Authors: Marc Wagman Alex Wolfson Chris Demetroulis


Credit risk is topping the agenda of transportation finance meetings as leaders weigh the impact of inflation, interest rates and other global economic stressors on the industry. A recent article from The Wall Street Journal, "Junk-Loan Defaults Worry Wall Street Investors," noted that defaults on leveraged loans hit $6 billion in August of 2022.* This amount is the highest monthly total since October 2020 when the U.S. economy was in the midst of navigating the COVID-19 pandemic.

The rise of defaults can be partly attributed to interest rate increases from the U.S. Federal Reserve which has added to the interest expense burden on the borrower. Since the Fed signaled its intention to maintain higher interest rates, this could present liquidity challenges for companies with sizeable debt loads.

Further, trade payables due from highly leveraged companies pose even greater risks to suppliers since they are unsecured creditors and as such are junior in the payment waterfall to senior secured lenders. Empirically, the data shows that post-bankruptcy and reorganization recoveries to general unsecured creditors are now at historic lows.

What does the rise in defaults mean for transportation companies?

Since transportation companies often work with customers and suppliers across a wide range of industries, managing and then predicting credit risk can often be a challenge. Some industries tend to be more leveraged than others and without full visibility into a counterparty's financials, it's hard to prepare for what an economic downturn could bring. This uncertainty is even further complicated by the rising geopolitical uncertainties around the world, especially for companies working with foreign suppliers and customers.

Managing customer credit risk

Managing customer credit exposures can be a tedious task, even when a formal credit team is in place to manage these processes. Solutions such as credit insurance protect against credit losses while also serving as a tool to help companies increase sales and manage credit risk better. Most credit insurance policies also include political risk coverage which protects companies' ability to be repaid in the event that political events or arbitrary government actions prevent such repayment.

Managing supply chain risk

Beyond credit risk, companies should also evaluate supply chain risks which continue to increase in step with rising global geopolitical instability.

Trade Disruption Insurance (TDI) is a solution that indemnifies the policyholder from business income losses which are incurred along the intended delivery routes and result from the delay or non-arrival of goods. TDI is essentially an all-risk business interruption (BI) policy that — unlike traditional BI coverage — doesn't require that there be physical damage to the client's assets for the policy to respond. Furthermore, the covered losses under a TDI policy are quite broad and can include both political and physical perils. For transportation companies, TDI can also be used to cover contractual penalties resulting from late delivery.

While the industry continues to navigate current challenges like these, it's critical to work with a team of transportation experts to help you address economic impacts on your business and create a risk management program that closes gaps and supports the continuous running of your business.

Author Information


*Wirz, Matt. "Junk-Loan Defaults Worry Wall Street Investors," The Wall Street Journal, 6 Sept 2022.


Gallagher provides insurance, risk management and consultation services for our clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance/risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general informational purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers control.

Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organizations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.

Insurance brokerage and related services to be provided by Arthur J. Gallagher Risk Management Services, Inc. (License No. 0D69293) and/or its affiliate Arthur J. Gallagher & Co. Insurance Brokers of California, Inc. (License No. 0726293).

© 2022 Arthur J. Gallagher & Co. | GGB43228