Costs for Canada’s largest carriers are continuing to rise faster than revenues and that should be cause for concern on two fronts.
First, obviously, because cost containment is proving particularly difficult and will remain so because fuel prices remain volatile, equipment costs are on the rise due to the new emission standards for heavy duty truck engines and labor costs are expected to retain their upward momentum.
These costs have been high for several years now but their impact I believe is being felt more, and will continue to do so, because the slack economy and excess capacity in certain lanes – particularly in US-bound traffic – make it increasingly difficult to gain the healthy rate increases carriers had become accustomed to since 2003 and which made rising costs bearable.
Whereas back in 2004 and 2005 more than 80% of shippers reported increases to their freight rates, rate increase penetration was down to 64% in 2006 and only 59% of shippers expect higher truck rates for 2007. (This according to our annual Transportation Buying Trends Survey, conducted by our sister publication Canadian Transportation & Logistics in partnership with the Canadian Industrial Transportation Association and CITT.)
A major concern for the long term has to be the change in trade patterns we’ve experienced since 2002.
As Steven Poloz, chief economist with Export Development Canada, recently pointed out, Canada’s exports of goods and services to emerging markets rose by 8.2% in 2006, which although down from 9.9% in 2005 and 18.4% in 2004, was still a strong showing. But this performance was almost completely offset by the slowdown in trade with our major trade partner and the engine of growth for many fleets over the past decade: the US.
As Poloz points out this marks the continuation of trend we’ve seen since 2002, when the current global expansion took hold. Since then, the share of Canadian merchandise exports going to the US has fallen from 86.8% to 81.9%, while our share of our exports to Europe, Asia, the Middle East, and eastern Europe have been on the rise.
Last year when I led a panel on globalization and the impact on trade and transportation at CITT’s annual conference in Saint John, New Brunswick, I remember Dr. Mary Brooks, professor marketing and transportation, School of Business Administration, Dalhousie University, pointing out to me that although Canada – and motor carriers in particular – have benefited considerably from the North American Free Trade Agreement the pendulum may be swinging the other way.
In 1980 just 63% of Canada’s exports were destined for the US but by 1995 the US share of our exports had climbed to 79% and then to a high of 87% by the year 2000. But the numbers indicate that trading relationship is now in decline, Dr. Brooks pointed out. By 2005, the percentage of Canadian exports absorbed by the US had shrunk back to 84% and of course it declined again last year.
While serving the US market will obviously continue to be key to carrier revenues – it would be foolish to ignore our largest trade partner and the world’s largest economy – it may also be wise to start re-investing in the infrastructure necessary to serve our national economy. In fact domestic – and actually intra-provincial – traffic has been the fastest growing traffic the last few years.
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