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. Sixteen 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 Thursday.
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.
ThaGearJammer2
I used surge a few times. They relied heavily upon technology vs building a relationship. So it’s not like I cared for them just if they happened to have a load.
Negative cash flow but they used triumph pay big bank for factoring so it leads to the customers or management. Sounds like management was the problem. I could never get a hold of someone during after hours.
ShipHappens
Rightfully so, this guy is a tyrant, completely unprofessional, and loves to live lavishly. This is what happens when you base your entire business model off of the spot market and don’t listen to your hired people when they tell you that you need more contract freight, now look at where it went. Listen to the management team you hire instead of thinking you’re gods gift to freight and you might have had a chance with your customer base.
OH MY GOD WHO COULD HAVE SEEN THIS COMING?! People you hired on your management team. That’s who.
Stephen Martinek
Riccco, we need to see the public filings to know for sure, but considering the fact their largest creditors are all factoring companies, it stands to reason their own customers are not paying in a timely manner. I wouldn’t be surprised if Surge’s customer base is itself stressed right now. But that is 100% pure speculation, we have to wait to review documents.
Gerald Johnson
It is unfortunate to hear about Surge Transportation’s filing for Chapter 11 bankruptcy protection. The challenges faced by many freight brokerages in the wake of the pandemic and the subsequent decline in the freight market have had a profound impact on the industry. The decrease in transportation prices, coupled with the oversupply of capacity, has put significant pressure on brokers’ revenue streams. The decline in tender rejection rates further exacerbates the situation, as it limits the opportunity for brokers to secure overflow freight. It is encouraging to hear that Surge is working with a financial sponsor and aiming to get its bankruptcy plan approved. Hopefully, they will be able to navigate through this difficult period and emerge stronger in the future.
Gaston
These brokers are thieves just like the stock brokers that use to take %20-%50 of a stock trade but that ended and now they can only take a small percent around 3% why the hell are frieght brokers not regulated as well they are thieves and they are killing the owner operator !!
ALEX
SMARTESTE MOVE EVER.. MORE BROKERS WILL FOLLOW. IMAGINE BY THE TIME THEIR CREDIT SCORE GO BAD… 6 MONTHS TIME FRAME.. THEY CAN DO OVER 10,000 LOADS… AND LETS’ SAY THEY MAKE MINIMUM OF $500 PER LOAD…
DO THE MATH…. THEY MAKE MILLIONS.. THEY HAVE TO BE STUPID NOT TO GO BRANKRUPT WHEN THEY CAN MAKE MILLIONS OF DOLLARD JUST IN FEW MONTHS…
SMART …
DPP
Surge Transportation helped run the trucking industry into the ground the past 24 months. Good riddance.
Riccco
They take 20/30% so ..how they can bankrupt? They don’t pay drivers? Try don’t pay equipment? Try use carrier insurance if something happens? So they have only paycheck to people who answer on phone and offer 1$ per mile… Arest them!