"Good captains in rough seas are made." It's a saying I remember learning early in my childhood and one that has stuck in my mind through the years. The captains leading our trucking companies are cer...
“Good captains in rough seas are made.” It’s a saying I remember learning early in my childhood and one that has stuck in my mind through the years. The captains leading our trucking companies are certainly navigating their way through some rough seas of late. Increased border security, soaring insurance costs, the seemingly never-ending human resource challenge — how carriers handle these issues will make or break many of them. And so far our records indicate these issues, and others just as serious (fuel price hikes, for example), are breaking many cariers. Our industry is going through its greatest consolidation, particularly at the small carrier end, since deregulation. As several CEOs of the larger players in the field have told me in recent weeks, the calls from smaller carriers looking to sell are numerous and growing.
For this column I would like to take a closer look at the latest challenge: the soaring loonie and the impact that’s having on carriers who have become reliant on transborder hauls and the financial benefits of getting paid in the previously much higher valued U.S. dollar. For carriers already financially beset by sharply rising costs, the loss in revenues caused by the sudden exchange crunch may force them into parking equipment. When profit margins are as thin as those in trucking there’s only so many financial shocks companies will be able to take.
Many in the industry are calling for rate increases to cover the shortfall. Although I support the desperate need for trucking rates to rise overall, I think carriers will find it tough to sell their Canadian customers on the need for a rate increase to cover their U.S. currency-related losses. Shippers selling into the U.S. are going through the same, if not worse situation. The rising value of our dollar and how rapidly this has transpired (Basically the Canadian dollar has risen 15% in value since the beginning of the year against the U.S. dollar) is very damaging to the competitiveness of our exports to the U.S. market. To make matters worse, some of our exporters face the double whammy of still having to compete against protectionist measures Washington imposed last year to combat the attractiveness of our then much lower-priced exports. So with Canadian shippers facing their own significant revenue crunch, I’m not sure they will be very receptive to trucking company calls for increased rates specifically tied to the currency issue. Unless, of course, the economy picks up and the ongoing consolidation causes a capacity shortage that leaves shippers with little choice but to accept higher rates if they want their goods moved.
Carriers may be better served by getting a better handle on all their costs for transborder hauls and charging accordingly or walking away from unprofitable accounts rather than tying an increase to this one issue.
The sudden surge in the value of the Canadian dollar against the American greenback should also not come as a surprise. I know Canadians from Vancouver to Halifax have grown accustomed in recent years to heaping scorn on Ottawa for its perceived ineptitude in dealing with the low value of our currency against the American dollar. But I think the feds got more flak over this than they deserved. As Mike McCracken, chairman and CEO of Infometrica Ltd., pointed out to me about a year ago at a Chartered Institute of Logistics & Transport in North America seminar, the question whether the Canadian dollar is too low is the wrong question to ask. We should instead be asking whether the American dollar is too high. He pointed out this is more than just a play on words. If one took a wider view of the currency situation, taking into consideration the performance of several world currencies before 2003, he would see that the Canadian dollar held its own. It was only against the American dollar that our currency ran into trouble. Why? McCracken argued this had much less to do with Ottawa allowing the dollar to slide to extremely low levels than because money market optimism and U.S. policy had allowed the American dollar to rise beyond its true worth.
That argument wasn’t winning many converts a year ago but it seems quite prophetic now.
“it seems speed policy has taken a back seat to the efforts to recruit.”
– mark seymour, president, kriska group of companies
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