Decisions 2003: What does the coming year hold in store for your operations?
November 1, 2002
Shipment volumes have heated up but will they go back in deep freeze by mid-winter? What impact will the demons of new security requirements and escalating insurance claims have on transborder hauls? ...
Shipment volumes have heated up but will they go back in deep freeze by mid-winter? What impact will the demons of new security requirements and escalating insurance claims have on transborder hauls? Will carriers finally hold all the face cards in rate negotiations? These are just some of the issues that will shape carrier fortunes for 2003. Our 10-page report on the year ahead includes interviews with industry experts from across the continent. We hope their insights will help make your decisions easier.
Put a group of carrier executives in a room and listen to them talk and it might not be at all clear they are toiling under similar industry conditions. “It is really funny. It doesn’t really matter what the industry as a whole is doing. There is always someone who is having the best year ever, and others who are having the worst year,” reflects Nova Scotia’s Eassons Transport General Manager Paul Easson, also past President and current board member of the Atlantic Provinces Trucking Association (APTA).
That said, an accurate picture of the challenges ahead is crucial at this point in the year. To help you gain a better grasp of what to expect for 2003, we’ve interviewed experts from across the continent on areas essential to your business.
One of more glaring trends to emerge in recent months is the shortage of capacity created by mounting carrier bankruptcies.
“There have been more carriers go out of business in the past year than I have seen in my whole career. Now all the guys still standing are all busy. In Ontario you can’t get outbound trucks, but there are shipments galore,” says Chuck Snow, the CEO of Traffix. “You have some power now on the outbound. I get calls every day from people who want us to take over their business because their truckers won’t do their business any more.” Current shipment volumes are allowing carriers to be more picky than in the past about who they do business with.
However, Snow qualifies, “We aren’t making the money on the back haul. A less-than-load carrier like ours will come back with 14 pallets from New Jersey instead of 24 pallets. A lot of inbound rates have dropped because inbound capacity has increased.”
July to September volumes were normal, Eason relates, but in October and November Eassons has had more reefer business than it can handle, thanks at least in part to Prince Edward Island potatoes and fries, and the apple harvest. “I haven’t seen it like this for quite a few years but the last two months it has not been a matter of phoning around for loads, but getting requests for five and being able to supply two.”
Other carriers as well as buyers of transportation services were reporting a shortage of capacity from as early as May.
Such conditions are expected to continue into 2003, as long as the Canadian dollar does not rise too much. On the whole, carriers should be able to demand better rates from shippers. “There have never been better conditions for adjusting rates. It is long overdue,” says David Bradley who heads the Ontario Trucking Association (OTA) and the Canadian Trucking Alliance.
At least two provincial trucking associations – the OTA and APTA, talk of partnerships with shippers, apparently of the type where carriers ask shippers to, say, stop wasting their time and resources with absurd waits at loading docks.
Asked if the face cards carriers are holding gives them the clout to change the balance of power with shippers, Bradley responds: “I think this is a phenomenon across North America. I think the market is slowly coming into some sort of balance.” The good economy in Canada, he adds, “puts carriers in a good position. They are looking for efficiencies in their operations. They can’t afford to have their drivers and equipment sitting. I think they are trying to get their paying clients to understand that these delays are costing you.”
APTA President Ralph Boyd sketches a scenario where a carrier arrives at a warehouse at 700h but gets loaded only at 1500h. Then the shipper demands he deliver by 700h the next day. This, he says, is an example of an unreasonable demand by a shipper and poor use of docking facilities. “One of my carriers approached me a year ago and asked about getting carriers and shippers together. Are such meetings now being planned? No. But there has to be a stronger commitment between the carrier and the shipping group,” says Boyd.
Snow advises: “If I have one good word for shippers in 2003, it is to treat your truckers with respect if you are shipping to the U.S. It is not the time to shop around for rates.”
Boyd would like to see shippers deal more directly with carriers rather than relying on third parties to handle the negotiations.
While carriers may hold the face cards on the revenue side next year, there will be more than the usual share of challenges on the cost side. Insurance tops the list. The situation is getting to the point where mature carriers are reportedly discontinuing U.S. lanes because they can’t afford the insurance. According to Easson, U.S. transport will either be a big part of carriers’ business, or none of it. “I think [U.S. lanes] is something you are not going to be on the periphery of,” he says. “You go to insurance companies and they want to know what states you are going to. They treat some like skunks; for example, they don’t like New York and California. Someone with no U.S. exposure will get lower rates than someone who does, without question.”
Reports of rate increases range from zero to 300%, and have been blamed for killing off marginal players who survived 9/11. As well, says Snow, “Anyone leaving this industry isn’t coming back – because of insurance.”
Cargo theft is also on the rise and insurance companies are playing hardball; after two thefts you can kiss your cargo insurance goodbye, according to Easson. Banks are dropping good carriers to reduce their exposure.
This is dampening carrier expansion plans. “We are reluctant to expand: There is a shortage of drivers and we don’t know if there will be another 9/11. If your fleet gets bigger and you have an accident, you can fold up your tent and go home,” says Snow.
