Economic headwinds usher in challenging climate for fleets

This post is part of a series sponsored by IAT Insurance Group.

Historically high inflation, a looming recession, and serious supply chain conflicts continue to plague the fleet owners and owner-operators who are the backbone of our economy, moving 72% of the country’s freight.

Consumer spending is showing signs of slowing and an economic downturn or overall recession will have a significant impact on freight demand and profit margins.[1] Although this lower demand could help relieve some of the stress caused by the fleet driver shortage, smaller fleets are likely to feel more of the pain.

While large fleets, with shipper contracts, will usually weather the economic storm, some will have to park trucks and reduce staff. With an estimated driver shortfall of 80,000,[2] Some fleets will have a chance to expand as there will be less competition for premium drivers.

While important, these economic headwinds represent just a few of the challenges facing the industry as we move into 2023. Carriers should be aware of the following four trends as well:

1. California Assembly Bill 5 (AB 5)

California’s passage of AB 5 has changed the game for many industries, threatening to reclassify drivers across the state from independent contractors (ICs) to employees. Unfortunately for commercial fleets and transportation and warehousing companies, California is the first state to adopt such legislation. The National Labor Relations Board has endorsed this rule, and thus, other states are considering similar laws.[3] While the potential outcomes are not ideal, fleet operators need to understand the law and adapt their business model to comply with the new law.

Take action! Fleets of all sizes and transportation and warehousing operators need to keep up with and anticipate changes happening at the federal and state levels. Joining the trucking or moving and warehousing associations in your state is a great way to stay informed and challenge any legislation that comes to the fore. Operators who wish to retain Form IC should consult an informed attorney to discuss options.

2. The continuing high cost of claims

Personal injury attorneys continue to attack the trucking industry, with hostile ads everywhere trying to persuade injured people to sue, especially against commercial fleets. Juries are biasing plaintiffs at escalating levels, with average verdicts rising from about $2.3 million in 2010 to $22.3 million in 2018.[4] The severity of the damage environment drove up insurance costs as well.

Inflation will continue to put pressure on commodity costs, third party property damage, labor and repair costs, appraisers and medical costs, which in turn will drive up premium rates. In addition, equipment theft continues to be a growing threat, costing fleets money and time to repair or replace telematics or other equipment taken from taxis left in shallow locations on perilous roads.

Take action! Emerging technology can help fleets file claims more quickly and provide evidence and data in the event of an accident. Cameras and information technologies had a positive impact on the speed with which claims are settled and on the outcome of determining who was responsible for causing the accident.

However, fleets should not simply put a camera in the truck and allow it to record. They need to routinely analyze data and use it to coach drivers on bad behavior and even incentivize higher quality drivers to engage and retain them. Additionally, route management can be fine-tuned to keep drivers, equipment and fleet safe and in check.

3. Tight market for new and used equipment

Operators should expect no relief from the tight market for new and used fleet equipment. California truck emissions regulations will hit this part of the industry again on January 1, 2023, when any heavy equipment weighing 26,000 pounds or more with a 2007-2009 engine model year will need to upgrade its engines to the 2010 model or later. to remain in compliance.

Meanwhile, the used car market is still reeling from the pandemic, when fewer cars were made. A recession may increase equipment supply shortages, and even as the economy returns to better times, the market is expected to remain tight due to fewer used cars available for purchase.

Take action! Stay on top of maintenance to extend the life of your equipment. Protect trucks, trailers, moving equipment, and storage on hand, as the loss of any vehicles or equipment can be more expensive to repair or replace than it was in the past.

Also check your coverages and make sure the equipment is insured at current values ​​to protect against those losses. If the recession causes fleet downsizing, operators can see a strong seller market and get good sales value for used cars.

4. Maintaining safety in light of the tightening of the financial belt

Safety should always be a priority, regardless of economic trends. However, when margins are compressed and cash flow is tighter, fleets may tend to cut or reduce safety programs, training, maintenance, and the like. The pressure to operate harder and faster to earn revenue is solidly against staying safe, but there are long-term effects if you’re considered an unsafe carrier.

Take action! Take a long view and maintain safety programs and procedures despite economic pressures. Shippers and brokers avoid carriers that don’t have good safety records, and this leads to lost revenue. Plaintiff attorneys will make use of publicly available inspection data against the trucking company in court. Abandoning safety during difficult times will affect the fleet’s ability to win business and lead to higher hidden costs.

Looking forward to the future

The development of autonomous vehicles and the development of electric trucks are two utopias that are not as far off the horizon as some might think. Questions about insurance rates for independent trucks will be a huge hurdle to overcome. If the industry gets to 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, in the event of an accident, who is responsible for the accident as there is no driver involved? Will the trucking company be liable if the navigation system fails and causes an accident? The use of electric trucks also has many hurdles to overcome before they hit the road. Battery life and reliability in cold climates is an interesting roadblock that is currently being analyzed.

However, these future trends should be on the long-term radar of any fleet operator wishing to stay ahead of the ever-changing economy and fight the headwinds that are propelling the industry into more challenging times in 2023.
For guidance on how to manage your fleet risk in 2023, contact IAT Insurance.

Written by Peter Matthews and Tom McCallum

[1] Reuters, “Analysis: Declining US truck volume heralds potential economic gloom,” April 25, 2022.

[2] ATA, “ATA chief economist links driver shortage to all-time high,” October 2022.

[3] Connecticut Motor Transportation Association “Proposed state bills that classify gig workers as employees could affect the way independent contracting works in the trucking industry,” March 3, 2022.

[4] American Institute for Transportation Research “Understanding the Impact of Nuclear Provisions on the Trucking Industry,” June 2020.


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