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Celebrate: The Recession Is Over But Don’t Unbuckle Your Seatbelts Just Yet

For most transportation executives, and the suppliers that service them, the year 2009 will be remembered as the year best forgotten. Yet as we finally get confirmation that the worst economic setback...


For most transportation executives, and the suppliers that service them, the year 2009 will be remembered as the year best forgotten. Yet as we finally get confirmation that the worst economic setback to grip Canada since the Second World War is finally over, two very distinct memories of just how afraid we were of 2009 keep springing to mind.

I remember driving back home late one night last November. It was a dark, cloudy night with a cold rain coming down. The weather outside my car seemed an all too accurate reflection of the mood at the time. I was listening to an all-business channel about the collapse of the US and global economies. I remember hearing interviews being conducted with one prominent business leader after another. You could hear the bewilderment and the fear in all of their voices. They just could not believe what was happening. Speaker after speaker made reference to the Great Depression of the 1930s. Fear dominated the minds of individuals and businesses alike.

A couple of weeks later, during a packed economic outlook session at the Ontario Trucking Association’s conference, I remember one well-respected member of the industry only half-jokingly commenting: “Well, it’s a good thing they decided not to hold this session on the third floor or people would be jumping.”

Fortunately our worst fears never did come to pass. Fears about a Great Depression turned into the realities of a Great Recession -although the OTA wisely continued to hold its economic outlook sessions on the first floor. And the damage was real enough: Canada, a nation that relies on exports, has suffered a 25% drop in exports. Corporate profits have dropped 45%. The value of publically traded transportation companies has dropped by 45%, perhaps more. And those are the ones fortunate enough to still be in business. More than 3,000 transportation companies have shut down across North America. The Canadian General Freight Index, a great new tool measuring ground freight costs, has fallen 16% from its peak in July 2008, as shippers pressed their advantage in a market clearly over capacity. The most popular new word in industry circles these days is “zombie trucking,” a way of referring to companies who remain alive only because their lenders refuse to pull the plug while the market value of their equipment is still so low.

Yet it’s fair to say the mood among many of the executives attending this year’s economic outlook session ranged from mildly surprised to disappointed that the projections for 2010 were as tepid as they were. As you’ll read in our Decisions 2010 special section, the economic experts on hand basically wrote off 2010 as year where the Canadian economy will take “baby steps” and advised executives to retain their “recession mentality till 2011.” Hardly the uplifting rhetoric we’ve heard following past recessions where growth came fast and strong and trucking led the way out.

Is there a chance we are being overly pessimistic and, as a result, setting ourselves up to miss out on some great growth opportunities?

Perhaps.

Certainly shippers appear to be more optimistic about 2010 than carriers. A country-wide survey conducted by NB Financial and CITT found a much greater percentage of trucking executives were convinced freight volumes would either remain flat or actually decrease further next year. Shippers, on the other hand, proved less uncertain with respect to freight volume growth and projected a slight improvement next year, with 29% projecting a 5-10% increase. Our own national research of both carriers and shippers shows similar discrepancies when it comes to freight volume growth projections for 2010. A survey conducted in November by the Canadian Manufacturers and Exporters showed improvement in manufacturing orders and a hopeful outlook on future employment. And consumer spending in Canada showed its largest increase since the fourth quarter of 2007.

But caution may be the best strategy for now. To begin with, despite a 10-15% cut in capacity across the industry, our research clearly shows that shippers still believe there is excess capacity in both the LTL and TL trucking markets. And as great as it was to hear just before I started writing this column that the Canadian economy is now officially out of recession, the 0.4% annualized growth realized in the third quarter was below the Bank of Canada’s 2% growth prediction for the quarter and below economists’ expectations for an annualized growth rate of 0.6%.

Nevertheless, here’s to hoping I’m wrong and the optimists carry the day.

———

Worth Repeating

“Business owners are going to need a recession mentality till 2011.”

Meny Grauman, senior economist, CIBC World Markets


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Truck News is Canada's leading trucking newspaper - news and information for trucking companies, owner/operators, truck drivers and logistics professionals working in the Canadian trucking industry.
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