Another one bites the dust: Trucking companies in demise
2019 was a bad year for trucking company closures — and the affordability of insurance is partly to blame.
For the past several years, the market for truckers insurance was generally considered “hard” overall, characterized by increased premiums and a lack of insurers willing to assume the risk. While this may not be the case for companies with excellent safety records and no losses, those companies that have questionable safety records and/or crash losses are struggling to obtain affordable insurance. Recently, another trucking company ceased operations, joining a group of hundreds of trucking companies that have shuttered operations in 2019.
A year of closures
On December 31, 2019, Fleetwood Transportation Services joined the rapidly growing list of transport carriers shuttering operations in 2019, citing insurance costs as the reason for its shutdown. Other companies in demise include Celadon, Falcon Transport, LME, NEMF, Williams Trucking, A.L.A., Starlite Trucking, Terrill Transportation, and Carney Trucking, just to name a few.
Fleetwood, in business since 1956, reportedly had 252 trucks, 673 trailers, and employed 240 drivers. Based in Diboll, Texas, Fleetwood primarily hauled building materials and oilfield equipment. SaferWatch lists two separate accidents involving fatalities that Fleetwood Transportation was involved in within the past 24 months (both in 2018). However, while insurance costs were cited as a primary reason, other factors might be considered — one, that the company’s two primary lines of business, hauling sand to oilfields and flatbed trucking, both declined significantly in 2019; and second, the company was part of a class-action lawsuit alleging the company’s failure to pay overtime to drivers
The Fleetwood closing follows close on the heels of the major carrier Celadon Trucking ceasing operations in December, filing Chapter 11 bankruptcy due to significant costs associated with a multi-year investigation into the actions of two former management employees for accounting fraud, requiring restatement of financial statements, combined with industry challenges and debt obligations that could not be overcome by asset sales or restructuring. Celadon, founded in 1985, was the largest provider of international truckload services in North America, making more than 150,000 border crossings into Mexico annually and operated a fleet of approximately 3,300 tractors, 10,000 trailers, and nearly 4,000 employees.
According to industry data from Broughton Capital, in the first half of 2019 alone, almost 640 trucking companies went bankrupt, more than triple the amount from the same period last year. While insurance costs are cited in many cases, it is not the only factor contributing to the closures. Many trucking companies blame rocky economic conditions, a weak freight market and soaring equipment costs, as well. For example, the spot market for freight softened in 2019 after a robust 2018, causing some owner-operators to shutter operations, and trade tensions and driver shortages are also partly to blame.
Regardless, insurance costs are increasing, and trucking carriers that have had questionable safety records are struggling to find insurance. As reported in FreightWaves, Chad Eichelberger, founder of Reliance Partners, a provider of insurance services to the trucking industry, said that carriers could see insurance rates double or triple in 2020 if they had any accidents with fatalities in the past year. According to Eichelberger, a small carrier with a clean history will pay $5,000-$7,000 in insurance per truck, but if a carrier is based in a high-risk jurisdiction, the rate could be 25%-30% higher. Eichelberger listed Louisiana, New York, New Jersey, Florida, and California as high-risk states, and suggested that rates in Georgia and Texas are increasing dramatically as payout levels accelerate.
The Truckload Carrier Association’s (TCA) TPP benchmark platform reports that truckload fleets are currently paying $6,800 per truck for insurance. TPP data is considered the most reliable data of fleet costs in the trucking market, benchmarking and comparing fleet costs of approximately 500 data points per month. According to TPP data, flatbed operations were in the red for most of 2019, with only June 2019 showing operating profitability.
Insurance will still be available with less costly increases for truckers with low severity, lower loss frequency and favorable safety scores who have been operating for more than five years. A number of standard market insurance carriers and alternative programs are available for these risks, as well as captives or options offering large deductibles or self-insured retentions.
However, few carriers will be willing to consider distressed trucking operations with fewer years in business, poor safety scores, and losses. For these trucking companies, rates will be much higher than with standard programs, and we will likely see many more trucking companies fall victim to closure when they do their benefit and cost analysis.
Karen L. Sorrell, CPCU is an editor with FC&S Online, the authority on insurance coverage interpretation and analysis for the P&C industry. It’s the resource agents, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues. Karen has an extensive background in commercial insurance underwriting, and is available via email at ksorrell@alm.com.
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