When the year 2000 began there were already disquieting signs that a bumpy road lay ahead for the motor carrier industry. But few industry analysts expected that so many of the major components of a carrier's cost of operations would increase as dramatically as they did and that these higher costs would continue throughout the year. The price of diesel fuel, which had begun its rise in 1999, spiked upward in January and rose still further as 2000 progressed. Higher driver wages, resulting in part from the ongoing driver shortage, increased the cost of doing business for many carriers. Insurance costs were also on the upswing and, since wages, fuel and insurance account for more than half of a typical motor carrier's cost of operations, truckers were hard pressed to get sufficient rate increases to match these increased expenses.

Notable among the trials faced by the motor carrier industry during 2000 was the attempted imposition of new hours-of-service regulations by the U.S. Department of Transportation. It took a major effort by many trucking companies and organizations, including the submission of more than 70,000 comments, to temporarily derail the proposals and win a one-year delay. The trucking industry hopes that the proposed regulations will undergo substantial modifications when they are reconsidered in 2001.

Although the hours-of-service proposal galvanized the motor carrier industry and enhanced the importance of the American Trucking Associations, the ATA itself had a very difficult year. Under the provisions of its 1998 restructuring, 2000 was the year for its various allied membership councils to decide whether to remain within the organization. Due to the requirement that all members of affiliated councils take out separate ATA memberships and that the staffs of these organizations be merged into the ATA, most councils opted to terminate their affiliation. Although weakened, the ATA remains a potent lobbying force and the upcoming hours-of-service reform issue should help to crystalize ATA's role as the spokesman for the nation's trucking companies.

It is too early to assess the impact of the incoming Bush Administration on the myriad problems facing the trucking industry. The softening economy may be the new administration's biggest initial challenge. A lower demand for trucking services in some regions has been reported as the rate of growth of manufacturing industries has slowed. The perception is that the new administration may be more receptive to the interests of trucking management with a corresponding reduction in labor's former influence.

The Federal Motor Carrier Safety Administration began its existence (as part of the USDOT) on January 1, 2000. It inherited many of the motor carrier safety functions formerly performed by the Federal Highway Administration as well as the financial responsibility (insurance) and assorted other functions that the sunsetted Interstate Commerce Commission had previously performed. Under its new acting administrator, Clyde Hart, it has taken steps to reduce the backlog of pending rulemakings, including the long-delayed hours-of-service revision. While it can be expected that it will continue to pursue its safety enhancement activities, its leadership will probably be changed by the new administration.

Although the USDOT took a number of important actions during 2000, the hours-of-service rulemaking issued by its FMCSA by far generated the most controversy. The present regulations setting forth the amount of time truck drivers could lawfully drive have been mostly unchanged since 1938 and had come under fire from safety organizations as contributing to the nation's highway accident rate. The proposed revision would have instituted a 24-hour clock in place of the current 18-hour clock (10 hours on duty, then 8 hours off-duty), permitting drivers to be on duty for twelve hours, with an intervening 2-hour rest break and then requiring them to be off-duty for 10 consecutive hours. A mandatory "weekend" recovery period (to be taken on any consecutive days) which would include at least two nights of sleep between midnight and 6:00 a.m. would be also required. The present distinction between "on-duty" and "driving time" would be eliminated. There would be variations for regional, local and other commercial drivers. Electronic on-board recorders, replacing the present paper log books, would also be required.

FMCSA planned a series of regional meetings along with a 90-day comment period for this rulemaking and put it on a "fast-track", predicting that a final rule would be issued by the end of 2000. It was unprepared for the breadth and intensity of the opposition that instantly arose, not only from the ATA, which claimed that the new rules would dramatically increase a carrier's cost of operations and cause many carriers to go out of business, but also from safety groups, insurance organizations and a number of other interested parties, some of which argued that the proposed changes did not go far enough. After considerable pressure was brought to bear on Congress, mainly by the ATA and its members, legislation was enacted prohibiting FMCSA from implementing any change in the current hours-of-service regulations for a period of at least twelve months.

