Once a week for a year, Luis Escalante spread envelopes across his kitchen table, sorting them into piles of past-due bills. Between costly repairs on his semi trucks and increased competition, he was struggling to keep his small Southern California trucking company profitable.
Then the war in Iran started. Diesel prices in the state jumped well over $5 a gallon. Then $6 and $7. Paying thousands of dollars more for fuel every month, Mr. Escalante, 47, could no longer afford the high-interest loans buoying his business, and he reluctantly accepted the last-ditch plan he had long dreaded: filing for bankruptcy.
“I had to be honest with myself,” he said. “There was no way to keep going.”
Almost all industries have faced downstream impacts from the war, but the high price of diesel has been particularly hard for farmers, who use it to power machinery, and truckers, who are paying around 70 percent more per gallon than they were a year ago. In September, at least 40 trucking companies nationwide, including Mr. Escalante’s, filed for bankruptcy, according to BKwire, a bankruptcy data analytics firm. It was a 38 percent increase from a year earlier.
While every failing business has its own story, logistics experts and bankruptcy lawyers say record-breaking diesel prices have been a contributing factor, especially for small operators.
“When diesel goes from under $4 a gallon to over $6 in a year and freight rates don’t follow, the difference comes straight out of the owner’s pocket,” said David Cruz, a bankruptcy lawyer in Florida. He has seen an uptick in trucking companies contacting his office since the war began, he added.
Last month, President Trump, who authorized the U.S.-Israeli attack that started the war in February, signed an executive order allowing anyone to buy so-called red-dyed diesel, which is typically restricted to off-road uses like farm operations, and deferring and possibly eliminating some taxes on the fuel.
“This targeted action,” the order said, “will put money directly in the pocket of American farmers, truckers and workers.”
But for many truckers, the relief isn’t enough.
Rising fuel prices “are essentially a final nail in the coffin” for many small operators, said Desiree Wood, a former trucker and president of the trade group Real Women in Trucking. That segment of the industry grew rapidly during the high-demand days early in the Covid pandemic but has become oversaturated in the years since.
Following a Dream
As a boy in Tijuana, Mexico, Mr. Escalante, watched the long lines of semi trucks waiting to cross into the United States and imagined the drivers heading to far-flung destinations. Maybe San Francisco, Chicago, even New York. Places he had seen only in movies. One day, he told himself, he would be the one behind the wheel.
When he moved to Southern California in his 20s, he studied for his commercial driver’s license and found work hauling fast-food utensils to Burger King and Chick-fil-A locations across the country. He eventually drove to all those cities he had thought about as a boy.
But the grueling cross-country travel kept Mr. Escalante away from his wife and young children in Riverside County, so around 2016 he and a friend started a small trucking company. They named it A&B Transportation, liking the simplicity and the ring of the first letters of the alphabet.
“Who doesn’t want to be their own boss?” Mr. Escalante said, recalling those early years. “I had always worked for other people. Now this was my version of a dream coming true.”
The company grew slowly but consistently, eventually owning eight trucks and employing eight drivers. The lockdowns of 2020 ushered in a heyday for truckers. Consumers holed up at home with stimulus checks were suddenly buying new furniture, laptops, cars, personal protective equipment, walking shoes. To match the demand, trucking companies were hiring, and some drivers ventured out on their own. A round trip between Southern California and Texas could pay $8,000 before expenses, Mr. Escalante said.
“It was the busiest and best time to be a trucker,” he said.
He quickly paid off a $100,000 loan he had taken out to cover maintenance on his aging fleet, and his business was comfortably profitable. But when the pandemic rush slowed, A&B Transportation faced a slate of new competitors that often offered to move freight at bargain rates to entice customers.
It grew harder to find loads for his drivers, Mr. Escalante said, and that same Texas round trip brought in only $2,600. He couldn’t keep up with payroll and, in a panicked move that he acknowledges wasn’t a wise business decision, took out around $200,000 in loans. He used the money to replace some of his aging trailers and pay drivers.
By the end of 2024, A&B, unable to pay what it had in the past, lost most of its drivers. Mr. Escalante and his co-founder were the only drivers, and they had to sell some of the fleet.
“I kept thinking, ‘This will get better,’” even as he stopped making payments on his loans, Mr. Escalante said.
Bearing the Brunt
Big players like Walmart and Amazon, which have their own fleets, can withstand higher diesel costs. So can large trucking companies, which use long-term contracts with fuel surcharges that allow them to pass higher diesel prices on to customers, said Erich Muehlegger, an economics professor at the University of California, Davis, who studies transportation markets.
But small, for-hire companies like Mr. Escalante’s are far less insulated, and last year they made up around 90 percent of 580,000 active trucking companies, according to an analysis of federal data by the American Trucking Associations.
Mr. Cruz, the Florida lawyer, represents a trucking company that delivers cargo for Amazon and filed for Chapter 11 bankruptcy protection in September. He has seen smaller companies get caught in a trap, he said: Lenders would repossess their trucks when they fell two or three payments behind, which stripped them of any way to earn the money to catch up on payments. Filing for bankruptcy, he noted, triggers an automatic stay, which stops repossession.
“Diesel is a cost the whole economy pays, but small carriers pay it first,” Mr. Cruz said, “and they pay it with their trucks.”
That was the case for A&B Transportation, which lost three trucks to repossession after failing to make payments, Mr. Escalante said. Still, he tried to hold on.
He carefully planned his routes to minimize filling up in California, where taxes make fuel more costly, instead favoring a Pilot station along Interstate 10 just past the state line in Arizona. But even there, prices hovered close to $6 a gallon. It cost him around $900 to fill up his 150-gallon tank — more than a third of what he made on the entire trip to and from Texas.
When Mr. Escalante got tired of listening to old-school hip-hop songs on the road, he flipped to talk radio, where heard about the closure of the Strait of Hormuz and how it would keep raising fuel prices worldwide. Officials, including Mr. Trump, kept saying the pain at the pump would be temporary. But interest kept accruing, and his loans went to collections.
Mr. Escalante felt overwhelmed by stress. His shame over the idea of filing for bankruptcy was replaced by a sense that it was the least bad option.
In April, he and his wife, Claudia, sat down at the kitchen table again. He stumbled over his words as he explained that a Chapter 7 liquidation seemed like their best alternative.
It would mean closing the business, his credit score would take a big hit and he’d need time to save up for a bankruptcy lawyer, but there was no feasible way to repay the company’s more than $500,000 in liabilities, which far exceeded its assets of less than $50,000.
“I’ll be able to start over and rebuild,” Mr. Escalante told his wife. She cried and told him that she wanted whatever was best for their future.
Mr. Escalante took a job as a driver for another small company and these days hauls loads as far as the Upper Midwest and earns close to 65 cents per mile.
On Sept. 11, AAA logged a diesel price that was at the time the highest national average ever recorded — $6.05 a gallon. That same day, Mr. Escalante signed the paperwork sending A&B Transportation into bankruptcy.
Susan C. Beachy contributed research.
The post His Business Was Tough. Diesel Prices Made It Impossible. appeared first on New York Times.
