Transport Operators Beset by Growing Pains

Australia’s road transport industry is experiencing a unique set of growing pains which is pushing up costs across the board. And it’s got insurance industry veteran worried about operators’ capacity to absorb the inflationary pressures.

Nick Dendrinos, head of motor at NTI, says he can’t remember so many key input costs – from fuel and labour to vehicles and parts and accessories –all rising at once before.

“Major catastrophes, the acute driver situation, claims and average claims-cost inflation, parts, labour, skills... the industry is at a tipping point,” he says.

“There are genuine concerns about customers and affordability. The risk landscape is [attracting] a huge amount of costs, and the cost of doing business has shifted.”

Much of the growth is being driven by a post-COVID spike in freight demand, according to Dendrinos.

“Freight tasks on average grew over 5% to 10% during the two years of COVID. It’s slowing down a little bit now, but there’s a lot of growth in the industry still. 

“Freight movements are going to continue to grow between 2% and 5% [each year],” he says, noting Australia’s road freight task is forecast to grow by a staggering 77% to 2050.

This rapid growth “brings on a lot more risk, a lot more safety challenges, a lot more operational challenges for transport operators in the business – managing costs, managing procurement of vehicles, and also dealing with the still-ongoing disruptions to the supply chain,” Dendrinos says.

While headline inflation has fallen from its highs, the pace of decline is slower in the transport sector, especially for fuel, labour, and the cost of equipment and parts. “I’ve never ever seen inflation at these high levels,” he says.

The price of fuel, which accounts for as much as 60% of a transport operator’s costs, remains high.

And while the price of some new commercial vehicles may have fallen, they remain at elevated levels. Dendrinos cites a case of a year-old truck involved in a rollover earlier this year; it needed to be replaced, and the same model costs 30% more than it did in 2023.

Similarly, while the cost of second-hand trucks has also eased, recent data shows that the respite may be brief with prices jumping by 10% in February, marking the largest increase in over a year.

Against a background of increasing freight volumes, the availability – and cost – of labour is another long-term issue which Dendrinos believes will only worsen.

A large part of the problem, he says, is an ageing workforce, many of which are in the 55-60 age bracket and approaching retirement.

“We have a driver situation that’s now beyond acute,” he says.

Initiatives aimed at attracting new workers to the industry are a step in the right direction – but much more needs to be done, Dendrinos suggests.

“There’s a couple of states like Queensland and Tasmania that have brought in some great ideas around creating an apprenticeship scheme to attract drivers, and we support that. 

“But at the same time, I don’t think it’s taken off as fast as hoped because there’s still a stigma around being a truck driver,” he says.

NTI is undertaking a range of initiatives to control its own costs and, hence, insurance premiums, as well as providing customers with advice and tools to manage their own cost pressures, Dendrinos says.

For example, its risk engineers offer complementary risk assessments of clients’ operations which have been found to deliver very real and tangible bottom-line benefits, including marked reductions in vehicle downtime as well as a reduction in claims and claim costs.

In an industry where time truly is money, clients that have undergone the assessments have experienced a reduction in both the number of trucks off the road as well as a whopping 77 per cent reduction in number of days off road.

“We’ve seen fleets that have really engaged it; we’ve seen improvements in loss ratio and claims performance,” Dendrinos says.

As the largest insurance provider for transport logistics in Australia, NTI is also well placed to help customers counter rising servicing and maintenance costs.

Dendrinos says the size and scale of its orders, along with its relationships with original equipment manufacturers, allow NTI to obtain parts at a discount.

The centralised parts procurement system also means parts can be procured faster, helping save valuable time in the repair process, he adds.

“We are one of the largest heavy vehicle parts buyers in Australia. We use that benefit to return to the customer a better outcome on their claims, which obviously helps them when it comes to managing their premiums down the track,” he says.