IF WE LEARNED ANYTHING from the events of September 11, it is that there are people who really can think and achieve the unthinkable.
If only we had known this would happen …
While truck body and trailer manufacturing plants may not be at the top of the typical terrorist hit list, all companies can expect the unexpected — for themselves and for their customers. Accidents. Natural disasters. Fires. Terrorist acts. Any of these and other events can cost companies physical and financial pain.
How vulnerable is your company? A panel of safety experts addressed the TTMA convention about what can happen and what can be done.
Speaking at the convention session were Forrest Allison II, EWA Information & Infrastructure Technologies; Prasad Sharma, American Trucking Associations (ATA); and Jeff Magner, Premier Transportation Insurance Agency. Here is what each had to say:
“Nothing has really changed,” Allison said. “The threats companies face today have been around for a long time. It could be an organized group or just someone who has a grudge against a business. The difference is that people are getting bolder and more daring in the things they do.”
Allison pointed out that every company should have a risk assessment model that analyzes the assets of the business. These include:
Who are the key people in your organization? How vulnerable are they to being hired away? What happens when they quit?
While your company may not be the target of wrath of some terrorist group, it's important to evaluate your surroundings. Are you next to someone who might be a target?
How vulnerable to sabotage are the ways you produce your product?
Allison summarized the process by asking three questions: What is the threat? What is the vulnerability? And finally, what is the protection?
After identifying the threat, Allison said, give it a weight or value. The worst thing that can happen is that someone will lose his or her life. You can lose your operational capability — the ability to do business. Third is time loss. Another is loss of trust. If customers cannot do business with you, they probably will go somewhere else.
“You want to ensure the longevity of your business,” Allison said. “How many of you have a business continuity plan? If you have a fire, flood, or tornado, what do you do? How do you get back in business?”
One of the most dangerous losses to a business is the loss of its records. Is your data backed up and stored in a secure location? Allison told of a company in the World Trade Center that had its data backed up and stored on a different floor of the second tower. While this World Trade Center company was a casualty, others were up and running within 50 minutes of the crashes because they had data backed up in New Jersey, Colorado, or other remote locations.
“Forty-four percent of the companies that lose data go out of business within two years,” he said. “You don't have to have a terrorist attack to lose data. Do you have an adequate plan to back yours up?”
Rising insurance premiums
Insurance is intended to protect against the unexpected. However, it is an industry that has had its share of challenges in recent years.
The effects are rippling through the trucking industry and the manufacturers who supply it. However, terrorists attacks are not the primary reason why insurance premiums are going up, said Magner.
“The insurance industry never knows if it made money until three to five years later,” he said. “As the results of 1996 and 1997 began showing up in the fourth quarter of 1998, people began to realize that they were in trouble.”
The frequency for truckers to experience bodily injury and property damage claims has consistently been reduced over the past decade. The industry has been getting safer year after year. But the mean settlements in bodily injury claims rose 200% between 1996 and 1999. That is a compounded growth rate of 22%. Settlements in excess of $1,000,000 between 1996 and 2000 rose at an annualized rate of 26.9%. That is what has been hurting everyone.”
Magner said additional aspects of the insurance industry are “not in good repair.” Worker compensation claims also have been draining capital from the industry. He said the industry will be $20 billion underreserved in 2002 nationwide. The problem is particularly bad in California, Florida, Illinois, and Texas.
How secure is trucking?
The trucking industry, concerned about highway safety, now has an increased awareness about security since September 11. However, security has been an issue with trucking well before that day's terrorist attacks, according to Sharma, assistant legal counsel for the ATA.
“After September 11, the 535 members of Congress became experts on truck security overnight,” Sharma said. “That led to the passage of Section 1012 of the Patriot Act, which mandates criminal background checks of drivers seeking hazardous materials endorsements to their licenses.”
Sharma said the Patriot Act poses problems for the trucking industry. Roughly three million people hold hazardous materials endorsements, and many trucking companies require hazardous materials endorsements for every driver.
The legislation that Congress passed requires drivers to be fingerprinted at their state's Department of Motor Vehicles. However, since these departments are not set up to handle fingerprints, drivers will instead go to state or local law enforcement stations. Results will be checked against the FBI database and forwarded to the United States Department of Transportation. The process will take approximately six months.
“It's going to hurt trucking companies,” Sharma said.
Sharma reported on several steps ATA has taken to improve security of the trucking industry, including hiring a consultant to develop an anti-terrorism action plan. The action plan, in part, will build on the ATA Highway Watch program that the organization introduced in 1998. Six states are involved in the program, with 12 more to be added soon. Under the program, truck drivers will be taught to notice and report suspicious activity.
ATA also is lobbying Congress to make changes in The Patriot Act. One of the organization's request is to be able to share the information the Department of Transportation collects. “The best way to combat terrorism in the trucking industry is to know who is driving your vehicles,” Sharma said. Many fleets are attempting to screen applicants, but their systems typically are limited in their effectiveness when they rely on information provided by the applicant.
Sharma cautioned against government solutions that rely on technology. In particular, he cited the use of global positioning systems. Prior to September 11, thieves already were showing that they know how to disable GPS systems — just as the terrorists were able to disable the positioning systems of the hijacked airliners.
Cutting into profits
Sharma said rising insurance premiums have been cutting sharply into carrier profits. Trucking companies on average operate on a 2% profit margin, he said.
“They need some of that to buy your trailers,” Sharma said, “and insurance is taking up a lot of that.”
Insurance premiums had been rising sharply enough before September 11 for ATA to form a task force to investigate. Here is what a survey based on responses from 1,000 ATA member companies revealed:
Primary insurance increased an average of 17% in 2000. That increase in 2001 was 32%. After September 11, the increase averaged 37%. Responses from individual carriers reported increases as high as 1,000%, Sharma said.
Hazardous materials haulers reported an average increase of 31% before September 11 and 47% afterward.
The average increase for umbrella coverage in 2000 was 33%. It jumped to 87% in 2001. After September 11, the cost to renew increased 120%.
“The insurance crisis is real, and it is affecting trucking companies,” Sharma said.
The ATA task force is working with the insurance industry to find ways to reduce the cost of insurance. This includes an educational program on how to shop for insurance. A key component, however, is tort and civil justice reform.
“In 1990, there were only seven judgments against trucking companies that exceeded $1 million,” Sharma said. “In 2001, that number went to 113. These are jury verdicts, which means that others were settled outside the courtroom.”
Sharma said he saw signs that the industry was picking up but that the costs such as insurance are slowing down the recovery. He invited TTMA and ATA to work together toward solutions to these common issues, particularly tort reform.