As 2024 comes to a close, a new report from Risk Placement Services (RPS) provides insight into the ongoing challenges in the US transportation insurance market.
While the broader US economy has gradually rebounded from the impacts of the COVID-19 pandemic, the transportation sector continues to face hurdles, with activity declining over the past 18-24 months.
Following a brief post-pandemic surge in demand, freight carriers and less-than-truckload (LTL) freight services are navigating slower-than-expected market adjustments. This slowdown has resulted in limited opportunities and idle equipment for many companies as freight rates remain low.
Mark Gallagher (pictured above), vice president of national transportation at RPS, observed that, despite initial optimism for a quicker recovery, it has been “kind of a slog” for the industry. Gallagher highlighted that several trucking firms have exited the market or downsized, while others struggle to maintain operations amid unprofitable freight rates.
In addition to reduced demand, the sector continues to grapple with low barriers to entry and substantial capacity, contributing to the downward pressure on freight rates. Though diesel fuel prices have decreased by approximately $0.50 from last year, most other operational costs, including labor, trucks, trailers, tires, repairs, and insurance, remain high.
Gallagher noted that new entrants face additional challenges, particularly high insurance premiums, and competitive pressures from existing load boards.
The American Transportation Research Institute (ATRI) reported that operating costs for trucks reached $2.27 per mile in 2023, a modest increase of 0.8% over the previous year. However, marginal costs rose by more than 6%, driven by rising payments for trucks and trailers (up 8.8%), driver wages (up 7.6%), and repair and maintenance (up 3.1%).
Insurance premiums for trucks have also increased, rising 12.5% to $0.099 per mile, with operating margins averaging 6% or lower for most fleet sizes, excluding LTL. Gallagher explained that companies continue to face high costs for repairs, parts, and labor, further compounded by liability risks from nuclear verdicts, social inflation, and increasing medical expenses.
Insurance, Gallagher added, remains a necessary expense for transportation firms, and some insurers are exploring ways to mitigate costs for clients implementing advanced technology, such as safety equipment, in-cab cameras, or electronic logging devices (ELDs).
Although these tools involve initial investments, they are aimed at reducing exposure to losses and potentially lowering insurance expenses over time.
Dan Murray, senior vice president of ATRI, noted that the trucking sector has experienced nearly two years of consecutive negative growth, equating to a recession for the industry.
However, he anticipates an eventual turn for the sector, with hopes for a stronger market outlook in 2025.
Amid the challenges, Murray identified potential drivers of growth for the transportation industry, including a possibly robust holiday spending season and an increase in reshoring and near-shoring trends. This shift is prompting greater manufacturing activity within the US and a rise in cross-border freight movement from Mexico.
Murray noted that reshoring could eventually reduce transportation costs by lessening reliance on high-cost shipping hubs like the LA-Long Beach ports.
With about 13 million trucks handling 72.6% of all US freight and generating $940 billion in annual revenue, the transportation sector continues to face specific risk factors beyond cost challenges. Nuclear verdicts, cargo theft, and cyber threats remain significant concerns for operators.
Nuclear verdicts, or high-value jury awards in transportation cases, have been increasing in recent years. According to ATRI’s 2020 data, large verdicts (over $1 million) against trucking companies grew by 967% from 2010 to 2018, with the average size of these awards rising from $2.3 million to more than $22 million.
Cargo theft is also becoming a more prominent issue, as organized theft rings increasingly target high-value goods. Gallagher explained that items such as food, alcohol, and electronics, which are difficult to trace, are particularly vulnerable and contribute to higher loss costs in the segment.
Cybersecurity is another rising threat within the industry. The transportation sector saw 101 data breaches in 2023, representing a 181% year-over-year increase. This surge in cyber incidents places the transportation industry second only to financial services in vulnerability to digital attacks.
In some regions, regulatory changes have impacted commercial auto insurance rates. Charles McCloskey, area president with RPS in New Jersey, reported that new requirements have led certain insurers to reduce or eliminate coverage options in the state, further affecting the already thin margins for operators managing commercial auto risks.
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