Rising diesel prices and soaring insurance premiums are pushing small trucking companies toward bankruptcy
According to a study by Bloomberg News, some 221 trucking companies nationwide have already filed for bankruptcy protection this year.
Lewie Pugh is the executive vice president of the Owner-Operator Independent Drivers Association that represents small-business truckers in the U.S. and Canada.
Pugh said small carriers are the first to feel the burden.
The trucking industry is dominated by small businesses. According to Pugh, around 96% of companies have 20 trucks or less, and half of trucking operations rely on a single truck.
Diesel is the largest variable cost for trucking,
Diesel is the largest variable cost for trucking, Pugh said. Before the COVID-19 pandemic, truckers were paying around 39 cents a mile for fuel. Now, he said, it can reach over a dollar a mile, depending on where they operate.
“Every $1 increase per gallon in fuel costs our members around $400 more per week, and sustained high prices will put many drivers out of business,” Pugh said. “Our members often work load-to-load and can’t simply raise their rates when fuel spikes the way their larger competitors can.”
Insurance is another burden.
The Federal Motor Carrier Safety Administration requires a commercial truck liability insurance minimum of $750,000 in coverage.
Pugh said full insurance can average up to $17,000 per truck per year.
He blamed large jury awards in accident-related cases
He blamed large jury awards in accident-related cases and a rise in lawsuits against trucking companies for pushing premiums higher, even for drivers with clean records.
Pugh said he expects Congress to consider raising the minimum liability coverage. The $750,000 minimum has not been updated in over 40 years, which has not kept up with the current pace of inflation.
Supporters of an increase argue it would improve highway safety.
Pugh said his organization opposes the idea, noting that the current minimum covers over 99.4% of all accidents. The average truck accident costs roughly $18,000.
“This is a solution in search of a problem,” Pugh said.
He said higher minimums could push insurers out
He said higher minimums could push insurers out of the market due to low profit margins.
Pugh said the trucking industry has been in the longest downturn and recession ever.
Carriers added capacity when freight rates spiked during the pandemic, he said. But when the pandemic ended, carriers had way too much equipment and capacity.
Unfortunately, freight rates dropped below pre-pandemic rates, he said.
“Most of these people have been operating on a shoestring now for three or four years,” Pugh said. “The ones who have had the most cash flow or the best contracts or, maybe, are able to pass some of this expense on are surviving, while others are dying.”
As the holiday season approaches, Pugh expects shoppers
As the holiday season approaches, Pugh expects shoppers to feel some of the effects of increased trucking expenses.
“I would forecast during the holiday season, as long as these fuel prices don’t come down, you’re going to be spending more for gifts,” Pugh said. “The fuel part is going to get passed through.”
And with the holiday season comes colder weather.
“As we go into wintertime, diesel fuel is now directly competing with oil that you refine with home heating oil,” Pugh said. “There’s more demand in the winter because it’s colder and people in the north need fuel oil to heat their homes.”
