Truck News


Does the talk about rate increases match market reality?

Over the past two years many of the industry's leading carriers have made a concerted effort to put a halt to the cut-rate pricing hurting their profitability and shipper practices affecting their pro...

Over the past two years many of the industry’s leading carriers have made a concerted effort to put a halt to the cut-rate pricing hurting their profitability and shipper practices affecting their productivity.

Why they had to act was obvious when you consider that during the period of 1996 to 2001, which includes some of the best economic years our country has seen, the average trucking company was only able to boost the price for its services by 1.5%. Such a meagre increase was particularly problematic since at the same time the efficiency gains – labor, capital, fuel – of the average trucking company were just 1%. With costs in areas such as fuel, driver recruitment and insurance on the rise and new hours of service and border regulations further threatening efficiency levels, carriers had to take action. These pressures had already destroyed one quarter of Canada’s small carrier population over the past five years.

But are carriers’ efforts to raise rates and protect their productivity levels working? In the past, cutthroat competition and, truth-be-told, questionable management decisions, prevented that from happening. Our recently completed research on transportation service buying trends, conducted in partnership with the Canadian Industrial Transportation Association and CITT, however, indicates things are different this time. So too do many of the remarks I’ve been hearing from shipper organizations.

Rates were on the rise for all modes in 2004 but rate hikes were most prevalent in the trucking sector our survey, which included responses from more than 600 shippers of all sizes across Canada, showed. While about 60% of shippers using other modes said they were paying higher rates in 2004, 80% of shippers using truck transport reported paying higher rates.

The magnitude of the increases was also telling. Thirty percent of shippers using truck transportation report paying rate increases in the 4.1%-6% range and another 17% were paying 6.1%-10% more. Ten percent of shippers report their truck rates have risen by more than 10%. In the sixteen years I’ve been involved in the transportation sector I know I haven’t seen such increases.

Our survey also found trucking has been the most successful at getting shippers to accept fuel surcharges. Ninety nine percent of shippers using truck transportation are paying a fuel surcharge compared to 94% of those using courier services (ground and air combined); 87% of those using rail; 85% using rail and 92% of those using airfreight service providers.

Shippers report paying other surcharges as well, albeit on a more limited basis. Thirty one percent of shippers using truck transportation report paying a detention surcharge. A quarter is paying a surcharge for border delays; another quarter is paying a surcharge to cover carrier costs related to border security programs. Carriers have been less successful (or perhaps just less aggressive) in convincing shippers to pay a currency surcharge. Thirteen percent of shippers using truck transportation are paying a currency surcharge compared to 27% of those using marine services.

Why shippers are more willing than in the past to accept higher truck rates has much to do with their concerns about capacity. Almost half are concerned there is not enough capacity right now to handle their shipment needs. Manufacturing shipment volumes were up a brisk 8.2% in the first three quarters of 2004 compared to the same period from the previous year according to Statistics Canada records. Our own survey found 71% of Canadian shippers increased their shipment levels in 2004 with about 60% reporting double-digit increases. It also found that 68% plan to further increase shipment levels in 2005. Of course this strong demand for truck services follows on the heels of the loss of one quarter of Canada’s small carriers and the reluctance of the survivors to greatly add capacity because of the driver shortage, particularly in the longhaul TL sector. Hence, shippers’ newly found willingness to pay higher rates, surcharges and sign longer-term contracts.

But perhaps more encouraging is the change of mindset that appears to be surfacing among shippers. Consider the recent comments of Richard Bickley, who as manager Americas transport for Alcan oversees several time-sensitive transborder hauls: “The time spent by drivers serving shippers will have to be treated as a precious resource. We can’t have situations where a driver dropping off at a plant has to wait till the end of the coffee break to get his paperwork. That’s stupid.”

His comments echo those I have been hearing from shippers across Canada. It’s long overdue but shippers and carriers – with more than a little help from a challenging market situation – appear to finally be on the same page.

Truck News

Truck News

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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