Editor’s note: This article is the fifth installment in the 2025 Future of Risk series, which explores the rise of systemic risks — threats that are difficult to predict, span industries, and carry the potential for widespread disruption. This piece examines how labor shortages, litigation funding, and other factors are converging in the logistics and transportation industry, affecting business resilience.
The logistics and transportation sector is navigating a perfect storm of systemic risks. From the entrenched use of 1099 labor to rising liability limits, private equity-funded litigation, demographic pressures, and the uneven adoption of technology, commercial transportation faces challenges that put the industry at a crossroads. These trends are affecting affordability, insurability, and long-term resilience.
Transportation companies that recognize the interconnected nature of these risks have a strategic opportunity to build a more sustainable model for the future.
Gigification and the 1099 economy
The independent contractor model is not new in transportation. Long before ridesharing and food delivery popularized the gig economy, owner-operators and last-mile drivers worked under 1099 arrangements. What’s changed, due in part to the COVID-19 pandemic and the rise of e-commerce, is how reliant transportation companies have become on hiring gig workers to fill roles across the supply chain.
From parcel delivery to intermodal operations, 1099 status is now the backbone of business. This structure offers flexibility but also invites scrutiny. Regulators and tax authorities view 1099 classifications as fertile ground for tax underpayment. Courts and legislatures have tested ballot measures aimed at reining in contractor use, notably in California and Massachusetts.
Given the current administration, the federal regulatory appetite to dismantle 1099 models has stalled. If you start dismantling the 1099 structure in trucking, the economy stops. Legislators recognize that, and the industry has enjoyed relative insulation compared to other sectors.
Gigification is spreading beyond last mile, touching hospitality, healthcare, and beyond. As other industries face tighter restrictions, transportation could find itself back in the spotlight.
Rising liability limits
As gigification remains a constant in transportation, influencing business structure and labor models, insurance coverage faces its own transformation. The Federal Motor Carrier Safety Administration (FMCSA) sets the minimum liability coverage for most motor carriers at $750,000. In practice, many already carry $1M. But the ground is shifting. Several forces are converging to modify liability limits in transportation:
- State action is leading the way: New Jersey now requires $1.5M in coverage for vehicles over 10,000 pounds gross vehicle weight (GVW). Other states could follow.
- Inflation makes $1 million inadequate: Medical costs, legal fees, and large jury verdicts mean that $1M provides far less protection than it once did.
- Insurers know the exposure is higher: If regulators raise minimums, those who fail to adjust would be out of compliance and out of step with the market. Insurers increasingly expect higher liability limits as the new standard.
Premiums are rising sharply in an industry that runs on slim margins. Smaller fleets may not be able to afford the higher price tag. Long-term, this could contribute to more transportation companies going out of business. The legal landscape is making uncertain financial situations even more dire.
With nuclear verdicts in trucking cases climbing, lawsuits are being treated as financial plays. For some, litigation is an investment strategy, and transportation companies are prime targets.
Litigation fueled by private equity
Private equity firms increasingly fund lawsuits because trucking accidents often involve catastrophic injuries, large policy limits, and the potential for runaway jury awards. By covering upfront legal costs, funders secure a share of the anticipated multi-million-dollar settlements.
The result is a seismic increase in claim frequency and severity. A minor fender bender that once settled for $15,000 to $20,000 now resolves for $100,000 to $200,000. Settlements across the board are inflating, due to funded litigation and a legal environment ripe for nuclear verdicts (exceptionally high jury awards of $10M or more).
Insurers' defense posture plays a role, too. Many carriers choose to settle quickly rather than risk higher trial losses. Large carriers with strong investment portfolios can absorb settlements as a cost of doing business. That mindset is shortsighted, fueling more aggressive plaintiff attorneys and reinforcing the cycle of runaway verdicts.
Funded litigation is not going away. Its growth has redefined the economics of claims, and transportation sits squarely in its crosshairs.
Utilizing technology
If litigation is one side of the systemic risk coin, technology is the other. Artificial intelligence (AI), telematics, and automation can make transportation safer, more efficient, and less costly. But utilization is uneven.
Opportunities:
- Telematics and cameras are evolving from retrospective tools to real-time coaching systems. Some organizations now use AI to monitor driver fatigue or distraction, with in-cab alerts designed to prevent accidents.
- Routing optimization has the potential to save fuel and improve delivery times.
- Insurers incentivize adoption. They are building pricing models around telematics data, directly linking safety performance to premium costs.
Barriers to adoption:
- Drivers resist surveillance, concerned it will be used in a punitive way. With a chronic driver shortage, companies hesitate to impose technology that may cause employee attrition.
- Margins are thin, and owners weigh costs carefully. Even proven systems can feel like an added financial burden.
- More technology use also increases cyber risk, another systemic threat for the transportation sector.
Technology is unlikely to remain optional in the long term. If history is a guide, insurers and regulators will eventually mandate adoption, much like they did with passenger vehicle seatbelts, airbags, and black box systems.
Demographic pressures on labor
Technology may boost efficiency and safety, but it can’t solve the industry’s growing labor dilemma. The driver shortage is well documented, but labor quality is an equally urgent concern. The industry faces a demographic crunch:
- An aging workforce with retirements outpacing replacements.
- Immigration restrictions that reduce the flow of capable drivers.
- Skill gaps as less experienced drivers step into more complex roles.
The result is a higher likelihood of accidents and claims. If you’re putting an inexperienced driver behind the wheel, risk inevitably rises.
Systemic risk in action
When viewed collectively, these risks intersect and amplify one another, threatening to transform the logistics and transportation sector:
- Gigification enables labor flexibility but attracts regulatory scrutiny.
- Worker shortages exacerbate safety risks, leading to higher claims.
- Litigation funding turns those claims into potential nuclear verdicts.
- Rising liability limits expand the scope of settlements and feed the spiral.
- Technology adoption helps prevent accidents, optimize routes, and improve oversight, but can create resistance from drivers and retention challenges.
Together, these forces increase risk and threaten the viability of transportation organizations. If companies can’t adjust their operations to accommodate higher liability limits, escalating litigation, demographic pressures, and new technology requirements, they risk becoming uninsurable, uncompetitive, or unable to attract the workforce they need.
Responding to systemic transportation risks
To stay ahead of these converging pressures, take a proactive stance. Build resilience through the following methods:
- Reassess labor strategies for regulatory compliance and safety: Misclassification laws across the U.S. make it harder to justify treating drivers as contractors.
- Audit your insurance structures in anticipation of higher liability minimums: States may soon require $1.5 million or more in coverage.
- Track litigation trends and understand jurisdictional hot spots for nuclear verdicts: Certain states are magnets for plaintiff-friendly rulings.
- Adopt telematics before they become mandatory: Early adopters will benefit most from insurer incentives and measurable safety improvements.
Addressing labor, liability, litigation, and technology in silos is no longer enough. These systemic risks intersect, and resilience requires managing them cohesively.
Logistics and transportation companies that adapt now to thoughtfully mitigate these escalating risks will find themselves better protected and better positioned to grow. Those that react too late will face rising costs, shrinking coverage options, and fewer personalized solutions. The choice is clear.
