April 24, 2020
Trucking During the Pandemic & a Potential Claims Bubble
The Surface Problem in Trucking
The freight trucking industry in the United States is large and ubiquitous, valued at some $800 billion dollars annually. After an early surge in demand with buying and pantry stocking fueled by COVID-19 lockdown panic, the industry has seen precipitous demand drops and strong competition squeezing rates. While specific sections of the US economy remain level with or above pre-crisis demand, enough sectors have effectively been switched off leaving the net volume of goods transported down. This impact is dramatic and evident in data collected from various transportation metrics sources.
Reefer and dry van load-to-truck ratios and truck posts have breached 2017 and 2019 support levels; confirmation that general demand has collapsed. Additionally, rates in the spot market approach or are below the three-year record low as excess supply floods that market, further validating to the lack of demand and fierce competition to move any available freight. Skepticism remains on when and where these metrics will bottom out, and there is little clarity on the duration of this demand trough and eventual recovery.
The Brewing Storm
Not to abbreviate the gravitas the Pandemic has had on the demand and financials of the trucking industry, but a paradigm shift hit just as abruptly with the complete upheaval of physical interaction between facility staff and drivers during load acquisition (pick-up) and delivery. With the onset of the pandemic, facility staff has begun to treat delivery or pick-up drivers like viral-shedding lepers. In attempts to add additional precaution and safety to interactions, organizations have flailed about with new ideas, processes, and protocols, trying to find the right way to manage the interaction and limit risk. Pictures and stories from truck drivers abound on social media articulating a variety of social distancing experiments in distribution centers and manufacturing facilities aimed at limiting driver/staff interaction. Some organizations have even waived signatures on bills of lading (BOL). These documents and their associated signatures legally and historically denote the transfer of ownership and liability of the trailer and its inventory between the facility and the driver. Without this crucial step, what are the long-term implications if problems arise, loads go missing, or when there is contention over claims? These actions by the facilities are not without justification though, as the cost and supply chain impact to shut down a distribution or manufacturing facility due to a viral outbreak is enormous. Clearly the industry need has shifted and an effective, widely adopted solution remains elusive.
What the Future Holds
What is one to make of this and what conclusions can they draw to protect their business?
First, it is clear the trucking industry is and will continue to experience pain for the foreseeable future, or at least until the demand for goods and their transport materially increases. Manufacturers can expect cheaper rates to move freight and fierce competition to move the limited freight in the market. This situation will slowly improve for truckers, in line with the speed of economic reopening, unless the supply of truckers decreases due to the current dearth in demand.
Second, companies must be thoughtful when making decisions to change processes in order to protect their employees. Mimesis and the desire to follow other organizations in their decisions must be tempered. In this case, the volume of trucks operated without executed BOLs is cause for concern. Specifically, in the claims market, the scaly underbelly of the trucking industry that floats to the surface when something goes wrong with a shipment. While claims spend is typically no more than a few percentage points of total freight spend for most manufacturers, what happens in April, May, and June when claims are processed and ambiguity exists for the burden to roll downhill entirely to the shipper without an executed BOL to prove ownership transfer? If this results in a several percentage point spike in claims for organizations in the second quarter, this could add six, seven, or even eight figures in unexpected cost and liability to an already bleak quarter. We caution our customers and network to avoid impending claims exposure by finding ways to ensure execution of BOLs and the legal process of ownership transfer is honored.
Third, the archaic paper-based workflows that take place face-to-face between drivers and facility staff have been rendered not only obsolete, but also dangerous. The industry needs a solution to drive a seamless digital interaction that meets the needs of the industry both operationally and legally, while protecting the health and safety of both truckers and facility staff. Without this, rash decisions made with the best intentions, have the chance to negatively impact organizations, people, and even the supply chain in unexpected ways.
Learn more about our response and how we are uniquely positioned to help the drivers and facility staff in our communities continue to transport goods without risk of viral transmission. M.Folio’s entirely digital document management and Driver Kiosk is redefining and improving the relationship between facility staff, drivers, and documentation. Read more at macgregorpartners.com/m-folio.