress testing for variables like fuel volatility and spot rate fluctuations.

Financial derivatives, such as interest rate and currency hedges, can also mitigate macroeconomic exposure according to research. For example, lenders could use forward contracts to lock in borrowing costs amid rising interest rates. Additionally, technology adoption-telematics for maintenance optimization and AI-driven route planning-can reduce operational risks for borrowers, making them more attractive to lenders.

Investors seeking reallocation opportunities should consider freight technology companies with scalable models. As traditional carriers struggle, digital platforms that enhance load matching and route efficiency are gaining traction. Similarly, infrastructure deals in resilient sectors like ports and marine terminals offer long-term stability.

Conclusion

The trucking sector's Chapter 11 wave is not merely a cyclical downturn but a structural challenge. Equipment finance lenders must balance caution with strategic foresight, prioritizing operators with operational expertise and technological adaptability. For institutional investors, reallocating capital toward freight tech and infrastructure presents a path to mitigate systemic risks while capitalizing on the sector's eventual recovery. As the industry navigates this prolonged correction, proactive risk management will be the key to survival.