While the proposed hours-of-service changes monopolized the trucking industry's attention, FMCSA took a number of other noteworthy actions. It issued a final rule which would lead to the shutting down of motor carriers with "unsatisfactory" safety fitness ratings. The new regulations, which were effective November 20, 2000, will not apply to any motor carrier whose "unsatisfactory" rating was issued before that date. Before a motor carrier with a proposed safety ratings of "unsatisfactory" is shut down, it will have 60 days (45 days if a hazardous material carrier or passenger carrier) to take corrective action and be re-rated. A proposed rating of "unsatisfactory" will not be made available to the public until a final rating is issued.

Much of the descriptive motor carrier information in FMCSA's SAFER database is out of date since it is taken from Form MCS-150, which, in the past, was seldom updated. In 1999, Congress instructed FMCSA to complete the task of updating its census by having all motor carriers file a new Form MCS-150 by December 8, 2000. However, it took FMCSA until late November 2000 to issue instructions, delaying the complete updating until late 2002. The form must now be submitted by a carrier every two years; however, FMCSA is staggering the requirement based on the last two digits of the carriers' DOT number.

In other actions, FMCSA issued a final rule requiring all motor carriers to display its DOT number on its vehicles. The rule, with an effective deadline of July 3, 2002, does not require the removal of MC numbers (which are a legacy of the ICC) but is intended to be another step in the eventual elimination of MC numbers. It also announced that it has modified its procedures for filing certificates of insurance and notices of cancellation. Those insurance companies previously registered to use FMCSA's existing electronic filing system may continue to do so, but no new companies will be registered to use this system. Instead, all insurance companies may use a new internet-based system to make filings electronically. Hard copies of certificates of insurance and notices of cancellation will continue to be accepted from all insurance companies as well. In another ruling, FMCSA announced that it will suspend the registration of carriers who are more than 90 days delinquent in the payment of civil penalties to the agency. Effective April 16, 2001, these delinquent carriers will be banned from operating in interstate commerce. In December, FMCSA proposed new load securement rules, including stronger tiedowns, detailed requirements for certain specific commodities and new trip inspection rules. Comments are due March 19, 2001.

Household goods carrier issues are handled by the USDOT's Surface Transportation Board. In November, the STB solicited comments on a proposal to eliminate one of the three valuation options now available to household goods shippers. The option proposed to be eliminated provides for a minimum valuation of $1.25 times the weight of the shipment plus 70 cents for each $100 of additional declared valuation, based upon actual (depreciated) value. STB also sought comments about allowing household goods carriers to establish rates that include deductibles.

Motor carrier annual reports are the responsibility of the USDOT's Bureau of Transportation Statistics. In February it denied requests by two dozen motor carriers that the annual reports they file with BTS be kept confidential. The decision sets forth standards to be used by BTS in determining eligibility for exemptions and is expected to result in significantly fewer exemption requests in the future. The agency created a new Office of Motor Carrier Information to coordinate the filing and utilization of these reports and the data they contain. Included among its tasks is identifying and reclassifying large non-filing motor carriers so that their annual reports will be filed in the future.

Opening U.S. borders to Mexican trucking companies remains a contentious and unsettled issue. Under NAFTA, all of the U.S. was to be open to Mexican truckers (and Mexico open to U.S. truckers) by January 1, 2000. The moratorium imposed by the Clinton administration was the subject of a complaint filed by Mexico to a NAFTA arbitration panel and a ruling faulting the U.S. is expected. Two major U.S. insurance organizations have recently issued statements supporting the continuation of the moratorium, citing a number of safety concerns. The lack of insurance harmonization between the two countries is often given as another reason why the moratorium should continue. It will be up to the incoming Bush administration to decide whether and under what conditions the border should be open to Mexican motor carriers.

After enjoying a number of years of relative prosperity, many of the nation's motor carriers find themselves in a cost-cutting mode as they confront a combination of soaring expenses and a slowing economy. While the price of diesel fuel retreated slightly toward the end of 2000, petroleum analysts do not foresee a meaningful moderation of fuel prices in the near future. Due to the characteristics of their operations, truckload carriers have been hit especially hard by the rise in the price of diesel.

Many motor carriers have had to give substantial wage increases to their drivers in order to keep them from being hired by competitors (even so, the average annual driver turnover for truckload carriers continues to exceed 100 percent). The driver shortage continues unabated and the higher pay scales have not yet served to attract new entrants from other occupations. Higher insurance premiums have hit the motor carrier industry at an especially bad time and the combination of these and other increased expenses have caused a significant number of owner-operators and marginally-financed motor carriers to discontinue operations.

