TORONTO, Ont. - Trucking is as good a leading indicator of economic activity as there is, said David Bradley, president of the Ontario Trucking Association, at the group's annual conference held recen...
TORONTO, Ont. – Trucking is as good a leading indicator of economic activity as there is, said David Bradley, president of the Ontario Trucking Association, at the group’s annual conference held recently in Toronto.
When the economy is thriving, that’s a good thing. When it’s not, trucking is often a victim.
“Whatever the state of the Ontario economy, or sectors within that economy, it will be reflected in the business levels of the trucking industry,” Bradley said.
“The impact of the appreciation in the value of the Canadian dollar, combined with slowing US economic activity and the resultant impact on Ontario’s manufacturing and export-based economy will continue to exert a drag on freight volumes and create challenges for motor carriers in 2008.”
“There is an overcapacity of supply of trucking service, certainly in the general freight sector, and until that situation is resolved, either through improvement in the amount of freight being generated by the economy, or through industry attrition and rationalization it will continue to be tough sledding,” he said.
In order to deal with the capacity gap, Bradley expects carriers to employ a number of strategies.
He foresees further merger and acquisition activity in the year ahead.
Carriers will continue to hold off investing in tractors and trailers and will try to reduce their fleet sizes to reflect volumes in order to get utilization rates up. There will inevitably be layoffs and some business failures, he says.
“Some will take measures to address the capacity situation voluntarily, others will be forced into it,” he says.
“Continuing to chase freight that doesn’t pay just to keep trucks rolling is not sustainable. Carriers can act quickly to address their fleet size.”
Bradley says shippers should not expect the current soft rate environment to last.
“Carriers are battening down the hatches on costs, but the outlook for fuel prices suggests a tough winter is in store and eventually equipment needs to be replaced. There has to be a margin to pay for this. Moreover, the demographics of the driver population point to a worsening of the driver shortage problem which will eventually have a significant impact on capacity.”
Those that either don’t have the kind of freight that lends itself to building ongoing relationships with carriers or who choose to go to the market for each shipment in hopes of driving rates down may find themselves scrambling to get service, Bradley reminded attendees at the event.
However, Bradley cautions: “When a turnaround will occur and how strong and broad-based it will be depends not only on what carriers do to address the capacity softness, but what is done now by Canadian governments and the Central Bank to bring the Canadian dollar back down to earth and to ensure that Ontario businesses – including truckers – are competitive.
“Canada’s improving national debt situation and the fact that our federal financial situation has gone from deficits to surpluses, should provide us with a fiscal dividend; including additional flexibility on interest rates. The Bank of Canada should act now to lower interest rates to bring about a moderation in the value of the dollar.”
But, he also sees a role for government.
“It’s time that the Government of Ontario addressed some key long-standing issues like the taxation of business inputs by harmonizing the provincial sales tax and the Multi-Jurisdictional Vehicle Tax with the federal Goods and Services Tax.”
And, he says, “The federal government and the province have got to get on with the job of building a second crossing at Windsor and find a way to talk to our major trading partner about restoring sanity to the border.”
Bradley says there will always be a need for trucks and the industry will remain the dominant mode of freight transportation, though the players may change over time.
However, he cautions, “The current problems in the trucking sector are indicative of larger problems in the Ontario economy.”