In my last blog I wrote about the growth strategies of large motor carriers being put on hold for some time because the current economic situation is making it harder to secure financing.
The difficulty to secure financing definitely presents a threat to large carriers trying to keep up with the new transportation giants such as FedEx, DHL and UPS entering their market space. The credit crunch, however, could prove fatal to the future of many small motor carriers.
The Canadian trucking industry story remains primarily one written by small carriers. Of the 10,140 for-hire motor carriers in Canada, 6,100 are small carriers earning less than $1 million in annual revenues and, according to our calculations, running fewer than 10 trucks. That means about 60% of the nation’s motor carriers remain small enterprises, most of them family owned. And although they generate less than 6% of total industry revenues, their importance is noted in their willingness to fill the difficult niches their larger competitors prefer to ignore.
But the small motor carrier base in Canada has been under siege for a decade. There used to be more than 8,000 of them so their numbers had dwindled by a full 25% before the current economic crisis. The fuel price spike of the late 90s did in many of those who were caught without a fuel surcharge in place. High insurance, staff, equipment and security costs continued to hammer them this decade as did the return of high fuel pricing.
And now comes the downward spiraling North American economy, the move by several large motor carriers into regional lanes traditionally served by smaller carriers and the credit crunch.
In the first half of 2008, total Canadian trucking bankruptcies already surpassed the total for all of 2007. It’s safe to assume the pace of bankruptcies among small motor carriers will quicken in the months to come. Had the economy not turned south and the credit crunch not been part of our reality many of these may have been considered for acquisition by larger carriers. That may not have been ideal from the point of view of small carriers and the shippers that prefer to use them, but at least it would have saved jobs and capacity.
But with the economy and the credit crunch being the way they are right now, the only answer left to many beleaguered small carriers may be to just close the doors.