BRAMPTON, Ont. — “Fasten your seatbelts in 2019, we’re going to be in for maybe a little bit of a rough ride.”
That was the sobering warning from Mark Seymour today, who was participating in a panel discussion at the Truckload Carriers Association’s Bridging Border Barriers seminar. The president of Kriska Transportation said he has noticed capacity utilization slide slightly for four consecutive months, and thinks supply and demand are coming into alignment. This after a year in which rates have vastly improved, lifting operating margins with them, as shippers have struggled to secure capacity.
“I think 2018, for all of us, has been one to enjoy,” he said. “Frankly, I think that the lift in operating margin is more related to price than it is to how smart we are. Price can cover a lot of sins. We should always prepare ourselves for price to correct itself, because it likely will. I’m not here to sprinkle pessimism on the room, but I think the market is slowly finding itself to correction.”
Trevor Fridfinnson, chief operating officer of Bison Transport, took a more upbeat view.
“We hold the view that strong service providers with a strong value proposition are going to have good prospects,” he said.
One of the storm clouds hanging over the horizon is rising insurance costs, and the exodus of some trucking insurance providers from the marketplace.
“It’s not a function of insurance companies getting greedy,” Seymour said. “It has everything to do with accident frequency sneaking up, costs of claims going through the roof, and insurance in our vertical has been priced way too low for way too long.”
Stephen Laskowski, head of the Canadian Trucking Alliance (CTA) and Ontario Trucking Association (OTA), said carriers should also brace for change next year on the political front. He said a federal election in Canada will impact labor policies, and that when looking at the cross-border trucking environment, “tariffs are here to stay.”
One of the best ways fleets can prepare for the inevitable correction, Seymour explained, is to stay close to your customers and avoid the temptation to add capacity to chase freight.
“It’s more important to own the customer than it is the truck,” he said. “The quest to fill trucks really becomes a seduction to us all. I think it’s more important to own the customers. It’s cheaper to hire a truck than to own one.”
In addition to offering their perspectives on the year ahead, the panel covered a range of topics including the driver shortage, Driver Inc., the viability of hourly pay, and driver training standards.
The driver shortage
The shortage of qualified drivers is a real issue, especially in the over-the-road longhaul segment, Fridfinnson noted. Seymour agreed, adding it’s easier to fill positions where drivers are home every night with a predictable work schedule and compensation. It’s an issue he doesn’t see an easy solution to.
“I don’t know of any other way goods are going to get from origin to destination by truck without somebody being gone for nights on end,” he said.
Fridfinnson insisted the issue is solvable, but added “if the incumbents in the industry don’t up our game in terms of how we approach this problem, someone else is going to fix it for us.”
Bison’s approach is to welcome in inexperienced drivers and invest heavily in their training. This year it will put 250 drivers through a “finishing program” in which it will spend up to 13 weeks training each of them at a cost of about $10,000 or more per driver.
“Not that long ago we were insistent upon and able to demand that anyone join us have two years of verifiable experience, and we could take our pick,” Fridfinnson said.
He acknowledged both compensation and lifestyle must improve to attract new blood. “The ability for individuals in these roles to feel they have a fair shot at making a good living and doing work they find redeeming,” he said. Fridfinnson said the trucking industry must look beyond its own circle to find solutions.
Uber, for instance, has three million drivers, “not because driving a cab is an aspirational role that everybody is going to gravitate towards. They’ve done things fundamentally to empower the individual.”
Seymour agreed that trucking could learn from Uber, which gives drivers choice on when and where they work, and even who they pick up.
“There is no dispatcher telling him to go pick up some smelly individual who has a habit of puking in the back of your car. You have a choice,” Seymour said.
Is hourly pay a solution?
One attendee asked how the fleets represented on the panel feel about hourly pay, and whether that could make the occupation more attractive. Seymour said a hybrid system is ideal, but technology is required to make it happen.
“I think there needs to be a hybrid approach so algorithms in the background can flip from one to the other,” he explained, adding some drivers may take advantage of a straight hourly pay model, negatively impacting productivity. He would like to see a technology that recognizes when drivers are delayed for reasons outside of their control, and then changes them to hourly pay until the circumstances change.
Bison has experimented with hourly pay and had about 300 drivers getting paid in that manner. It’s now switching some of them to a hybrid model.
“We have been actively switching some of those onto a more hybrid scenario to recognize the fact that if motivations are not in alignment, bad things happen,” Fridfinnson said. “If I’m motivated to sit, I will find ways to sit. The straight hourly scenario unfortunately invites that, and I think we’ve seen that.”
And on the subject of driver pay, the controversial issue of the Driver Inc. payment model reared its head. It’s a practice whereby fleets instruct drivers operating company equipment to incorporate in order to lessen the tax burden on both the driver and employer. Canada Revenue Agency and Employment and Social Development Canada both recently condemned the practice, following pressure from the CTA to do so, and refers to these operators as personal service businesses (PSBs), which eliminates any tax advantage to the driver.
“CRA has now issued a declaration, and those individuals are not entitled to small business deductions. Labor Canada has said this individual would be typically deemed an employee and we will treat them as such, so the employer now owes these individuals overtime, vacation pay, severance, etc.” Laskowski said.
He added the association’s focus will now shift to enforcement and education.
Seymour applauded the development.
“This is out of control,” he said. He is now seeing companies who engaged in the practice racing to fix it, including some who are looking to exit the business altogether through a sale.
“I don’t think anyone in their right minds is going to touch them with the liability that could potentially follow the business,” he said.
Carriers who used this model now face few options to remedy the situation. They can convert the PSBs to employees, issue T4A forms to the PSBs, or lease trucks to those drivers so they become lease-operators, but that would still require the issuance of a T4A. There’s no easy out, Seymour said.
“It’s going to add costs to the business and for those who’ve been doing a lot of it, it’s no doubt going to cause them to have to push price up to be amongst all the others who’ve had higher input costs of labor,” he said.
The panel also addressed the issue of driver training, and a unanimous desire to see mandatory entry-level driver training (MELT) rolled out nationally. Laskowski said there could be some news on this in January.
The high-profile truck crash with the Humboldt Broncos team bus brought the issue to the forefront, and highlighted the need for higher barriers to entry, Seymour said.
“To me, what it shines a light on is how easy it is to be the operator of a truck and the owner of a trucking company,” he said. “I frankly think intensifying sensible regulations is the way to go, and make it such that there’s a higher level of entry and a higher standard to be in the game so we minimize these sorts of things from happening.”
Seymour’s own 25-year-old son was among the first to be trained under Ontario’s MELT program, and Seymour said he was encouraged by the result.
“There are just too many people out there driving a truck that have been poorly trained and trained to a very low standard,” he said. “I don’t see that as their fault. I see that as the fault of the system.”
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