The motor truck cargo marketplace consists of five different types of carriers. The largest segment, and the one that would be hardest hit by any change in the NAFTA rulings, is general freight trucking–long distance. The motor truck cargo premium generated by this segment of the industry is more than $53 million. Most of this premium is generated by small and middle market enterprises, with national account enterprises generating less than 15% of this premium volume.

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While there is still controversy regarding the overall benefits of NAFTA to the United States, the treaty has successfully increased trade between the United States and Mexico. As of the 10-year anniversary of the treaty, exports from the United States to Mexico had grown by 226%, to $105.4 billion, while exports from Mexico to the United States had grown by 242%, to $138 billion. Every bit of this increased trade must move across the border and a substantial amount of it is hauled by motor carriers.

While there are few remaining tariff issues, there is one enormous transportation problem. Each Mexican and United States motor carrier must stop just across the border, in the Commercial Zone, unload its cargo and reload it on the vehicle of a carrier in the country entered in order to complete the delivery.

This situation creates s serious coverage issue with respect to territorial limitations as soon as the carrier crosses the border. Many policies define the territory to include the United States, its territories and possessions, and Canada. According to NAFTA, a United States truck is allowed to enter Mexico and operate within the defined commercial zone. However, this does not change the fact that the Mexican portion of the commercial zone is part of Mexico and not of the United States. As a result, it is not included in the definition of territory in most United States motor truck cargo insurance policies.

NAFTA will be fully implemented some day and both Mexican and United States carriers will freely cross the border, just as United States and Canadian carriers do today. How will that affect the motor truck cargo marketplace?

To better understand the current market concern, consider this possible scenario:

Taylor Transport is based in St. Louis and has terminals in Arizona, Missouri and Michigan. One of its best customers, Perry Farms, receives a large order from Grading Manufacturing, located just outside Monterey, Mexico, and asks Taylor to handle the transport. Taylor uses two semi-trailers and crosses the border at Laredo into Nuevo Laredo. This is where his drivers meet the A-1 Motors drivers representing Grading Manufacturing. Immediately after crossing into Nuevo Laredo, a vehicle driven by a local strikes one of Taylor’s semi-trailers and the collision destroys its cargo. The other Taylor semi-trailer continues on its way, meets the A-1 Motors driver and successfully transfers the cargo.

Perry Farms submits a claim against Taylor for the cargo destroyed in the collision as well as for cargo that Grading Manufacturing insists it did not receive from A-1 Motors. Both claims are denied because Mexico is not included in the definition of territory. Taylor is left with pursuing a case against the driver of the vehicle that struck the semi-trailer as well as A-1 Motors.

The motor truck cargo market in the United States is alive and well and ready to respond to coverage issues but the agent must understand that not all coverage forms are created equal. When asked which coverage every motor truck cargo insured should purchase, Bill McLeckie, CEO of McLeckie Insurance Group cautioned, “First and foremost, a full understanding of the exposure is required before embarking on this question.” The marketplace includes both admitted and nonadmitted paper and, while the Insurance Services Office (ISO) has developed a standardized form, according to Steve Silverman, AVP and product line manager for inland marine and special property at Lexington Insurance Company, it is seldom used. Smaller mutual insurance companies may use the American Association of of Insurance Services (AAIS) form but most motor truck cargo markets utilize their own forms.

Non-admitted markets tend to dominate the marketplace, according to both Janner and Clyde Holliday of International Brokerage and Surplus Lines, because of the potentially restrictive nature of the coverage. Underwriters provide coverage based on the risks associated with the particular insured and this approach individualizes pricing and coverage, especially on larger risks. The pricing this year appears to be static or lower but does not exhibit the pricing fluctuations regularly seen in other lines because of this individualized handling of coverage. As Janner points out, “We have only adjusted our cargo rates twice since 1993 and the market (at large) has behaved in a similar fashion.” David Pohle, transportation broker for Jimcor Agencies, agrees and says that “while other coverage lines are used to seeing companies come and go and capacity change dramatically due to catastrophic losses, the market for motor truck cargo coverage tends to be constant.”

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