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Alternate Routes: The Pandemic, the Global Supply Chain, and Transportation Insurance

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The COVID-19 pandemic stopped life in its tracks. The initial lockdown shut down the world economy and the way in which we operate, changing purchasing habits globally.

During that time, we saw a spike in demand for certain “essential” products, from hand sanitizers to toilet paper and paper towels. Remote work ushered in the need for desks and office chairs at home.

As it became clear that safer-at-home was the new norm and with checks in hand from the June 2020 stimulus package, people looked to remain active and enjoy life in a different way. We adapted by purchasing exercise equipment and finding refuge outside with newly-purchased bicycles, RVs, boats and golf carts. Many chose to undergo home renovations inside and out to be able to nest more comfortably, purchasing new appliances, electric heaters, outdoor furniture, and other goods.

In an added blow to the supply chain, in 2020 the South was hit by consecutive hurricanes, a derecho caused widespread damage in the Midwest and the West became engulfed in wildfires again. Construction materials such as lumber, concrete and other items for rebuilding were in high demand.

Low Inventory, Congested Ports & COVID-Infected Workers

“Inventories were low as demand increased as a result of a surge in purchases, particularly in e-commerce,” explains Mark Gallagher, RPS Vice President, National Transportation.

“The global supply chain became bottlenecked, particularly at the ports. Compounding the bottlenecks were dock workers and longshoremen themselves facing COVID issues, with many individuals moving products around the ports impacted by the quarantine and infections.”

The result? A perfect storm, constricting capacity and disrupting freight patterns.

On the Path to Victory, but Challenges Remain

While inventory is beginning to replenish, Gallagher expects to see another surge in consumer spending with the new relief package and billions being poured into the economy. People also have more money to spend after a year of spending far less on travel, entertainment and dining out.

One economist estimates that consumer spending in the second quarter of 2021 may exceed 10%-12% over first-quarter spending. According to American Shipper, the National Retail Federation forecasts that container ports are expected to set monthly import records through June, after setting a record of 22 million TEUs last year.

Related Article: 2020 U.S. Transportation Market Outlook

“If we are in a football game in which the fourth quarter is where the supply chain is operating efficiently and able to meet all demands, it’s still not half-time,” says Gallagher. “It’s looking a bit better, but the fragile supply chain is not out of the woods yet. In addition, the Suez Canal blockage and its impact on the U.S. supply chain is still unknown.”

In-Demand Drivers & Rising Freight Costs

With freight needing to be moved, truck drivers are at a premium and are getting paid handsomely. They are being paid signing bonuses and record-level salaries. In addition, freight costs are high, with rates continuing to rise.

“Often there are contracts with established rates and set routes, but this isn’t happening as plentifully right now due to some of the bottlenecks,” says Gallagher. “Spot market rates are being used more heavily now than ever before to haul goods as freight needs to be moved quickly with the demand so high. Rates are therefore negotiated on a lane-by-lane, load-by-load basis and load specifications can vary wildly.”                            

In addition to high freight costs, commercial auto insurance is still experiencing a rise in claims, with a combined loss ratio at 110. Although accident frequency was down in 2020, insurance rates continue to rise, adding to the cost of shipments.

Get in Sync with Clients’ Changing Needs

Gallagher recommends being proactive with clients, particularly in today’s quickly changing environment.

“What a trucking carrier is hauling today may differ tomorrow. It’s important to be fluid and mobile in your ability to offer coverages and limits that are in sync with the goods the insured hauls.

“Last year, for example, some truckers were able to pivot and haul dry goods to help get them back on their feet. Now this may change, and the insurance policy should reflect the change. If you have a policy in place that is restrictive in what can be hauled, it could be detrimental to the client if there is a loss.

“A broad-based cargo coverage form is best suited to protect your clients because of the dynamic and ever-changing environment in which truckers are operating now.”

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