6 Critical COVID-19 Risks to the Transportation Sector
Nearly every sector of the economy has been affected by risks brought by the COVID-19 pandemic, and the transportation industry is no exception.
In addition to the obvious risk of virus-spread and safety concerns, COVID-19 has caused supply chain disruptions, cyber security issues and has contributed to already-hardening markets in the sector.
It’s also exacerbated pre-existing problems like the talent shortage and driver safety concerns.
To keep their businesses profitable, those in the sector must be aware of and prepared to address these risks. Here are the critical risks the transportation sector is facing as a result of the COVID-19 pandemic.
1) Hard Market and Rate Increases
Prior to the COVID-19 pandemic, the transportation sector was already facing a hard market. Commercial auto, trucking and other segments in the sector have seen shrinking capacity and rate increases as a result of distracted drivers and ever-riskier roads leading to nuclear verdicts and rising litigation.
These struggles have been with the sector for the better part of a decade, according to Mark Gallagher, vice president of national transportation for Risk Placement Services (RPS), a subsidiary of Arthur J. Gallagher.
“At the end of 2019, the commercial auto industry had a combined loss ratio of 109.4%,” Gallagher said. “So for every dollar they were taking in, they were paying out more than $1.09.”
Even though COVID-19 has reduced the number of vehicles on the road and thereby reduced the loss ratio, commercial auto and other transportation lines remain unprofitable.
Excess carriers, which have shouldered some of the risk in the past, are also being hit with losses and are shrinking their capacity.
“We’ve also got excess carriers that are feeling the pinch and feeling the pain of losses and nuclear verdicts,” Gallagher said, “and they are limiting capacity.”
2) Stay-At-Home Orders and Fear of Transportation
As shelter-in-place orders were issued, transportation companies really diverged into two paths.
First, those in the business of moving products did well; panic buying spurred an increased need to haul consumer goods across the country.
“Freight had a very large uptick during the beginning of the COVID lockdown,” said Chris Demetroulis, the managing director for Gallagher’s transportation practice. “So the transportation companies that were hauling freight, primarily consumer goods and manufacturing goods, were in a really good spot.”
Those in the business of moving people, on the other hand, suffered economically as people began forgoing rideshare and public transportation services out of fear they would contract the virus.
“Whether it’s chauffeured limo companies or rideshare, those businesses are really struggling,” Demetroulis said.
Even though many stay-at-home orders have lifted, people still aren’t comfortable getting in Ubers, Lyfts or other rideshare vehicles.
This summer, Uber’s ridership declined 75% when compared to 2019, and Lyft reported that it had only 8.7 million active riders in the three months leading up to June 2020, down from 21.8 million from the previous year.
3) Supply Chain Disruptions
Trucking companies may have fared well at the beginning of panic buying, but disruptions in supply chains made some of those gains uneven as some factories were forced to shut down due to COVID-19 outbreaks.
“You had a tremendous surge, and as fast as the surge occurred, you had just an immediate drop off within about a 3 to 4 week period,” said Craig Dancer, U.S. transportation practice leader at Marsh. “So what ended up happening is that you didn’t have a supply chain.”
And without a supply chain, truckers have nothing to haul.
“Reliance on single or limited source supply chains has really exacerbated business continuity concerns,” Demetroulis said. “We’ve been counseling clients and prospects to consider various strategies like business continuity planning around how to make sure their supply chain is more diversified.”
COVID outbreaks accounted for some of the disruptions to the supply chain, but most, if not all of these shortages could have been prevented with good risk management practices.
Creating redundancies within a supply chain and working with multiple suppliers can keep trucking companies running, even if one of their clients has to shut down.
4) Cyber Security Breaches
Stay-at-home orders sent many companies to remote-work including those in transportation.
While industries like trucking require that some employees go out on the road, those who held office jobs in the sector have pivoted to remote work, oftentimes with little preparation and a lack of proper IT infrastructure.
“Companies that have not invested in technology, as a second point, have found that the transition to stay-at-home orders is very difficult,” Demetroulis said.
A lack of preparation for an all-digital environment has made transportation companies prime targets for cyber criminals. “The incidents of cyber attacks went up dramatically,” Dancer said.
Exacerbating the cyber security issues that were already present in many transportation companies is the fact that hackers have been using anxiety over the COVID-19 pandemic as a way to get into IT systems through phishing scams and ransomware attacks.
As usual, safety concerns remain paramount for the transportation sector. Prioritizing road and driver safety and investing in new technologies like telematics can help those in the commercial auto space stand out to underwriters.
“Focusing on safety will continue to be an opportunity for transportation companies to outshine their competitors,” Gallagher said
During the pandemic, safety has taken on a whole new meaning for those in the transportation sector, however.
In the past, focusing on safety meant making sure that vehicles were equipped with proper safety features or, in the case of trucking companies, making sure that drivers were rested and were operating their vehicles safely.
While these areas remain important, now safety encompasses deep cleaning, sanitation and social distancing guidelines as well to help contain the spread of COVID-19. “The need for sanitization and safety protocols was really a hot topic,” Demetroulis said.
The pressure for transportation companies to adopt additional sanitation measures will likely continue as long as COVID-19 remains a critical risk.
6) Driver Shortage
Deep cleaning and other safety procedures are especially important when it comes to protecting drivers. Truck drivers tend to be older and thus might be more at risk if they contract the virus.
“Your average truck driver is over 50 years old,” Dancer said, “There are always going to be health concerns.”
For the trucking segment of the transportation sector, the talent shortage has been a risk for years now. But with COVID-19 causing some older drivers to exit the sector for fear of getting ill, it could become even worse.
“Many people are saying that, you know, it’s even going to be worse as we enter 2021,” Dancer said. “They really have to focus on how to get drivers.”
Dancer recommends that companies focus on keeping their drivers protected and that they emphasize the role that they play in keeping the economy churning in order to attract new, younger drivers.
“They’re the people that are heroes. And they’re trying to keep us as an economy going and trying to rebuild our economy,” Dancer said. &