Truck News


getting real on rates

MT: The Canadian General Freight Index has been showing modest increases in trucking rates over the past year. Our own research shows that shippers believe trucking – truckload in particular – will have the greatest degree of pricing power in 2012. In your view, what will drive truck transportation pricing in 2012? Maislin: At the end of the day, it comes down to costing out your product properly. We suffered in 2008 and 2009 across the board and that is where that discipline came from, so we know when we are pricing out a product, we are really looking at it intelligently. Granted, we have to keep our costs down and things like that, but when I think about what is really going to impact it, again, intelligent and disciplined pricing to make sure it goes where we can make a buck, and again find the way where it can work for the shipper as well. The other thing that we saw having an impact is the currency. MT: Brian, in addition to being president of Liberty Linehaul, you are also chairman of the Ontario Trucking Association. There have been a lot of comments about raising rates in order to continue to run profitable companies. What is your take on where rates are going for 2012? Taylor: Economists felt that, in the truckload sector, we were going to see 4-5% increases in truckload rates. I do not know whether we will get that across the board. We like to think that our pricing model has been pretty good to start with, so it will depend on what customer in what laneway for us; whether it’s outbound or inbound freight also has a big impact. The trend on the carrier side is towards higher costs. Not only are new trucks over the last three years up $20,000 after exhaust treatment and everything else but also the cost of maintaining those trucks is up a lot. It is up likely 30%. There is a lot of maintenance required for that new technology and it is not very dependable. Actually, the worst trucks we have are our newest trucks. We are buying top-of-the-line trucks, but I actually have drivers that want their old truck back. The other big thing is drivers. Every company that I talk to is looking for drivers. We do not need a lot of drivers, but we need to find good drivers. There are drivers out there, but not necessarily the ones we would want to hire. MT: I remember a conversation I had with you, Doug, on this very same subject several years ago. Your comment back then still stands out in my mind; you said it is better to introduce a small increase every year then to go with the market and try to go for a big increase when capacity is tight. What are your thoughts about 2012 and how you would like to see your rate policies progress? Munro: We would like to try to modestly increase prices where we can. Our costs are going up. and that means rates ultimately have to go up to reflect that. Over the last couple of years, we have held our rates in most cases and have not increased them, so there is cost pressure. With that said, customers are not getting increases from their customers so the only way I think you can really get increases is to demonstrate that you are as efficient as you can be as a carrier, and then ask for modest increases that will keep pace with it. MT: As a shipper, when a carrier comes to you asking for a rate increase, what do you expect them to address in that discussion? Bradley: Quite obviously we like to know what the parameters of the increase are or would be. One of the big components of cost is a fuel surcharge. If you have cost of equipment, labour increases and insurance increases, they get muted by that fuel surcharge. Get it up to a standard that is current. We try to do that with our carriers. Then we can start to look at those other cost indices. We also look at things that are driving our costs. Is it on our side? Is part of the reason that our costs are higher because we are holding up the driver or equipment? We will do a covenant to reduce our exposure in those areas where possible. We would like to get costs improvements from our own customers as well. Playing both sides of it and understanding is very key, but you have to be sensitive and give a good reason for those increases. MT: Heather, when a carrier comes in asking for a rate increase, what do you need to be hearing from them for you to say, “I can agree with that”? Felbel: That thought has been put into it. That is the one sentence answer. That it has been well thought through, that the rationale behind it is strong, and that it is related to my business costing them more money. I always equate it back to them that they are all consumers and are going into a book store, and tell me the last time that they said, “Can I pay 5% more”? In fact, consumers are going into the store and demanding the opposite. I generally do not accept increases. I will come back and challenge them to tell me what we can do as partners to reduce costs, and if we cannot do things, then potentially we will entertain an increase. There would have to be lots of solutions and discussions before I would ever accept one. MT: Dan, in your consulting practice, you deal with both shippers and carriers. In your view, what attitude do both sides need to bring to the table to negotiate a rate increase that is fair to both sides? Goodwill: As a consulting company, the number one thing, from a shipper point of view, that we get asked is, “What can you do to help us with freight costs?” There are a couple of scenarios here that I will share. First of all, we have heard that there is a lot of pressure for rates to go up. Equipment costs are going up and driver wages are going to go up, so there is a lot of upward pressure and there is very little that one can do to stop that. Putting on my carrier hat for a minute, it is necessary. If you want to have a good carrier then they have to make money. There is no use surrounding yourself with low ball carriers that cannot do the job and are going to go out of business a few days later; that is not good business. Going back to the shipper point of view, do you employ best practices in transportation? Do you have the right packaging? Are you using the right modes? Should you be using intermodal for some freight where you are using truck? Why are you using so much expedited? Do you have the right loading process in place? Are you paying market rates? How do you know you are paying market rates? A lot of our clients say that they are paying market rates, but when we look at what they have done, each year they go out to the same four to five carriers and get them to update their rates, and they are not paying market rates; they are paying rates that are over market. If you are at a point where you think that you have best practices in transportation, now you have to elevate your game to have best practices in logistics. Do you have the right warehouses in the right place, doing the right thing? Are you managing inbound and outbound freight properly? Are you matching your freight and doing clever things like round-trips and continuous moves? Pooling your freight? Are you doing all of the smart things that you can do to minimize your supply chain costs? That is what you need to do as a shipper. Carriers should make sure that they know their costs and what they need to do to make money. Have a strong value proposition and be able to differentiate yourself from the rest of the pack. That is what a shipper wants to hear — what you are going to do for them. Sometimes, some of our clients will pay more because they carrier is worth more and because they have proven they can do more. So it is not just a beating down of carriers all the time. From the carrier point of view, do a good job, prove you are better than the rest of the guys in the game and you will get a better rate. Roundtable participants included: Jack Bradley, director of purchasing and logistics, Armtec; Dan Goodwill, president, Dan Goodwill & Associates; Heather Felbel, vice president, supply chain, Indigo Books and Music; Doug Harrison, president Day & Ross General Freight; Jonathan (J.J.) Maislin, president, Maisliner; Doug Munro, president, Ma
ritime-Ontario; Brian Taylor, president, Liberty Linehaul.

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