A wave of bankruptcies among California trucking companies has resulted from a combination of the state’s AB5 law reclassifying independent contractors and a broader economic downturn in the freight market. While the law is often cited as a key factor, other challenges—including low freight rates and operational issues—have also driven companies out of business.
The impact of AB5
California’s Assembly Bill 5 (AB5) mandates a strict “ABC test” for determining worker classification. The law reclassifies most truck owner-operators, who typically work as independent contractors, as employees.
- The “B” prong: The law’s “B” prong is particularly challenging for the trucking industry, as it requires a worker to perform duties “outside the usual course of the hiring entity’s business” to be an independent contractor. Since driving is the core business of a trucking company, most owner-operators cannot meet this requirement.
- Increased costs: The reclassification requires companies to provide benefits, overtime, workers’ compensation insurance and payroll taxes, significantly increasing their operational costs.
- Legal challenges: The California Trucking Association filed numerous legal challenges against AB5, but the Supreme Court declined to hear the case in 2022, allowing enforcement to proceed.
- Kal Freight Inc. (2024): A large California trucking company, Kal Freight filed for Chapter 11 bankruptcy in December 2024 amid accusations of massive fraud involving phantom sales and ghost trailers, causing financial distress.
- Miranda Logistics Enterprise Inc. (2025): This family-owned company and its affiliate, Grit & Gravel Inc., filed for Chapter 11 in January 2025. They cited cash flow problems caused by a defaulted factoring agreement.
- Central California Cartage Co. Inc. (2024): The company filed for Chapter 7 liquidation in March 2024 after its operating authority was revoked. It had significant debt and posted sharply lower revenue in 2023.
- Wise Choice Trans. Corp. (2024): This 3PL filed for Chapter 7 liquidation in January 2024. The company experienced declining revenue, and its insurance was canceled.
- Flex Intermodal Inc. (2024): The company filed for Chapter 7 liquidation in February 2025, more than a year after it ceased operations. It owed money to several leasing companies and government entities.
- Starship Logistics LLC (2024): Based near the Port of Long Beach, this logistics company filed for Chapter 11 in November 2024 after losing its largest customer and facing lawsuits.
A struggling national market
Bankruptcies extend beyond California. The state’s strict labor law has exacerbated financial issues during a broader “Great Freight Recession” that has caused dozens of companies to fail nationwide, not just in California.
- Industry-wide conditions: Contributing factors include a market glut of trucking capacity, low freight rates and a decrease in shipping demand.
Not all bad news
Despite the bankruptcies, larger distributors such as Tri-West in Santa Fe Springs, Calif., have remained unaffected, said Dave White, president. “We weren’t sure how these changes were going to affect us,” he said. “We have our own fleet of delivery and transfer trucks, and the freight forwarders we use when moving product are larger and well established.”