There is not much good news on the horizon. Looming above all else are the changes in the hours-of-service regulations. Should the proposed regulations be adopted, industry exports have estimated a rise in costs of approximately 20 percent. Even if the proposed changes are modified before being adopted, higher costs will undoubtedly accrue. Further down the road, but also of importance, are other government actions affecting truckers. These include new regulations dealing with ergonomics taking effect in October 2001, which are designed to protect workers from a wide variety of injuries associated with repetitive motion. Newly-issued pollution control rules, which will take effect in 2006, will force drastic reductions in truck and bus diesel fuel emissions. These and a number of other regulations are predicted to result in a steady rise in motor carriers' cost of doing business. While attempts will be made to pass these higher expenses on to shippers and ultimately to consumers, those motor carriers unable to do so will soon disappear.

The pace of mergers and acquisitions among large and medium-size trucking companies quickened as 2000 drew to a close. As an example, in December two large truckload carriers announced their intention to merge which would create, when consummated, the nation's largest publicly held truckload carrier. This followed an announcement the previous month of a merger which would create the nation's third-largest regional less-than-truckload network. Trucking stocks, especially those of truckload carriers, performed poorly throughout the year, even before the markets were hit with a general downturn. A significant number of trucking companies went out of business during 2000, either through bankruptcy or otherwise, and the number is expected to increase during 2001.

A widening scandal involving the issuance of commercial drivers licenses through bribery has embroiled a number of state regulatory agencies. Criminal convictions have been obtained or are pending, and efforts are being made to identify the hundreds of drivers holding fraudulent CDLs. Separately, FMCSA is expected to soon issue a series of rulemakings seeking to tighten its commercial driver license program. The proposed changes include authority to suspend a truck driver's CDL for offenses committed in a passenger vehicle, reform of the medical examination process, improvements in state records and new powers for the federal government over commercial driver licensing.

At this time last year there were hints, although often anecdotal in nature, that insurance industry pricing was firming and that the soft market which had characterized the past dozen years was in the process of hardening. As 2000 progressed, it became increasingly evident that the price of insurance was, in fact, rising and that an entire generation of underwriters that had never known a hard market would have to soon change its mind set. And, it seems, not a moment too soon. Results for the first nine months of 2000, recently released by Insurance Services Office, revealed that the industry's combined ratio was 108.9 percent, 2.6 percentage points worse than the 106.3 percent for nine-months 1999. While net written premiums rose 4.6 percent from a year earlier, industry non-catastrophe losses climbed 10.6 percent. Analysts say that these numbers reflect years of inadequate pricing and that insurer discipline will be needed in the future if rates are to rise to more profitable levels and loss costs are to be contained.

In spite of the fact that motor carrier insurers were quick to acknowledge and participate in the firming market, any improved results may not be discernable until some time later this year. There are noticeably fewer companies seeking to write truck insurance, a situation which has developed from a number of different factors such as insurer mergers, poor underwriting results, voluntary withdrawal from the line of business and cessation of business entirely. Some reinsurers have raised their rates sharply and tightened their underwriting standards and a number of managing general agent captive programs have been terminated. Often, surviving m.g.a. programs now have an imposed requirement that they participate in the underwriting results of the program and insurer supervision over these programs has been heightened.

Discussions with underwriters have verified that truckers are now paying significantly more for cargo, liability, physical damage and workers compensations insurance, and that continued increases can be expected. The bottom line is that the majority of trucking programs were not profitable in 2000 and as long as accelerating loss costs and liability inflation remain unchecked, many motor carriers will face double digit premium increases. As one insurer stated, "It has become increasingly difficult to operate in an environment of escalating costs for major trucking-related accidents, injuries and settlements, increasingly involving multi-vehicle, multi-claimant situations, all aggravated by rising medical costs, increased litigation and unexpected deep pocket jury awards."

