Truck News


Decisions 2004 – Rates

A host of factors has set the stage for a potential truck freight capacity crunch in 2004 and that could provide carriers with their best chance in years to push through decent rate increases."There i...

A host of factors has set the stage for a potential truck freight capacity crunch in 2004 and that could provide carriers with their best chance in years to push through decent rate increases.

“There is very little excess capacity now. Once the economy comes on stream there will be a capacity crunch,” said David Bradley, CEO of the Canadian Trucking Alliance, just before the U.S. Commerce Department posted a third quarter 2003 gross domestic product growth of 7.2% (annualized rate). The prospects of a full economic recovery in 2004 suddenly seem that much better.

“The American economy getting a little stronger will give carriers some initiative to creep up their rates and make back what they lost in the last year and half,” said Allan Meiusi, president of Cabit Systems’ Internet Truck Stop, an Internet-based load matching service that focuses on the owner-operator and the small carrier.

Joel McGinley, senior vice-president and general manager of Transcore Commercial Services, which runs a similar service of load matching in the U.S., sees capacity as the main driver causing freight rates to increase in 2004. He bases this assessment on the company’s tracking of recent load to truck ratios. “In healthy times, that ratio runs at about 1.5 to 2.25 loads for every truck in our system. Recently, it’s up over four to one. I don’t believe there has ever been a time with such a drastic imbalance.”

A host of factors has set the stage for a potential truck freight capacity crunch in 2004.

Carrier bankruptcies and consolidations became weekly news during the lethargic U.S. economy following 9/11. Ramping insurance premiums and more recent diesel fuel price spikes further squeezed marginal operations out of business or turned them into “good pickins” for well-managed carriers with an eye on growth. Now, a softening U.S. dollar is heaping additional stress on operations with receivables in U.S. currency. In Canada the last few years have brought a whopping 25% reduction in the numbers of small carriers (carriers earning less than $1 million in annual revenues).

“We have rates quoted six months ago when the dollar was at 1.58 and today we’re operating at 1.32,” said Scott Johnston, President and CEO, Yanke Group of Companies in Saskatoon. “A million U.S. four months ago was worth $1.58 million Canadian. Today it is only worth $1,320,000.”

The important issue in capacity, according to Evan MacKinnon, CEO of MacKinnon Transport Inc. and chairman of the Canadian Trucking Alliance, is a shortage of truck drivers. North American demographics suggest little improvement in the coming years. Continued high costs of insurance and uncertainty over fuel costs have also made carriers reluctant to add equipment. They may be even less inclined to do so when considering the additional costs of implementing new cross-border security programs.

New regulations, such as the U.S. hours of service rules to take effect January 4, 2004 are expected to tighten capacity as well. By shaving an hour from current practice, some analysts have estimated efficiency losses as high as 15% in short haul.

New Canada hours of service rules are due on September 2004, but unless they are harmonized with the American rules, the industry can expect an indirect effect on capacity. The issue is split sleeping time for solo drivers with sleeper births. If this U.S. provision is not included in the Canadian rules, a driver in compliance south of the border might be forced to park for eight hours upon crossing into Canada. According to Bradley, the Canadian Trucking Alliance is currently working on the business case for this fundamental requirement.

While Meiusi, for one, doesn’t see truck freight capacity being particularly affected by intermodal activity in 2004 on north-south movement, Doug Munro, President of Maritime-Ontario Freight Lines, points to CN Rail’s new intermodal booking procedures as a factor indirectly affecting domestic capacity. The Intermodal Excellence program (IMX) was introduced in mid-2003 as a measure to increase CN profitability by “smoothing intermodal demand imbalances during the week.” But it may be at the expense of its other aim – that of “improving service.”

“Rather than respond to the ups and downs of demand by adding rail cars, CN wants to run a balanced train to and from destinations. So now they work on a reservation system. You need to book space 48 hours in advance. If you don’t meet your reservation, you’re penalized,” Munro said. As a result of IMX, some carriers are reluctant to book sufficient space while others simply cannot get the positions they need on CN trains during certain weekdays. That freight then has to be hauled over the roads. “What CN is effectively doing is reducing the amount of capacity compared to what they had before,” Munro added.

Even as the U.S. goes into an election and the economic volatility often attached to that and even if, like Meiusi, some in the industry feel the “capacity super-crunch theory” is overstated, many factors point to the potential for freight rate increases in 2004.

“I don’t believe it’s going to be wholesale increases because there are still some lanes that have a lot of capacity, but I think carriers will take advantage of lane by lane price increases,” McGinley said. He added that freight rates have already been increasing over the past three to six months.

Others, such as Gaetz and Stan Dunford, President of Laidlaw Carriers, are more aggressive in their outlook for rate increases: “We’ve got to wake up and realize it’s our turn. If you don’t realize what’s going on in the market place and are not passing on significant increases to your customers, you are going to miss one of the best opportunities that I’ve seen in the Canadian trucking industry in 37 years,” Dunford says. “Don’t be afraid to ask for what you want.”

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