Cost increases are becoming a worrisome and long-lasting trend

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Just received the latest financial statistics on the nation’s motor carriers, and, frankly, they are worrisome.
The trend towards costs growing faster than revenues, which first appeared back in 2006, continues with a vengeance.
Operating revenues for the nation’s top carriers (the 97 Canadian-based trucking companies earning $25 million or more annually) in the third quarter of 2007 were up 5.8% but their operating expenses increased 6.7%, on a year over year basis.
It’s a pattern that’s becoming well worn. Consider the three quarters previous to the latest data:
Second quarter 2007: Revenues down by 1.3%. But expenses down only by 0.5%.
First quarter 2007: Revenues down 2.0%. But expenses down only 1.1%.
Fourth quarter 2006: Revenues up 2.3%.. But expenses up 2.9%.
And lest you see hope in the revenues being up in the third quarter, it’s important to note that average per-carrier revenues actually decreased 0.7% from the third quarter of 2006 to $26.2 million while average per-carrier expenses remained almost unchanged at $24.7 million.
Of course, this nasty business of costs growing faster than revenues has a direct impact on the bottom line. During the capacity crunch that started in late 2003 and ran into the first quarter of 2006 and allowed carriers to post some impressive rate gains, top carriers’ average operating ratio (operating expenses divided by operating revenue) reached an impressive 0.92. But the latest data shows it has climbed back up to 0.95.
Making five cents on the dollar is the borderline many consider as a healthy profit margin for trucking fleets. And that’s slicing it pretty thin when you consider Class 1 railways make upwards of 20 cents on the dollar.
As I’ve noted in previous blogs, this will bring pressure to bear on equipment purchasing strategies, particularly since , if we use 1993 as the base year, power unit costs were already up almost 18% before the impact of the 2007 engines and trailer costs are up 43%. And I don’t need to tell you what’s happened to fuel costs and driver costs over this time.

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With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics.

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  • As the owner of a small company (14 trucks), it would be interesting if you had stats for carriers under $5 million.

  • for the past 2 weeks the bottom line after expences (fuel,permits etc.)was less than $500. Can anyone last? the answer is obvious!

  • i have read your article with intrest and would like to make a observation. the trucking industry keep shoting its self in the foot every time it can. with expenses growing everyday they still cut rates to get loads. after they get these loads they expect their owener operators to haul said loads for a even bigger loss.when will we as owener operators get a fair shake. we need the fuel surcharge all of the fuel surcharge the way it was supposed to be when it started the one that pays for the fuel gets the surcharge. the goverment has to regulate load brokers and we need to know the true rate the customer pays. after all look at the morgage,stock,and high fuel problems and they all were caused by brokers do we see a pattern here? i also noticed you had no word on the shut down for april the 1 are you working on it?

  • smaller companies should find a way to have purchaing power the same as larger companies wheather it be a combination of a group to do the buying for the smaller companies ie fuel tires insurance,medical plans,computer programs,to manage by and share ideas. I find myself sometimes spinning my wheels think howdo i cut cost more to be efficent.

  • Lou:
    I read the article about “worrisome cost increases”, and then I took a quick look at the “cast” about Rates; and I see a bunch of “suits” doing the complaining. All I can say is… they brought this on themselves!! They were so concerned about “short term profits”, that they cut margins to the bone, and now they are complaining when their costs are going up. Anybody who has to pay their bills while depending solely on what their truck makes, knows that you must have a cushion for unexpected expenses… like a blown motor or something of that nature. These “professional managers” shot themselves (and us) by their shortsightedness and greed, and it’s the drivers and O/O’s who end up having to try and make their stupidity work. I believe that ALL of those “suits” should have to have at least a year behind the wheel, with NO other sources of income, and see how they fare. I believe that then they would not be so quick to shave rates, and then cut wages to compensate. The shippers are getting a h*** of a deal and the drivers and O/O’s are paying for it.
    On another topic, I think that the industry should fight “doubles” tooth and nail. I live and work in Alberta, and we have had “pikes” and “stupid B’s” here for years, and all it has done is drive rates down. There are a number of companies running “stupid B’s” going out of business, because the freight is not paying the increased costs. And you cannot get a decent rate for a tandem deck anymore. The rates for tandem vans between Edmonton and Calgary have also taken a beating because of the use of “pikes”.
    Henry Kuntz (Lobo)

  • It disturbs me that your article talks about profit only in an industry inundated with suits that have such a massive diconnect with thier revenue generating workforce. The biggest trucking companies in Canada are in trouble and you print articles like “FEATURE OF THE WEEK: Read between the lines – Application forms (and the way they’re completed) can tell you a lot about a candidate” Try this one “FEATURE OF THE WEEK” DRIVERS QUESTION CEO’S AND OPERATIONS STAFF AS TO WHY THEY MAKE THE STUPIDEST DECISIONS POSSIBLE!! Has your pulication lost touch with its base as well? I am tired of hearing about the driver shortage as there is no shortage; just a shortage of drivers who enjoy not being compensated for their time. I love driving long haul but lately find myself at my last rope and here is why….
    I work for a large Canadian trucking company that is taking 75 trucks off the road effective June 31, 2008, has rolled back payroll 2 cents a mile, and hacked the majority of the other paying events in a day by half. Rumours swirl about the declining amounts of freight going south and all the old truckers talk about how it appears Canada’s economy as it relates to trucking is going for a dumper. There is practically no manufacturing left in Canada so let me make it real simple. Trucking in Canada is becoming similar to the east coast fishery. No fish no fisherman; no frieght, no trucks. The Canadian economy is returning to its pre great depression base of being a supplier of natural resources. Trucking was better off regulated…period. The government needs to step in before it is too late and prevent what I see coming as a huge crash in the trucking industry.
    Sometime before my FAST card expires but not after i am getting out of trucking and I move the date up weekly lately. Another 15 years left in me but i literally give up. It is not enjoyable now and I am making less today than I was 10 years ago. So go ahead HR people, read between the lines in your search for your newest crash test dummies; your experienced driver force is abandoning their trucks for a future of stiring coffee or asking wheather you want paper or plastic.

  • A shot in the foot pretty much describes the situation. The players in this industry are truly their own worst enemy. I remember when I first started in this industry 25 years ago sitting around a drivers’s room as a rookie. We worked for a company that paid o/o’s percentage rates. Even back then, I was shocked, as I listened to o/o’s discuss taking rates that almost ran them in the red. Their thoughts, at that time, as I remember, were that maybe the next load would pay good enough to offset “that crap-rate”. I remember saying- “hold it guys- everyone needs to pay there fair share of freight rates-there should not be such a thing as a “back haul rate’, but I was told that I didn’t understand the system. Funny, back then I thought that back haul rates would eventually drag down the decent rates or at the very least stall them. Look at the rising costs-year after year-look at the rates- they do not even come close to keeping up- never have and unless we all refuse the “crap rates”, they never will.

  • I like to read the comments.
    First that’s right you do not talk enough of medium or small fleets.
    Second, We make it our business (My boss I mean) to only transport what is profitable… and leave to rest to those price cutters, that compete us.
    Resutl for this.. Less trucks on the raod, yet smaller profit margin, but still profits.
    And we have been in business for more than 45 years. We’ve seen the rain before, but this storm is quite hard to live by.