2019 was the year of the shipper. Truck rates were low, freight volumes were a shadow of their former selves, and capacity was high. Trucks were so plentiful that the term “capacity crunch,” a common phrase in 2018, was rarely heard. The market did not favor the carrier.
2020, however, is positioned to be a year fraught with a whole new list of challenges for both carriers and shippers, including changes to hours of service, pending regulations like the Drug and Alcohol Clearinghouse, California’s AB5 legislation, and AOBRDs’ final gasp, all of which could result in higher truck rates and fewer trucks on the road.
Early in the year, we are already seeing truck rates beginning to rise. One of the looming contributors to the risk of continued rate hikes hinges on the H.R. 3781 bill, if it passes into law. The legislation was proposed by representative Jesus G. Garcia, a Democrat from Illinois, and co-sponsored by six other congressional representatives from Pennsylvania, New York (2), Tennessee, New Jersey, and Florida.
The Insurance Act: Increases in minimum insurance coverage
Introduced into the House of Representatives on July 16, 2019, the introduction of this bill has the potential to have an enormous impact on trucking’s owner-operators and small fleets. Its title is Improving National Safety by Updating the Required Amount of Insurance Needed by Commercial Motor Vehicles per Event (INSURANCE) Act of 2019.
The purpose of the proposal is to increase the minimum amount of insurance required for carriers transporting property. The controversy surrounds its justification as related to medical cost inflation. The original insurance mandate was written in 1980 and stated that costs would be reviewed and accessed over time. Medical expenses have skyrocketed since then.
The initiators of the bill say that current compensation to motor vehicle accident victims is drastically inadequate to cover today’s medical expenses, for a number of reasons.
- Big rig or semi-truck accidents frequently involve more than one vehicle and more than one person. The $750,000 has to be divided among all parties involved, which is grossly insufficient.
- $750,000 can be too little to cover even one person’s medical bills and emergency care after a severe accident. An FMCSA report from January 2013 states that “the estimated cost of an average fatal crash is high enough that it indicates that the upper range of costs is most likely in the millions of dollars.”
- Victims and their families that wind up in long-term care facilities are burdened with the long-term care expense, or it falls on the shoulders of Medicaid, which is paid for by the taxpayers.
- In addition to covering liability related to people, the $750,000 also must cover property damages to property and any environmental restoration if necessary.
Carriers are required now to have a liability insurance minimum of $750,000. The proposed bill would increase that amount to more than $4.9 million. Most truckers opt for a million in coverage, or possibly two million, but the proposed increase is substantially more.
According to Truckers News, this is only one of four bills being considered in Congress that could have severe impacts on the trucking and transportation industry. Others include the required use of speed limiters, the addition of front, side and rear underride guards (H.R. 1511/S.665), along with a requirement for automatic emergency brake systems in all new commercial trucks (H.R. 3773).
The proposed regulations would mean added expenses for truck drivers across the industry that some cannot absorb. Opponents of the bill find significant problems with it.
- The sentiment is high among truckers that this bill would be detrimental to them. More than 30 industry associations are opposed to it.
- Not all insurance claims are related to personal injury or do they include medical expenses.
- The financial burden to a single owner-operator could be catastrophic.
- Other CMV, or commercial motor vehicle trucking companies, such as fire suppression contractors, are speaking out against the bill because it would raise their operational costs. WildfireToday.com says, “Both direct suppression resources and support-contracted resources are an integral part of cost-effective wildland and prescribed fire management programs by many agencies.”
The new AB5 legislation, or California contractor’s law, which treats carriers as employees rather than independent owner-operators, could also play a factor in increasing rates. It's impact will be felt across many industries, but for trucking the most significant effect will be felt by port drayage companies that use owner-operators. This can add costs according to CCJ (Commercial Carrier Journal) online, stating that “the new arrangement is about 30 percent more costly for the freight broker and the small trucker.” Other harbor states, like New York and New Jersey, have similar laws pending. The law is currently under a temporary restraining order until January 13, 2020. (read more in the Journal of Commerce)
No one knows for sure what the new year will bring in regards to rates. They are affected by many market factors, but experts have said that it isn’t going to be another bull market like 2018, nor is it likely to repeat the volatility of 2019. The next few weeks should give us some indication of what’s ahead. We would love to hear from you. What are your thoughts?