Revenues for Canada’s largest motor carriers shrunk in the second quarter, decreasing 1.3% on average. To me that’s further indication that trucking, and transportation in general actually, is now on the wrong side of a growth hump pattern that has been playing itself out the last three years.
Strong shipment levels combined with a strong concern about capacity among shippers helped transportation and warehousing players push through strong rate increases in 2004 and 2005. As a result, transportation and warehousing revenue growth peaked at 8.7% but has been in decline since. It’s the same pattern experienced by the oil and gas extraction sector and the mining sector.
Our annual survey of more than 700 shippers of all sizes across Canada clearly indicates two things: Shippers today face a lot of supply chain challenges. The need to improve supply chain management execution and information and the need to boost customer service rank among the challenges cited by most.
But there’s no question which challenge hits home with most shippers. Almost 8 out of 10 tell us they are challenged by their need to reduce costs.
The research shows that cost control is not only a challenge for most shippers but that it is their most IMPORTANT challenge. Asked to indicate the importance of their top four challenges on a scale of 1 to 5, shippers rated the need to reduce costs a 4.5 – considerably ahead of their other major challenges.
So the downward pressure on rates we’ve seen over the past year could only be expected. The rate levels of 2004 and 2005 did not represent the new normal, much as many industry players hoped that they would. But I believe they did represent a window into future volatility in rates whenever capacity concerns trump shippers’ need to keep a lid on transportation costs.
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