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Keep on Truckin’: Why the Trucking Industry Is Looking to Freight for Success in 2021

The trucking industry is leading the charge in quelling consumers appetites for critical goods during the coronavirus pandemic. As more people work from home and consumer demand continues, could the industry be poised for success in 2021?  
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keep on truckin’: why the trucking industry is looking to freight for success in 2021

COVID-19 changed everything about the trucking industry, particularly freight movement. As consumer appetite for spending increases in many areas that are critical for trucking companies to succeed, could the industry be poised for success in 2021?

“While truckers struggled throughout much of the early part of 2020, freight demand increased significantly in many segments," says Mark Gallagher, national transportation practice leader, Risk Placement Services.

As the year progressed, the extraordinary impact COVID-19 had on the trucking freight market became more apparent. “Haulers of critical goods such as food, water, paper and household items have been in great demand," Gallagher says.

In the third quarter of 2020, retail sales rose 7% compared to the same quarter in 2019, according to the U.S. Census Bureau. “Additionally, e-commerce sales rose more than 36% in the third quarter of 2020 compared to the same quarter in 2019," Gallagher says. Making up 14.3% of sales in the third quarter of 2020, e-commerce is seen as the rising segment that trucking companies are looking to take advantage of.

“With many people working from home, consumer spending shifted from travel, restaurants and entertainment to e-commerce, groceries and home improvement projects," says Peter Niro, truck product development manager, Progressive Insurance.

The abrupt shift from buying services to buying goods in response to the pandemic “prompted shippers to post more loads to the spot market, which is predominantly serviced by owner operators and small carriers," Niro says. “It created an extraordinary opportunity for drivers to get their own motor carrier authority and to benefit from record-high spot rates brought about by network imbalances in the supply chain."

“Spot rates correspond to the rate per mile that professional truckers are paid on the spot market, and it reached a five-year high in the third quarter of 2020," Niro says. And while trucking insurance continues to remain in a hard market with carriers seeking significant rate increases, “higher spot rates make it easier for new motor carriers to keep their business afloat by making monthly expenses like insurance more manageable," he adds.

“For-hire trucking has generally fared better than other business classes, but it depends on the commodity being hauled," Niro continues. “The pandemic provided a significant tailwind to truck operations that predominantly transport consumer packaged goods and medical supplies, but it adversely impacted those that transport goods in support of live entertainment, trade shows, non-residential construction, manufacturing, and oil and gas production."

Current economic indicators suggest a positive outlook for the trucking industry based on consumer spending. However, while there are opportunities for growth, rising costs may temper this from becoming overwhelming growth, according to Gallagher. 

He says several factors are still areas of concern for the future success of the industry: socioeconomic conditions, nuclear verdicts, the rising cost of healthcare, workers compensation expenses, rising auto rates, high cost of equipment, distracted driving and the rising lack of qualified drivers in the industry. The issues plaguing the industry for years haven't gone away.

A problem exacerbated in 2020 is driver shortages, a situation that deteriorated as commercial driver's license schools temporarily closed in response to the pandemic. “The driver shortage has been a longstanding concern for the trucking industry, and it was ranked the industry's number one issue in a report recently published by the American Transportation Research Institute (ATRI)," Niro says.

The high costs of nuclear verdicts also continue to make it harder for fleets to get affordable insurance, but “moving forward, advising clients to purchase excess insurance can round out coverage to provide more protection," Gallagher says.

“As the market continues to harden with fewer players, there is little if any overall growth in market capacity," says Bryan Woods, chief operations and financial officer, Paramount General Agency—a subsidiary of Integrated Specialty Coverages.

On the reinsurance side “we're seeing it become more and more difficult to find reinsurance partners for those layers above $1 million," says Dan Clements, director of sales, transportation, Sentry Insurance. “And for those willing to participate, rates are often increasing well into double digits and well above the rate increases in the primary layers."

Investing in and committing to the use of telematics, safety technology and hiring quality drivers may be the key to the industry rebounding. In the short term, the trucking industry may benefit from the shift in consumer spending. Over the long term, it may be a company's safety programs that will be the first step to beat the trends that continuously plague the industry.

Olivia Overman is IA content editor.