This post is part of a series sponsored by IAT Insurance Group.
Historically high inflation, a looming recession and serious supply chain struggles continue to plague the fleet owners and owner-operators that are the backbone of our economy and move 72% of the nation̵
7;s shipping.Consumer spending is showing signs of slowing and an economic downturn or full-blown recession would significantly impact freight demand and margins.[1] While the lower demand may help relieve some of the pressure from the driver shortage, smaller fleets are likely to feel more pain.
While larger fleets, with forwarder contracts, usually weather the economic storm, some will be forced to park trucks and cut staff. With an estimated driver shortage of 80,000,[2] some fleets will have an opportunity to expand as there will be less competition for quality drivers.
While significant, these strong economic headwinds represent just a few of the challenges facing the industry as we head into 2023. Shippers should also be aware of the following four trends:
1. California Assembly Bill 5 (AB 5)
California’s passage of AB 5 changed the game for many industries and threatened to recategorize drivers across the state from independent contractors (ICs) to employees. Unfortunately for commercial fleets and moving and storage companies, California is just the first state to pass such legislation. The National Labor Relations Board supported this rule, and so other states are considering similar laws.[3] While the potential outcomes are not ideal, fleet operators must understand the law and adapt their business model to comply with the new law.
Take action! Fleets of all sizes and moving and storage operators must stay abreast of changes occurring at the federal and state level and anticipate changes. Joining your state trucking or moving and storage association is a great way to stay on the pulse and challenge any legislation that comes up. Operators wishing to retain an IC model should consult with a knowledgeable attorney to discuss options.
2. Continued rising damage costs
Personal injury lawyers continue to attack the trucking industry, as antagonizing ads everywhere try to convince injured people to sue, especially against commercial fleets. Juries are siding with plaintiffs at skyrocketing levels, with average verdicts rising from about $2.3 million in 2010 to $22.3 million in 2018.[4] The severity of the claims environment has also led to higher insurance costs.
Inflation will continue to put pressure on raw material costs, third-party property damage, labor and repair costs, estimates and medical costs, which in turn drives up premium prices. Additionally, equipment theft remains a growing threat, costing fleets money and time to repair or replace telematics or other equipment taken from cabins left in sketchy locations on risky routes.
Take action! New technology can help fleets submit claims faster and provide evidence and data in the event of an incident. Cameras and telematics have had a positive impact on the speed with which claims are settled and on the outcome of determining who is responsible for causing the accident.
But fleets shouldn’t just put a camera in the truck and let it record. They must routinely analyze the data and use it to coach drivers on bad behavior and even encourage high-quality drivers to engage and retain them. In addition, route management can be tightened to keep drivers and equipment safe and in the possession of the fleet.
3. Tight market for new and used equipment
Operators should not expect any relief from the tight market for new and used fleet equipment. California’s truck emissions rules will hit this part of the industry again on January 1, 2023, when all heavy equipment weighing 26,000 pounds or more with a 2007-2009 engine model will need to upgrade their engines to a 2010 or newer model to remain in compliance .
At the same time, the used vehicle market is still collapsing from the pandemic, as fewer vehicles were produced. A recession could prolong equipment supply shortages, and even as the economy returns to better times, the market is expected to remain tight due to fewer used vehicles available for purchase.
Take action! Keep track of maintenance to extend the life of your equipment. Protect trucks, trailers, and moving and storage equipment on hand, as repairing or replacing vehicles or equipment can be much more expensive than before.
Also check your coverages and make sure the equipment is insured to current values to protect against these losses. Should the recession cause fleet reductions, operators could see a strong seller’s market and get good resale value for used vehicles.
4. Maintaining safety in light of economic belt-tightening
Safety should always be a priority, regardless of economic trends. But when margins are compressed and cash flow is tighter, fleets may be tempted to cut or reduce safety programs, training, maintenance and the like. The pressure to run harder and faster to earn revenue pushes hard against remaining safe, but there are long-term consequences if you are deemed an unsafe carrier.
Take action! Take a long-term view and maintain safety programs and measures despite financial pressures. Shippers and brokers shy away from carriers that don’t have good safety records, and that leads to lost revenue. Plaintiff attorneys will use publicly available inspection data against a trucking company in court. Forgoing safety during difficult times will affect a fleet’s ability to earn business and lead to hidden, higher costs.
Looking to the future
The development of autonomous vehicles and the development of electric trucks are two great ideas that are not as far over the horizon as some might think. Questions surrounding insurance rates for autonomous trucks will be a major hurdle to overcome down the road. Should the industry reach the point where fully automated, driverless trucks are on the road, there are insurance coverage and exposure issues that need to be addressed. For example, if an accident were to occur, who is responsible for the accident since no driver is involved? Will the trucking company be liable if the navigation system breaks and causes an accident? The use of electric trucks also has many hurdles to overcome before hitting the road. Battery life and reliability in cold climates is an interesting roadblock that is currently being analyzed.
Nevertheless, these future trends should be on the long-term radar of all fleet operators looking to stay ahead of the ever-changing economy and combat the headwinds that are blowing the industry into more challenging times in 2023.
Contact IAT Insurance for guidance on managing your fleet’s risks in 2023.
By Peter Matthews and Tom MacCallum
[1] Reuters, “Analysis: US trucking decline portends possible economic gloom,” 25 April 2022
[2] ATA, “ATA’s chief economist pegs driver shortage at highest level ever”, October 2022.
[3] Motor Transport Association of Connecticut “Proposed state bill classifying gig workers as employees could affect how independent contractors operate in the trucking industry”, 3 March 2022.
[4] American Transportation Research Institute “Understanding the Impact of Nuclear Verdicts on the Trucking Industry”, June 2020.
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