From the Rear View Mirror and the Driver’s Seat

CAB ANNUAL TRANSPORTATION INSURANCE RESUMẺ

2012 to 2013

There is no doubt that 2012 seemed like a long year.  The year began with a country focused on economics and politics, as we headed into what was expected to be a long and hard fought battle for the presidency.  In so many ways that feels like it occurred in a different year.  The events of the fourth quarter have clearly overshadowed the earlier part of the year.  Recovery efforts following Hurricane Sandy, the ramifications of the Newtown massacre and the fiscal cliff were foremost on everyone’s mind as the year ended and we moved into 2013.

With the reelection of President Barack Obama the fork in the road that the country would take was chosen.  As a second term President, he has announced his agenda and appears determined to see his mandates through Congress.  The Fourth Quarter Business Expectations Survey conducted by Transport Capital Partners (TIP) reports that 93% of surveyed trucking executives were not happy with the reelection and are concerned over how the second term of President Obama will impact the trucking industry.

President Obama’s new cabinet is in the process of being formed. At this time whether DOT Secretary Ray LaHood will remain at the helm of the DOT is unclear.  Mr. LaHood had indicated earlier in the year that he would be returning to private business after the election, although in the post election months it did appear that he was reconsidering this position.  As a generally well liked member of the cabinet he still may be back, depending on who is selected to fill other posts.

Once again, forces of nature played its part in the overall stability of the trucking industry. As much as economists and analysts try to anticipate the future, Mother Nature often throws a monkey wrench into the best laid plans of men.  Droughts in parts of the country curtailed the transport of agricultural commodities. Hurricane Sandy saw widespread devastation throughout the Northeast which resulted in a huge hiccup in transportation operations. Numerous trucking companies and distribution/warehousing facilities were damaged and millions of dollars in freight lost. However, post Sandy saw an upswing in freight movement as more freight and construction materials needed to be moved into the region to repair and replace. In addition, while most carriers/warehouseman bear no liability for this Act of God, tremendous pressure is placed on those businesses by customers who did not anticipate these losses and who are looking to the carrier/warehouseman to make good the damages, something generally not covered by the liability insurance carried by motor carriers/warehouseman.  Will these climatic events change the way the industry operates?  2013 may see substantial changes in business operations and insurance risks in these industries as carriers/warehouseman and customers look to realign the business risk for natural disasters.

For the first time in a long time, we have a multi-year federal highway bill in place. The Moving Ahead for Progress in the 21st Century Act (MAP-21) was signed into law, effective October 12, 2012, as a funding and authorization bill to govern United States federal surface transportation spending.  This is the first multi-year transportation legislation since 2005.  The law mandates required changes to truck and bus safety programs and requires 15 studies on transportation operations. Among the anticipated actions include a new EOBR rule, a proposed safety fitness determination rule that will explain how the Compliance, Safety, Accountability (CSA) program’s safety measurement system scores will be used to assign ratings to carriers, as well as a final unified registration system rule that will combine three databases to better identify reincarnated carriers, a proposed drug and alcohol clearinghouse rule, and a “patterns of safety violations” proposal aimed at increasing enforcement for truck and bus executives who turn a blind eye to unsafe business practices. The FMCSA has also indicated that they are in the process of implementing provisions which reduce the safety review of new-entrant trucking companies to 12 months from 18 months, increase enforcement penalties, improve standards for states seeking commercial vehicle safety grants, simplify steps for carriers to apply for waivers, exemptions and pilot programs by eliminating a formal requirement for a Federal Register announcement and granting additional authority to order the return of household goods held hostage by movers, as well as developing rules that will expand its authority over the operations of brokers and freight forwarders, and finally to require a new written proficiency exam for carriers seeking operating authority.

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From the Rear View Mirror and the Driver’s Seat

2011 to 2012

Together with most segments of the country, trucking continues to endure economic swings, while holding fast to the continued hope that leaner and meaner business operations will allow trucking to pick up speed and turn the corner on the economic downtown.  The slight uptrend that we saw at the start of 2011 has not changed, with slow and steady increases in some areas, while others remaining flat.  Overall, for the companies which have withstood the events and the elements there does seem to be a shift from the survival mode to increased growth; this welcome news to all.

Much of this is attributable to increased freight rates. Transport Capital Partners’ survey indicated that 63% of carriers increased rates this year, with 7% of those increasing rates by more than 15% and 17% implementing increases of at least 10%. The best news is that the majority of those carriers expect rates and volume to increase in the coming year. FTR Associates agrees and reports that industrial demand is high and with this tighter freight capacity there is likely to be further increase in shipping costs in 2012.  Coupled with equipment and driver shortages capacity is expected to reach a critical stage in the coming year.  The ATA reports that overall truck tonnage rose sharply in November, compared with year-ago levels and that the seasonally-adjusted tonnage index rose 6% on a year-to-year basis.   At year’s end the Bureau of Transportation Statistics (BTS) reported that the amount of freight carried by the for-hire transportation industry fell 0.2% in October which was the first monthly decrease after four consecutive increases. The BTS reported that at 109.4 the level of freight shipments, measured by the Freight TSI, declined slightly from the recent peak achieved in September, but still remained higher than any other month since July 2008. The overall trend was still good as shipments in October 2011 (109.4 on the index) were at the second highest level since July 2008 (109.9) after reaching the highest level in more than three years in September (109.6).  All of which are good signs pointing to a growing transportation industry.

On the job front the Bureau of Labor Statistics indicated that the for-hire trucking industry added 3,600 new payroll employees in November, 2010 a 2.7% increase from November last year, and added another 5,100 jobs in December.  The Department of Labor indicates that job growth in the transportation sector — including warehousing, airlines, railroads and courier businesses — was higher than virtually any other, accounting for 50,200 of the economy’s new jobs this year. In the warehouse area, 1,600 new workers were added in December, bringing total employees to 633,600 compared with 631,800 in December 2010. Trucking’ increased 40,100 overall from December 2010 — 1,296,000 jobs overall compared with 1,255,900 in the preceding year.   Overall it is up since hitting a low in March 2010, but still below peak employment in January 2007. These numbers reflect the total amount of new hires and do not consider replacements for existing positions.

25 of 29 freight companies that report their earnings have reported better results on a year-to-year basis, with a collective increase of about 40% overall, even though the Dow Jones Transportation Average was essentially flat, not having grown at all. The top publicly traded trucking companies continue to fair well, with expectations on increased profits in 2012 as volume continues to increase. Industry profits are reported to have risen for nine consecutive quarters, based on the results of the 29 publicly traded companies.

The trucking industry faired better in the bankruptcy arena then in earlier years.  The number of trucking bankruptcies fell to a record low in the third quarter.  A total of 85 companies with an average of 17 trucks filed bankruptcy in the third quarter which was a 90% drop from last year.  In the fourth quarter there were 180 carriers who sought the protection of the bankruptcies courts. The fourth-quarter bankruptcies reduced the overall fleet by 1,965 trucks, representing just 0.1% of the total truck population, far below the peak of 45,000-plus trucks removed in the second quarter of 2008. There were approximately 1,470 trucks which left the road I the third quarter.  According to Avondale Partners the sequential decline was sharp, as 240 companies and 3,955 trucks were removed from the industry in the second quarter of 2011.  Once again increased pricing during 2011 is pointed to as the main reason why more trucking companies have survived this year and not seen the inside of the bankruptcy court.

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