According to the U.S. Department of Transportation, each year the trucking sector is responsible for moving up to 12.5 billion tons of cargo valued at more than $13.1 trillion. Promoting economic growth, recent data from the American Trucking Associations (ATA) suggests that the sector generated $875.5 billion in revenue in 2021, up from $791.7 billion in 2019. Despite this expansion, several developments could pose future challenges including driver shortages, social inflation issues, economic concerns and CMVs.
Trucking businesses must have a clear understanding of the latest sector trends and adjust their risk management practices as needed to maintain operational success.
Trucking Developments Your Company Can’t Afford to Ignore
Impacts of Economic Uncertainty
Recent U.S. Bureau of Labor Statistics data confirmed that all budgetary items among commercial fleet operators jumped in price throughout 2022. For instance, new vehicle costs increased by 10.4%, while the average price of a used vehicle rose by 6.6%. The combination of inflation challenges and supply chain struggles also elevated the costs for vehicle parts, driving up average replacement expenses by 10%.
Implications from the Russia-Ukraine War
Rising fuel and energy expenses from the conflict continue to impact the trucking sector. According to the U.S. Energy Information Administration, gas prices more than doubled between 2021 and 2022. This has significantly o overwhelmed operational expenses and hindered trucking companies’ total profitability. An increasing number of trucking businesses have taken steps to control costs such as promoting fuel-efficient practices across and maintaining CMVs in good condition to avoid unanticipated replacements.
The Future of Interest Rate Hikes
The Federal Reserve (Fed) has progressively increased interest rates to lessen overall inflation issues. Economic analysts predict inflation will slowly subside as the year progresses and that the Fed's efforts will ultimately pay off. Alternatively, other economic experts forecast that escalating interest rates and prolonged labor market challenges could lead to a recession.
Recession’s Impact on the Market
A potential recession could influence consumers to reduce costs and finance fewer projects and services. This could lead to sinking demand and business for the trucking industry. A recent survey conducted by financial services company Provident Bank revealed that more than three-quarters (83%) of Americans are already planning to reduce their spending in the coming year. Companies without substantial revenues, excess reserves and capital necessary to offset extended periods of loss could be forced into difficult financial decisions (e.g., bankruptcy, insolvency).
Planning for a Slow-Growth Economy
Proactively respond to economic insecurity by:
Navigating Through Driver Shortages
Every industry has been affected by recent challenges in the labor market. Motivated by the pandemic, employees reevaluated their job expectations. This trend has exacerbated workforce shortages and prompted workforce adjustments. No exception to this trend, the ATA warms the trucking sector is currently short 80,000 drivers. This number is expected to elevate to a scarcity of 160,000 drivers by 20230.
Concerns for an Aging Trucking Workforce
A growing proportion of drivers are approaching retirement which will generate even more job vacancies. Recent research from online recruitment services company Zippia found that the average age of a U.S. commercial truck driver is approximately 48 years old. This demographic shift could create further driver shortages moving forward as more employees exit the industry.
Independent Contractor Legislative Concerns
Several states have recently passed legislation aimed at regulating businesses that hire independent contractors. These actions have negatively impacted available talent pools. For example, California recently passed Assembly Bill 5 (AB5), which requires businesses to classify independent contractors as company employees unless they meet certain qualifications. All businesses operating within the state (including trucking companies) are no longer able to hire independent contractors without restrictions. Companies must provide such workers with the same rights and benefits as their employees (e.g., minimum wage, health insurance, periodic rest breaks). Looking ahead, states such as Illinois and New York are seeking to pass similar legislation which will present additional driver shortage concerns.
Potential Attraction & Retention Strategies
While the sector may be able to minimize future labor concerns with the assistance of driverless CMVs, this technology isn’t expected to become widely available anytime soon. As a result, trucking businesses need to invest in their drivers and implement effective strategies to attract and retain workers. Potential opportunities include:
- Competitive wages and benefits
- Establishing workplace policies that foster a positive and inclusive culture.
- Permitting flexible work arrangements (if possible)
- Leveraging digital platforms in the recruitment process
- Offering ample professional development resources (e.g., training, mentorship programs).
Trucking businesses should consider exploring unrepresented demographics to help expand their talent pools. For instance, Zippia reported that women account for only 9% of U.S. commercial truck drivers and highlights a substantial recruitment opportunity.
Social Inflation's Impact on Insurance
Social inflation references societal trends that influence the ever-rising costs of insurance claims and lawsuits above the overall inflation rate. A primary factor driving up social inflation issues is the ongoing increase in nuclear verdicts (jury awards exceeding $10 million).
These types of verdicts are becoming increasingly frequent in the trucking industry. Commercial drivers and fleets are being held accountable for third-party property damage, injuries or fatalities on the road. The National Highway Traffic Safety Administration reports that fatal motor vehicle crashes have reached record highs and contributed to 43,000 deaths in 2021 alone. According to the American Transportation Research Institute (ATRI), nuclear verdicts have increased tenfold over the past decade, with the average verdict currently at more than $22 million.
Spiking Commercial Auto Claims
Cumulatively, these trends have triggered a surge in commercial auto claim expenses across the trucking industry and skyrocketing insurance rates. Recent ATRI data found that the sector’s commercial auto premium costs per mile jumped by 47% throughout the last decade. This is despite many trucking companies experiencing coverage restrictions, higher deductibles and reduced overall capacity.
Safety Programs Pay Off
Trucking businesses must make safety a top priority among their commercial drivers and fleets. Taking initiatives to prevent on-the-road accidents can lower the likelihood of nuclear verdicts and heightened insurance costs. Valuable accident prevention measures may include enforcing routine fleet inspection protocols; adhering to strict driver hiring criteria; enhancing driver safety programs; monitoring drivers’ habits using vehicle technology (e.g., telematics); rewarding drivers for upholding safe behaviors behind the wheel; establishing accident reporting and response procedures; and following an accident review process to address remaining exposures.
CMV Supply & Demand Deficiencies
Supply chain concerns since the initial onset of the pandemic have contributed to substantial CMV shortages. Vehicle manufacturers repeatedly struggle to hit production targets.
Each year, the trucking sector requires the production of 200,000-250,000 new CMVs to maintain adequate commercial fleets and retire outdated vehicles. Unfortunately, this annual production goal hasn’t been achieved recently and left many trucking businesses lacking enough new CMVs. They are forced to utilize old vehicles that amplify efficiency and safety concerns. Vehicle manufacturers are currently working through the CMV backlog and are on track to hit production targets going forward. Experts are concerned a pending recession could prolong supply chain issues and threaten this progress.
As CMV shortages press on, trucking companies must take proper care of their commercial fleets to extend their vehicles’ lifespans. This may entail upholding routine fleet maintenance schedules and conducting vehicle repairs as needed.
We’re Here to Help the Trucking Industry Challenges
Overall, there are several trends currently impacting the trucking sector. By staying on top of these developments and taking steps to mitigate their associated exposures, trucking businesses can effectively position themselves to maintain long-term growth and operational success. Connect with a member of our team for additional industry-specific risk management guidance.