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Load Restrictions

Ensure your trucking clients aren't accepting contracts for loads too large to carry

The trucking industry is a rapidly evolving market with new players creating heightened competition, resulting in truckers who are accepting business contracts and making promises they might not be able to keep.

Big box retailers, for instance, have changed the way goods are moved, according to Jerry Giroux, president of Aldis Underwriting. Retailers are now telling trucking carriers that if they want to carry their goods, they must sign a contract stating that if anything goes wrong they will be held liable, he says.

“You’ve basically bought [the goods] because if it doesn’t arrive in perfect condition, you’re responsible for the entire cost of goods,” he says. “Truckers are willing to do this because they want the business of these powerhouse retailers.”

Previously, a signed bill of lading, which acknowledges receipt of goods, would hold a trucking company liable for $2/lb (regardless of the type of goods), according to the Highway Traffic Transportation Act.

Now the industry views truckers as logistics professionals, third party logistics professionals (3PLs) and fourth party logistics professionals (4PLs). They are signing contracts that can hold them responsible for problems such as delay, water damage, theft, fear of damage and even a broken seal on a box, and this can lead to total loss situations, says Giroux.

“Powerhouse retailers wield a very big stick with the logistics community,” he says. “If you want their business, you will take full responsibility. [Retailers] will even say, ‘You will have the trailer here between 2pm and 4pm.’ If you show up at 4:15pm, they’ll say, ‘Get it out of here. We don’t want it.'”

Giroux stresses the problem is trucking companies don’t talk to their brokers about the specifics of the contracts they’re accepting, and some brokers don’t understand the changes occurring in the logistics world.

For example, some policies exclude the transport of footwear, but the trucking company’s client might be a shoe retailer. Unless the trucking company informs their broker, they won’t know, he says. Also, trucking companies may be signing contracts for a higher liability than they’re covered for.

“[Truckers] think the most they’re going to carry might be $50,000 in liability (or 25,000 lbs at $2/lb), but then they go out and make promises to carry well over that amount,” says Giroux. “Brokers must be educating trucking companies to make sure they’re buying protection for the risks and promises that they’re making.”

Another issue is that some truckers are load-broking or freight forwarding, which means they’re contracting another trucker to move the load on their behalf. This situation might occur if the initial trucker doesn’t have the time or vehicles to transport the shipment. The secondary trucker hasn’t signed the contract with the client, so the primary trucker will still be held responsible if any damage occurs.

“This whole series of contracts and promises is revolutionizing the business and really creating massive exposures for so many truckers,” says Giroux.

Angelique Magi, national director of transportation for commercial markets at Zurich Canada, agrees saying that how a cargo claim could be handled used to be legislated. But now, with trucking clients creating their own contracts, whoever holds the goods last is 100% liable.

“As a broker or insurer to the trucking customer, you have to assess how they handle their cargo,” says Magi. “Do they operate under contracts or under bill of lading? Do they have proper contingent cargo coverage in place? Do they do freight forwarding? If so, do they have freight forwarding E&O because they can be held responsible for the actions of the person they’ve sub-contracted to move the load?”

Crossing the Border

As the economy has changed, there has been a push for more Canadian-only trucking versus US long haul, according to Magi. The economic downturn caused US exports to diminish, and truckers that had heavy US export miles are looking for more domestic business.

“As a result, [trucking] customers are changing where they will travel,” she says. “A company that might have been doing a lot of US mileage, is now doing more New Brunswick to British Columbia, versus New Brunswick to Florida.”

And for those that are still taking contracts south of the border, they must ensure they have adequate coverage.

Glenn Murray, national transportation insurance manager, Jones DesLauriers Insurance Management Inc. (JDIMI) says the US is a very litigious country and there are particular states that have been known to crack down hard on Canadian (or foreign) trucking carriers.

“We’ve seen statements of claim for $10 million,” he says. “This type of automobile insurance can be quite volatile.”

Brokers with trucking clients should be well versed in regulatory requirements, such as filings, says Domenic Tesone, partner and transportation specialist at Dalton Timmis Insurance Group.

“In Ontario, you just have a pink slip and that’s enough to prove you have the necessary liability limits. But when you cross the border you have to make sure all filings (US proof of insurance) are in order.”

Also, he says there are certain permits and certificates that are required and depend on the weight or dimensions of the goods. This varies from state to state.

“You have to be able to understand the process better to be able to explain it to the insurer,” says Tesone. “You have to be experienced in order to get the best deal for the customer.”

Trucking Rates

Tesone says that rates in trucking insurance have been on the decline for the last four years due to competition. Rates are based on several key items including the record of the driver and fleet, as well as radius (e.g. if the trucking company travels short haul or long haul).

“There’s about a 40% difference in rate if you’re not traveling to the US and only in Ontario,” Tesone says.

Giroux adds that prices overall have gone down. “It’s been a tremendous time to be able to buy more limit and broader cover.”

But he stresses that once again the issue is that trucking companies aren’t purchasing sufficient coverage for the contracts they’re signing.

“They don’t buy the insurance for the promises they make, in spite of the fact that they can never buy it cheaper than they can today.”

Paying attention to policy wordings and exclusions will help ensure that your trucking clients are covered.

“There are some special features of the coverage that you should have a good handle on such as cargo and valuations of those goods being shipped, deductible variances on automobile coverage and [you should have] good understanding of fleet safety and risk control,” says Dan Breau, assistant vice president of marketing, HUB International Ontario Limited.

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Trucking Expertise

Jones DesLauriers Insurance Management Inc. (JDIMI) deals with various trucking clients including long and short haul. Glenn Murray, national transportation insurance manager at JDIMI, says the company’s market knowledge and understanding of client accounts is part of its success.

“We have a strong understanding of their appetites with respect to the amount of US mileage, commodities hauled and radius of operations,” he says.

Also, JDIMI takes safety and compliance improvement seriously. “The better run a company is and the better trained the drivers, the better the loss performance. We want to help insureds improve their position in the market place on an annual basis.”

The company offers FleetSafe Seminars for clients, which are designed to help transportation companies significantly reduce their insurance costs by implementing key risk prevention and safety strategies within their daily operations.

More on transportation: For our guide to marine, click here. For our guide to rail, click here.

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Copyright 2011 Rogers Publishing Ltd. This article first appeared in the April 2011 edition of Canadian Insurance Top Broker magazine.

Transcontinental Media G.P.