The transportation industry has been on a roller coaster of highs and lows since 2020 when the COVID-19 pandemic pushed companies to increase capacity to meet the record-high demands for personal protective equipment, medical equipment, and other much-needed supplies.
As the pandemic-driven boom in shipping prices eases, companies face challenges of lower freight rates and excess capacity. Transportation and logistics companies generate revenue both from freight volumes and rates they can charge. As a result of the changes in rates and capacity, shipping companies, including industry giant Maersk, have announced thousands of layoffs to manage costs effectively.
Because the transportation industry is heavily reliant on truck drivers, companies are also facing a variety of challenges due to driver shortages and increased vehicle and repair costs. Driver shortages are a worldwide issue.
According to a recent study by IRU, more than 3 million truck driver jobs in 36 countries went unfilled in 2023, and the shortage appears to worsen in the next five years, reaching 7 million unfilled positions. Moreover, continued chip shortages, social inflation in liability lawsuits, and technician shortages compound the steady rise of vehicle and repair costs.
According to a report from American Trucking Associations' Technology & Maintenance Council and Decisiv Inc., parts and labor costs in the trucking industry rose 1.9% in the third quarter of 2023 after falling during Q2. Parts costs increased by 0.9% year over year, and labor costs rose by 4.9%, resulting in a combined increase of 2.5%.
And those aren’t the only challenges plaguing the future of the transportation and logistics industry.
CNBC’s recent Supply Chain Survey indicates a continuous global freight recession. In 2024, ocean freight prices for Q1 and Q2 will either remain the same or go down by as much as 50%, while air freight rates will either remain unchanged or fall 10-20%.
From an insurance perspective, the market is also not promising. Nevertheless, to better protect themselves, companies in the industry should be aware of any trends and changes in the insurance market.
A hardening insurance market
Despite an overall decline in accident rates, some insurance carriers are pulling out of the trucking space, unwilling to insure businesses in the transportation industry because of its recent unprofitability.
According to Alera Group’s 2024 Property and Casualty Market Outlook, insurance rates are increasing drastically at an average of 20-30%. Some insurers won’t cover vehicles over $125,000 in value, and there is a marked surge in the interest of a company’s driver quality. Two years of driving experience is typically required by insurers, with some requiring three to five years of experience.
The transportation industry is also facing a significant surge in “nuclear verdicts,” an emerging trend referring to a court award or settlement that is significantly higher than expected. With a surge in nuclear verdicts and other factors, insurance premiums increased by 47% per mile over the past 10 years.
In addition, all freight carriers are legally required to carry a minimum amount of liability insurance. Despite the benefits of liability insurance, it is insufficient to fully protect companies in the event of theft or cargo damage or loss resulting from natural disasters or accidents. So, cargo insurance—also known as goods in transit insurance—is a must.
See also: What we've seen so far in '24: Parsing trucking companies’ Q2 earnings calls
Adoption of new technologies
New technologies are hitting the market daily, and these tools can improve everything from driver selection to litigation outcomes.
To better manage risks, carriers have begun to require insureds to use telematics integration and additional forms of technology to estimate premiums or be charged additional expenses. The use of camera data and telematics also gives trucking fleets the ability to access more information faster, which they can use for effective driver coaching.
New technologies also enable underwriters to go deeper than accident records to identify drivers with higher potential for accidents. One way trucking firms can potentially bring down their insurance premiums is by adopting telematics in tandem with other technologies, such as truck dash cameras. The information recorded by such devices is valuable to insurers, who often provide premium credits to truckers in exchange for sharing data.
Using technologies, carriers will pay increasing attention to companies’ loss histories in performing a more comprehensive risk assessment. Transportation and logistics companies need to show better commitment to technological adoption, driver safety training, and consistency of implementation. Distressed businesses must improve their loss histories to have sustainable rates over the subsequent one or two renewal cycles.
Navigate through the challenging market
Adopting new technologies and finding qualified drivers are positive and necessary steps, but they are not enough to protect your business. Running a business without the assistance of a qualified insurance broker is akin to walking into a courtroom without legal representation. Insurance brokers serve as mediators between companies and insurers, reducing the administrative workload for companies and eliminating the need to navigate difficult policy terminology.
Finding the right broker and developing a true partnership is essential. Brokers should have a good understanding of your business and its goals before searching the market to identify the best coverage at a reasonable price. To better support your business, they should also be aware of any regulatory changes and industry trends.
Trusting in a broker who understands your unique needs and industry intricacies ensures that you're not only well-protected but also poised to navigate any emerging challenges with confidence and clarity.
