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Greenville Business Magazine

Motor Carrier Darwinism: Challenges and Opportunities

Mar 01, 2017 04:17PM ● By Makayla Gay

By Paul Brocklebank

The last 10 years represent a period of significant change for the motor carrier industry. Increased federal regulation, rising jury awards, the general economic recession, fuel cost volatility, and an acute driver shortage all converged in the past decade to challenge the trucking industry and also impact the insurance companies which support it. For well-positioned motor carriers (and insurers), these dynamic environmental changes also spawned opportunity, including investments in equipment, technology, and compliance, which yielded safer, more efficient operations capable of thriving amidst an intensified regulatory climate. Trucking companies less capable adaptation through investment have been marginalized in this environment via “Motor Carrier Darwinism.” Specialty insurers play a key role in both understanding and supporting motor carrier clients as they adapt to and survive these challenges and navigate down new roads of opportunity.  

Regulation is not new to the motor carrier industry. Trucking first came under the control of the Interstate Commerce Commission in 1933 and foundational regulatory legislation was first passed in the Motor Carrier Act of 1935. Regulation of interstate trucking now falls under the jurisdiction of the Federal Motor Carrier Safety Commission Administration (FMCSA), whose mission is to “reduce crashes, injuries and fatalities involving large trucks and buses” through data driven analysis, regulations, and enforcement.  

In 2010, FMSCA introduced Comprehensive Safety Analysis (CSA) regulations which established a new analytical scoring methodology designed to monitor and publish safety scores for motor carriers.  The categories included Vehicle Maintenance, Driver Fitness, Hours of Service, Unsafe Driving, Controlled Substance/Alcohol, HAZMAT, and Crashes/Accidents.  Under the new scoring system, trucking companies are scored and ranked against peer group motor carriers.  Substantial information is gathered for motor carriers via roadside and weigh station inspections.  These enforcement stops typically evaluate equipment (lights, tires, brakes), hours of service compliance (log books), and driver fitness. Additional statistical information is gathered via motor vehicle violation citations and accidents to supplement the inspection data.

All data is indexed by Motor Carrier and/or DOT number and aggregated for statistical purposes. The data provides the basis for individual motor carrier and peer group scoring as well as ongoing FMCSA research. Much of the information becomes available in the public domain for direct and indirect beneficiaries including motor carriers (e.g. risk managers/safety directors), law enforcement, shippers and freight brokers, insurance companies…and personal injury attorneys.

For the insurer, access to the CSA data has provided unprecedented transparency and access to statistically credible data for analysis relative to motor carrier safety, accidents, and loss costs.  The data and corresponding analysis is used for the purposes of underwriting, rate making, and client service engagements (safety program development, equipment maintenance standards, driver hiring and discipline programs, etc.)

In terms of general welfare, the 2010 CSA regulations were designed to improve highway safety, in part, by tracking and holding motor carriers strictly accountable for compliance issues related to public safety. When a motor carrier’s score(s) elevate into “Alert” status, FMCSA and law enforcement scrutiny of the trucking company escalates. Frequency, intensity, and duration of roadside inspections increase. These more frequent and detailed inspections result in shipping delays, which make it increasingly difficult for the motor carrier to get loads or attract quality drivers. Lost shipping contracts decrease motor carrier revenues and it becomes even more difficult to attract or compensate quality drivers and invest in equipment and maintenance. 

Capital constraints lead to worse inspections and further delays and the downward spiral potentially accelerates. Declining revenues and operating losses may prompt motor carriers to press drivers and equipment even harder, leading to hours of service violations, driver fatigue and/or equipment failure.  These adverse conditions often result in accidents and insurance claims. As CSA scores and loss experience deteriorate, this information drives insurance companies to raise rates or restrict capacity because of the greater loss propensities. Depending upon the degree to which the CSA score alerts and operating margins deteriorate, it can be nearly impossible for the motor carrier to arrest the downward spiral. The distressed motor carrier is essentially forced off the road and out of business in the interest of public safety. 

A potential value proposition for the opportunistic insurance company is to leverage an underwriting and client service model capable of selecting and assisting the motor carrier temporarily caught in the spiral but capable of pulling out based upon financial wherewithal and commitment to safety investments and compliance. Successful assistance and support to this subset of motor carriers have the potential to create margin, define brand, and enhance client retention for the insurer.

The CSA scoring system and enforcement is not without criticism and has come under much scrutiny during the first several years of implementation. However, the practical reality in 2016 is that both motor carriers and insurers must operate within this regulatory framework unless or until it is modified.

There is an upside to Motor Carrier Darwinism. For trucking companies that are able to maintain good CSA scores, the opposite experience typically ensues. Good scores mean shorter and less frequent inspections. Less time at inspections leads to more on-time deliveries, satisfied shipping clients, and more productive, better-compensated drivers. Satisfied clients yield revenue growth and improved margins. Increased revenues and better margins lead to expansion and investment in new equipment, which is more fuel-efficient and has more on board safety technology. New equipment serves as an additional hook to retain quality drivers. New well maintained equipment and high caliber drivers produce better CSA scores and expedited inspections. Excellent CSA scores, new equipment and quality drivers lead to reduced accidents and insurance claims and thus lower insurance premiums.

Successful adaptation within the CSA regulations ultimately leads to improved viability (‘survival of the fittest’ in Darwinist terms), sustainable competitive advantages, industry leading operating margins, and enhances shareholder value for both motor carrier and their insurance company partner.

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