December 2019 The Roemer Report

ATRI Cost Analysis Reveals Fleet Costs Rising as Commercial Insurance Rates Climb

In late November the American Transportation Research Institute (ATRI) published “An Analysis of the Operational Costs of Trucking: 2019 Update.”

Conducted since 2008, the ATRI study documents and then updates industry cost metrics using financial data provided directly from motor carriers. According to ATRI, their research provides fleet operators important benchmarking inputs – real-world data carriers can use to discern and compare their performance relative to their peers.

Important voice, relevant public sector input

As source of robust, objective, demonstratable, defensible data, ATRI’s study provides the industry a valuable service each year. An additional objective of the research, says ATRI, is to “ensure that accurate, real-world data inputs are available for public sector transportation planning and investment models, in order to generate realistic costs and benefits that accrue to commercial vehicle operators.”

Marginal cost per mile for 2018: $1.82

Based on the industry data ATRI compiled, the average marginal cost per mile in 2018 was $1.82 in the for-hire sector of the industry, representing a 7.7 percent increase from 2017. The robust economy, increasing fuel prices and the longstanding labor shortage all contributed to year-over-year rise in the per-mile costs of commercial fleet trucking.

Of course driver pay continues to be the single largest cost facing carriers in 2018. ATRI says that If the driver shortage continues, carriers will be pressured to raise wages to attract qualified, experienced drivers.

Litigious society pushing premiums higher

Though likely understood by most fleets, carriers and the industry in general, ATRI’s data confirms commercial trucking insurance rates remain a volatile cost center for motor carriers, independent of fleet size.

ATRI says there are a variety of external factors that affect carrier rates, noting that several are not related to a fleet’s safety rating or crash history. Nevertheless, based on data provided by motor carrier respondents, insurance cost per mile (CPM) increased by 12 percent, jumping to 8.4 cents per mile in 2018.

No surprise but the 2019 update reveals specialized carriers paid the highest premiums, reporting 10.4 cents per mile. These costs, says ATRI’s research, reflect the higher risk associated with specialized carriers, with specialized and more costly equipment like tank trucks or oversized/custom trucks to haul specialized non-standard cargo.

Liability target

ATRI’s study also pointed out that one of the principle reasons for increased commercial truck insurance premiums is the growing tendency towards litigation and the ever higher award pay-outs to cover damages and associated liability.

Noting the increased traffic associated with an expanding economy is responsible for putting more people and trucks on the road, the ATRI explained the likelihood of all crashes involving trucks increases.

But they note that the costly environment offered by today’s Tort law system is seemingly disconnected from increasing traffic-related crash risk, explaining that truck-involved crashes are generating dramatic increases in both the number of civil litigation case filings as well as increases in jury awards and out-of-court settlements.

Insurance costs increasing

The study offered chart showing an all-to-common scenario: insurance costs increasing across the board. ATRI data shows insurance premiums are increasing fastest among small to medium fleets that do not have the ability to increase financial risk to control and manage insurance premiums.

ATRI notes larger carriers are better at maintaining insurance cost stability through high deductibles and/or self-insurance. In light of the environment, carriers have increased coverage beyond the FMCSA-required minimum. Unfortunately, these and many other factors pressure insurance companies to increase premiums across the entire base of insured carriers, regardless of sector or fleet size, including the growing cost and sophistication of repairing today’s fleet-ready commercial equipment.

Ultimately, says ATRI, insurance costs become one of the most complex line items to assess, because carriers are continuously modifying deductibles, coverage amounts, self-insurance and reinsurance coverage levels.

ELDs being monitored for the first time

For the first time ATRIs study included questions about the deployment and associated costs related to FMCSA’s ELD Mandate.

The mandate allowed fleets already utilizing Automatic On-Board Recording Devices (AOBRDs) to wait until December 2019 to transition to Electronic Logging Devices (ELDs). ATRI asked motor carriers to submit fleet usage of both equipment types as well as associated costs.

According to the study results, the majority of 2019 respondents use some type of ELD, with 31 percent of respondents using ELDs and 67 percent using AOBRDs.

ATRI reviewed assessments of carrier transitions from AOBRDs to ELDs. Most industry surveys and anecdotal evidence, notes ATRI, indicate the majority of fleets had converted to ELDs by the third quarter.

On average, the ELDs were cheaper, by as much as $200.00 compared to AOBRDs. The study attributes the lower cost of ELDs with greater competition among ELD providers versus the relatively much smaller number of legacy AOBRD providers.

Last word: Growth

In very understated fashion the ATRI explained that, “if the geopolitical, trade and legislative environments favorably resolve their issues, 2019 data will likely reflect a solid growth in both trucking services and related costs.” Which translates to roughly something like: “expect both the industry and its costs to keep rising in 2020.” For fleets of all sizes the message to managers is clear, choosing your insurance carrier may be the most strategic decision you’ll be making when it comes to controlling fleet operating costs.