Expect government to add to the cost problem not help it. Government taste for spending road tax dollars on anything but roads is keeping trucking associations busy demanding of ministers of transportation that they kill novel tax grab schemes and instead spend responsibly. British Columbia Trucking Association President Paul Landry describes one irresponsible and dearly expensive highway improvement fantasy: a possible upgrade of the Sea-to-Sky Highway (Vancouver to Whistler and Penticton) as part of an Olympic bid. Another issue for the BCTA involves provincial government plans with regard to infrastructure development and planning. “We have the trucking industry choking in congestion in the lower mainland, problems getting to the Trans-Canada, and a provincial government substantially reducing capital investment,” Landry says.
Another battle Landry will rejoin next year is against his government’s so-called community charter legislation, which would download powers to hundreds of municipalities, allowing them to regulate fleet size and rates, toll roads and restrict traffic.
Then there’s the continuing border security issue.
“We have a huge concern with respect to all of our border crossings. The Pacific Highway crossing has seen spikes of three- to four-hour border crossing times. We believe help is on the way, but if we get back to the volumes we saw two to three years ago, the delays will be horrendous,” says Landry. “Drivers hate the border. “If you are finding that you are spending three and a half hours at the border, what do you do [once your use up your hours of service]? Spend eight hours in Bellingham? You’re toast. These guys are saying ‘send me to Calgary … but don’t send me across the border.'”
Nor are government efforts to introduce programs that will expedite border crossings for carriers free of troubles. Customs services on both sides of the border have been registering carriers for the FAST program
since September. FAST participants can expect shipments to be cleared at the border with greater speed and certainty through reduced information requirements; dedicated lanes for Customs clearance; reduced border examinations; and compliance verifications away from the border. But to gain entry into FAST, enrolment in another program, Customs Self-Assessment, is a prerequisite. This means carriers must have a track record free of major Customs infractions and be able to show that their books and records form an audit trail through streamlined accounting and payment processes for imported goods. In addition, they must be capable electronically or by transponder to transmit all Customs documentation, business and cargo information for verification prior to arriving at the border. They must also enter into an agreement with Customs’ Partners in Protection program, which requires participants to complete a self-assessment of security measures throughout their operations.
Aside from the obvious investment required with the self assessments, the ability to transmit information electronically and associated training costs, there is also a valid concern whether the FAST program can work for less-than-truckload carriers, who must contend with multi-origins and multi-destinations because they carry many different shipments within each trailer.
“Very definitely there are costs and…there will be charges that will be coming forth in the industry,” comments Allan Robison, President and CEO of Reimer Express Lines, one of Canada’s largest motor carriers. “We learned a long time ago that if we have to obey these laws, we have to be able to charge for the things that are required of us. We have to pass these charges on because there is no way that we can absorb them because they were costs that we didn’t invite.”
In what is likely a sign of things to come for much of the trucking industry, just as this issue of CT&L was going to press Con-Way Transportation Services, Inc., announced that effective January 2, 2003 the company’s four less-than-truckload (LTL) operating units will apply an $8 per shipment Homeland Security Surcharge on all shipments moving across the Canada /U.S. border (both northbound and southbound).
Company officials cited the September 11, 2001 attacks and the subsequent cost of government-mandated changes in freight security at the border as the reason for the surcharge. As a result of the changes, the time to cross the border has increased, tying up equipment and lengthening trip times, the company said. Additional time is also spent in preparing shipments for Customs clearance.
“September 11 brought many changes to our lives. The need and concern for security is a goal we can all support, but it is having an impact on our operating costs. As government agencies on both sides of the border have continued to formulate and modify security plans, the increased cost impact has become a constant within our operations. It’s now time to begin to recover these costs,” said Douglas W. Stotlar, Executive Vice President and COO of Con-Way.
Fuel prices could also rise in 2003, particularly if the U.S. makes good on its threats to invade Iraq while the driver shortage continues to force upward pressure on wages. With so many issues that could have a disastrous impact on costs, accurate pricing of freight charges may well prove the most important issue for 2003.
Carriers need to keep commitments on pricing short-term or very flexible,” says Easson. “There will either be provisions for changes in prices or carriers that don’t will be in bad shape. The cost of business is so volatile.
“When you add all these variables up, when a customer comes in and offers me a large piece of freight … the only way you can sign is with a variable rate. For long term commitments you are either going to win big or lose big.”
How many drivers will Canada truly need over the next five years? The Canadian Trucking Human Resources Council (CTHRC) has launched a project to find the answer. It will profile current and future employment needs in the next three to five years, turnover rates and current strategies to manage driver turnover. The results should be available next spring.
Other studies under its Canada’s Driving Force program include a project examining the differences and commonalties of licensing in Canadian jurisdictions, the results of which will be ready in December or January; a profile of unemployed drivers which will be ready to publish in early 2003; and results of a study identifying the number and characteristics of driver training schools, likely to be made available in December.
The reports, says CTHRC Managing Director Linda Gauthier, “may help guide us in making plans for the future – a business case for the industry.”