MISSISSAUGA, Ont. — Representatives of leading shippers and carriers shared a stage at this year’s Surface Transportation Summit, where they discussed key trends affecting their businesses.
Doug Munro, president and owner of Maritime-Ontario Freight Lines, said one trend he’s noticed is every-increasing service expectations among customers, driven by IT systems and software and technological enhancements, which are driving greater accountability.
“We’re seeing a lot of demand from customers; they expect almost perfection. That’s where it’s going technologically,” he said. “They expect higher levels of services and mistakes, if we have them, we pay for them through compliance penalties or freight rates.”
Munro noted it’s a challenging environment for carriers, with a slowing economy putting more pressure on rates.
Dan Einwechter, chairman and CEO of Challenger Motor Freight, said carriers need to be cautious about reducing their rates, a practice that was rampant during the Great Recession.
“It’s easy to cut your rate by 25%, which we saw during some of the tough times,” he said. “But that’s a 50% increase to go back up and psychologically, it’s hard for your customers to accept that.”
“The rates are not where they should be,” agreed Jason Dubois, president of Len Dubois Trucking. “A lot of carriers don’t have the negotiating skills, or don’t even know what they need for a rate. They don’t know what their costs are. We have matured as a company over the last few years using software, industry benchmarking and really understanding what the rates need to be – not just what we think we can get.”
Munro said it’s difficult to project where rates are heading.
“It’s going to be based on the economy,” he said. “If the economy picks up, we will probably get some movement with rates, especially with equipment costs and labour going up. Rates are dictated by the market. We believe rates will have to go up. Most of the larger carriers are not making sufficient returns, especially in LTL, to invest in new trailers and technologies.”
Alex Boxhorn, logistics manager, Loewen Windows, said shippers are more likely to accept rate increases if the carrier has done a good job at communicating why an increase is necessary and proves all steps have been taken to eliminate inefficiencies in their own operation.
“As a shipper, my first question will be what you as a carrier are trying to do to improve efficiencies within your own fleet to address costs and mitigate increases,” he said. “Then, how can we as shippers help you eliminate waste in your processes?”
Another factor driving up costs is the shortage of qualified truck drivers, Dubois noted, which is limiting growth.
Einwechter agreed, noting Challenger is investing heavily into employee engagement.
“If we engage them better, we may not have as much trouble (keeping them),” Einwechter said. “That means changing how they work or what they do.”
Ginnie Venslovaitis, past director, transportation operations, Hudson’s Bay Company, said capacity is not affected by the number of trucks and trailers available, but by the people available to operate them.
“I think the challenge is more about the driver,” she said. “The carriers have all the tractors and trailers sitting up against the fence but if there’s not a warm body to put in the seat, there is a capacity issue.”
She said she’s not seeing a lack of capacity in the marketplace currently, but “if we start to turn around and come back and grow, are carriers going to be investing in more tractors, trailers and equipment, or not replacing what they have and letting it die on the vine? It’s borderline, I think.”
Boxhorn agreed capacity isn’t an issue at this time.
But Dubois said capacity varies from week to week and from region to region. He doesn’t foresee any drastic peaks or valleys in Manitoba. But Dubois urged shippers to work collaboratively with their carriers to lock in capacity before it becomes limited.
“The shippers that want to share information and work together are the ones that are going to benefit (when capacity tightens),” he warned. “The ones strictly based on price may be the ones left with the leftovers.”
Einwechter said Challenger is operating at near capacity on most days.
“Usually it’s 100 loads and 55 drivers available that day,” he said. “I’d rather run my business that way. We’ve always been able to stumble through it. Because I’ve seen the other side of it where there are 100 drivers and 55 loads and it ain’t pretty. From our perspective, we bought 425 new trucks this year. We believe in the future and we believe capacity is going to tighten up and he who has the drivers and the trucks is going to win.”
Munro said rates will have to improve to justify capital investments in new equipment by carriers.
“I don’t think there’s a capacity issue at all,” he said. “It’s just going to take recognition that we have to get rates to a level to replace equipment and meet our customer demands.”
With equipment costs skyrocketing due to a weak Canadian dollar and new government regulations, moderator Lou Smyrlis, Truck News publisher, asked if small fleets and owner/operators will continue to be viable in the future.
“I feel positive the small carriers in their niche markets should be able to maintain their business,” said Venslovaitis. “I think a lot of small carriers do an amazing job in a region, or even in a city. I think there are some opportunities for some of the larger carriers to pick up smaller carriers in a market where they need to strengthen their bench.”
“There’s always going to be a place for us small guys,” Dubois agreed. He also sees a bright future for owner/operators, who have more skin in the game than company drivers and can be extremely useful in augmenting a fleet.
Boxhorn said he expects shippers to continue divesting their own fleets and outsourcing their transportation requirements.
“Smaller shippers will continue to outsource their delivery service to carriers,” he predicted. “Ten years ago we had our own trucks and now we don’t have any trucks at all.”
Kim Wildenmann, traffic coordinator for Lantic Inc., said her company eliminated its own fleet because it “couldn’t maintain the level of service clients wanted for the price they were willing to pay.”
However, Munro said he sees shippers – especially larger ones – looking to eliminate the middleman in freight brokers and work directly with their carriers.
“We deal with a lot of third-party middlemen that assist customers,” he said. “For smaller clients that don’t have a transport department, they serve a valuable purpose. However, I see the trend differently now, changing back towards direct relationships. (Brokers) are a middleman and they have to take margin out and it tends to increase costs at the end of the day. Relationships with carriers are becoming very important.”
When asked if there are any emerging trends or threats to the transportation sector, Einwechter sounded off on government regulations.
“I’ve done this for 40 years and not too much surprises me anymore,” he said. “But government intervention surprises me to some degree. I am amazed that reasonable, good people can do stupid stuff time and time again. Their intentions are honourable but the outcome is invariably more likely than not counterproductive to our industry’s needs, society’s needs and to moving freight safely and efficiently.”
When asked about emerging technologies, such as autonomous trucks, panelists were lukewarm about the potential.
“I think autonomous trucks are a long way away and they will never eliminate the need for a Class A driver,” said Munro.
Einwechter agreed drivers will still be required, but said he’s intrigued by the concept.
“It will change the roles, responsibilities, training requirements and job descriptions of the drivers,” he said of autonomous trucks. “In some major markets, between major points, I see it working, whether it’s autonomous, semi-autonomous or platooning. I think it’s exciting. Maybe we’ll haul freight and offer a travel company at the same time and (customers) will get to go see the world and they’ll be paying us!”
James Menzies is editor of Truck News and Truck West magazines. He has been covering the Canadian trucking industry for more than 15 years and holds a CDL. Reach him at firstname.lastname@example.org or follow him on Twitter at @JamesMenzies. All posts by James Menzies