It’s time to start exploring “the undiscovered country”
March 21, 2010
March 21, 2010
Shakespeare called the future “the undiscovered country“. While that may make for a clever turn of phrase, it’s not something any business, and particularly one as sensitive to market volatility as transportation and logistics, can wisely tolerate.
Over the past year both shippers and carriers have been pre-occupied with controlling costs, managing cash flow and right sizing capacity. But as was made abundantly clear during the Future of Trucking Symposium I participated in last month, trucking companies and the shippers who use their services (as well as every other mode) must now start taking a longer term view. The Symposium, so capably organized by the Transport Institute of the University of Manitoba (they must put on another event), pointed to a series of questions that will require answers to determine the future direction of Canadian supply chains and the fortunes of those who drive them and service them.
One of the more important questions is how volatile energy pricing will affect transport and supply chains. Historically, minimizing energy consumption has not been a big-ticket concern among carriers and certainly not shippers. The oil price shocks seen in early 2008, of course, brought the issue into the foreground for shippers and carriers. A 45% price increase from January to July 2008, coupled with much greater short-term price volatility, was impossible to ignore. And so is the likelihood of a return to such high prices and the possibility of even higher ones as the global economy rebounds. At the very least, continued volatility in energy pricing is a sure thing.
The search for alternative fuel sources receives much attention in the media, yet many of the experts at the Symposium felt our addiction to petroleum based energy will prove too great to overcome – for the next few decades at least. When Antonio Benecchi of Roland Berger Strategic Consultants, looked to the future he saw a continually growing need for oil. He forecasted a greater than 30% increase in Canadian energy demand by 2030 compared to 2010. A bit more than a quarter of that total energy demand would be from the transportation sector. And he also saw petroleum-based fuel playing an even larger role in the energy consumption of 2030. He expects up to 50% of our energy consumption to come from petroleum-based fuel compared to the 42% reliance we had back in 2004. PricewaterhouseCoopers (PWC) in its vision document, Transportation & Logistics 2030, also sees fossil fuel demand remaining strong and likely rising overall.
High oil prices or just sheer pricing volatility pose a significant risk for transportation and logistics strategies. Yet soaring oil prices may not prove to be main driver for fundamental change. Rather the need to significantly reduce greenhouse gas emissions may prove to be the main driver. As the PWC document boldly states: “We see reducing emissions as posing a greater challenge to T&L companies over the next twenty years than obtaining a sufficient supply of energy.”
The stakeholders PWC spoke to were in agreement that over the next couple of decades system would be in place to ensure that the cost of carbon is allocated to the causer. And that will cause a significant challenge for commercial transportation, not only for individual carriers but to our competitiveness as a trading nation overall.
Currently, transportation activity contributes approximately 37% to Canada’s total energy-related GHG emissions inventory. Roughly half of transportation emissions are attributed to freight transportation. As Rick Whittaker, vice president investments with Sustainable Development Technology Canada, pointed out Canada is saddled with the distinct challenge of geographically dispersed centres of commerce and primary resource industries spread out across a vast country. Consequently, soon as we got beyond the trade canoe and horse-pulled wagons, the movement of freight in Canada has been an energy-intensive business.
Industrial transportation is among the fastest-growing sources of emissions in the country. From 2002 – 2006, GHG emissions increased 12.6% in the sector, with the trucking subsector comprising the majority of the increase. The situation has been exacerbated by a decoupling of air contaminant emissions from energy use (fuel efficiency has generally gone down to meet CAC emission standards from EPA).
Canada’s current transportation emissions-intensity is also higher than that of the freight industry in other major developed countries such as the US, Australia and the European Union. As Whittaker pointed out at the Symposium, since freight movement greatly affects the entire supply chain, being less fuel efficient may compromise Canadian economic efficiency relative to other jurisdictions.
There is much debate on how to best to deal with this challenge and it’s healthy to be having this debate.
And don’t forget to attend the Driving for Profit seminar series, put on by NAL and KRTS. I consider this one of the best seminar series in the industry and I’m happy to be personally involved this year, hosting a session interviewing top industry executives on the industry’s most pressing issues. There are two Driving for Profit events scheduled for 2010 at the Capital Banquet Centre in Mississauga, Ont. The first has been set for April 6 and the second for November 9. To register for the April event or to learn more, visit www.drivingforprofit.com.
We are also busy right now preparing the second installment of our own Profitability series of seminars, which we put on in partnership with Dan Goodwill and Associates.
The first will run May 26th and it’s going to be a day packed with information and insightful speakers. It will include an economic forecast from Scotiabank, talks on how to reignite your company’s sales engine; create an accurate freight costing model; effective real estate planning; how the packaging revolution is affecting transportation; workforce management; and rebuilding the value of your business. In addition I will be leading panels of industry leading carrier CEOs and top notch shippers in examining recovery strategies. See our ad on page 13 or go to trucknews.com for more information.
I would love to see you at all of these events.
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. All posts by Lou Smyrlis