Specialist transport and trucking insurance and finance brokerage O’Connor Warren is warning transport operators to be mindful of costs with the increasing challenges and pressures the industry faces.
O’Connor Warren director Matt Coles says “while the industry still continues to grow, it is critical that all operators are aware of their costs relative to their rates, particularly in the current highly competitive environment where compliance and increased insurance costs are impacting on this”.
Insurance premiums have been on the rise over the past 24 months for heavy vehicle operators due to trucking consistently sitting as a loss leader for insurance companies.
While these increases seem to be levelling, New Zealand insurers are also decreasing their appetite for exposure in the transport sector, subsequently restricting competition in this space.
This point has recently been reaffirmed by the withdrawal of Allianz Insurance from the New Zealand market.
The sector has been under-priced for many years when considering the overall cost of claims, however, this has been largely counterbalanced by other affluent sectors, such as property insurance.
With significant events such as the 2016 Kaikoura earthquake as a key turning point, insurance companies have been forced to review the profitability within each sector.
Log prices incurred a significant drop in early July which has had income reducing repercussions on forestry industry operators.
The changes have been primarily provoked by seasonal impacts and overseas trade demands.
Of late, New Zealand’s logging industry has flourished with record exports, which has led to an influx of newly-established logging operators, increased spend on logging-related assets and associated financing in this environment.
Log price changes are commonly acknowledged by seasoned industry operators, however, many new operators do not have the historical knowledge or experience to be prepared for such volatility, illustrating the urgency to encourage education.
The finance and banking sector is always watchful and cautious about forestry industry exposure, and in recent times there has been a prevalence of high prices for second hand units and a higher demand for new assets.
Amidst high appeal for assets, consumers havebeen inclined to pay more to secure assets in hopes to boost productivity.
All this has contributed to some operators being overly ambitious when purchasing new trucks, trailers and associated logging gear based on high demand for logs, conclusively driving higher debt and sizable loan and insurance repayments.
This can and has created stress on overall expenses when confronted with decreasing turnover levels in this area.
Further, the implications of the price dip should prompt operators to reassess their monthly expenses, of which a large component will be finance repayments and associated insurance premiums, which may not have scope to be adjusted.
The concerning implications are reduced appetite for forestry assets and with this, declining value in existing
assets, introducing the risk of debt overruling value and elevated strain on the drivers who are under more pressure often resulting in frequent claims.
The challenging impact of this is that there are a large number of high value assets (in surplus of $500,000) on
the road.
In turn, the average cost of claims escalates, fundamentally affecting the overall market and transport operators.
Again, these are factors that are regularly overlooked by operators when weighing up the risk of expanding their fleets.
“O’Connor Warren has never worked so hard as we do now in supporting our clients through these challenging market cycles to ensure they are financially supported with the best outcomes.
Whether it’s a logger, refrigerator, linehaul or around town freight transporter, we know who’s doing what and we’re accessing the right decision makers,” Coles says.
“It is hopeful that the challenges will be overcome over the next six to nine months.
Education needs to be palpable in the finance sector to encourage responsible lending and to motivate operators to recognise and consider the risks of doing business before financing large assets.
“These higher valued assets have a large impression on insurance premiums making it crucial to assess
the overall expenditure and how their operation may be implicated by shifting markets and unpredictable circumstances,” he says.
*Contact the team at O’Connor Warren for more information, freeSphone 0800 26 46 26.