Cargo underwriters contend that exercising more selectivity, in conjunction with higher rates, may be the key to a return to profitability. Historically, writing motor truck cargo was a profit-making endeavor and by insuring truckers who avoid target areas and target commodities, coupled with higher deductibles and enhanced financial strength criteria, underwriters hope to once again achieve profitable results. Commercial automobile, in particular trucking, is among those lines of business with the highest average rate increases. Yet, many B.I.&P.D. underwriters bemoan a marked increase in the severity of losses, with resulting reinsurance involvement, and express the need for a continued upward revision of their rate structure.

As motor carrier react to higher premiums and worsening financial health, their actions promise to directly affect insurers. For instance, there are already indications of an increase in the number of truckers being written through the residual market. With only a handful of servicing carriers remaining for the nation's C.A.I.P.'s, some state plans may have to be rebuilt almost from the ground up. Also, truck insurance scams usually increase when truckers cannot afford higher insurance rates and underwriters should be especially vigilant given present market conditions. The additional liabilities imposed by federal and state filings and endorsements when motor carrier insolvencies occur should cause underwriters to maintain a close watch on the financial condition of their present and prospective truck insureds, especially in light of the trend towards an increasing number of motor carrier bankruptcies.

As the FMCSA continues to sift through its backlog of unfinished rulemakings that it inherited and initiates new proceedings, motor carrier underwriters find it increasingly difficult to keep abreast of these important developments and effectively communicate the interests of insurers to government decision-makers. Issues such as hours-of-service reform have a direct impact on insurance companies' loss prevention efforts. Yet, of the tens of thousands of comments filed with the FMCSA on this matter, it appears that only a handful emanated from insurance companies and organizations. Many CAB subscribers regularly visit our web site, www.cabfinancial.com, to learn of new government actions either through the bulletins that it contains or our "Bits & Pieces" column, a summary of transportation insurance news items that is updated every few weeks. The full text of important USDOT rulemakings and decisions can also be downloaded from this web site, giving the truck insurance community the information needed to both submit comments concerning the rulemakings and to react accordingly once decisions are published.

CAB subscribers can expect a substantial increase in the amount of financial and operating information available concerning their motor carrier insureds and prospective insureds. BTS actions have resulted in reclassifying the accounting status of thousands of motor carriers who will now be required to file annual reports with the agency for the first time. BTS also has instituted procedures to deal with carriers who remain delinquent in the filing of these reports. 2001 should see the start of the two-year project to update and keep updated FMCSA's SAFER data base. CAB phone analysts and CAB reports have been providing this information to underwriters as a gratis enhancement for many years and will, of course, continue to do so as the data becomes even more accurate. It is important to note that the SAFER information CAB receives surpasses what is available on SAFER's internet site, giving only CAB subscribers important details containing the nature of the safety violations that motor carriers incur.

As the nation's foremost source of financial, operational, safety and underwriting information for transportation insurers, we are proud of the unique services we provide. For more than fifty years, underwriters have relied on the exclusive information developed by CAB on U.S. and Canadian freight and passenger carriers and a record number of subscribers now take advantage of CAB's accuracy and expertise. Most managers of trucking programs now require that their managing general agents use the facilities of CAB to help upgrade their book of business and we invite all remaining program managers and insurers to contact us for details.

Transportation Technical Services, Inc., a CAB affiliate, is North America's leading publisher of transportation directories. The 2001 edition of the National Motor Carrier Directory has just been published. It is a valuable guide book to the motor carrier industry, containing information on almost 27,000 firms. TTS also publishes a number of other directories, including The Private Fleet Directory; The Canadian Motor Carrier Directory and The Mexican Motor Carrier Directory and also publishes The Blue Book of Trucking Companies containing financial and statistical information on more than 1500 large motor carriers. These publications are available in either book or computer format and can be ordered by phoning (888) ONLYTTS or by visiting their web site at www.ttstrucks.com. Should you need recognized transportation experts with many years of experience for litigation, consulting or other purposes, please contact the senior staff of TTS (or CAB) and discuss your requirements.

The law firm of Schindel, Farman & Lipsius LLP specializes in transportation and other coverage matters. It has prepared the following pages concerning recent legal developments and you may wish to share them with your claims department staff.

We hope the coming year will be a successful one for our subscribers. We will try to provide maximum service to you and hope you will give us the opportunity to do so. Our staff appreciates the confidence you have shown in us and welcomes your continued support.