VANCOUVER, B. C. - Compared with much of Canada, the majority of highways in B. C. are primitive two-lane routes that meander through treacherous mountain terrain and require demanding navigational ex...
VANCOUVER, B. C. –Compared with much of Canada, the majority of highways in B. C. are primitive two-lane routes that meander through treacherous mountain terrain and require demanding navigational expertise, coupled with frequent shifting and braking.
All of those constraints are hard on fuel consumption, especially when compared to the flat landscape of most of Alberta, Saskatchewan and Manitoba. And long before the present fuel crisis that has now hit much of the world, causing strikes, violence, and even deaths, B. C. truck drivers were bracing themselves for a new provincial carbon tax, which has put a particularly high premium on diesel.
Since the new tax was imposed July 1, it’s the main point of contention in B. C., sparking industry and non-industry discussions about the rising cost of fuel. It’s a situation that especially irks the B. C. Trucking Association (BCTA), which fears for the livelihood of its members.
“B. C. imposes one of the highest fuel tax burdens across the country, lagging behind only Quebec, and the carbon tax, and additional TransLink (Vancouver transportation) fuel tax, will pull us into first place,” said BCTA president Paul Landry, in a recent last-ditch plea for fuel tax mercy, just before the July 1 deadline. “Fuel taxes in Metro Vancouver and the rest of B. C. are 114% and 67% higher than Alberta’s and 69% and 32% higher than the average fuel prices for Alberta, Saskatchewan, Manitoba and Ontario.”
However, the B. C. government followed through with its original plan, and the controversial carbon tax has gone ahead, starting at 2.76 cents per litre for diesel effective July 1, and rising to 8.27 cents per litre by July 1, 2012. It’s an onerous financial penalty for the BCTA, which also has to contend with increasingly higher fuel costs.
“This will cost our industry almost $200 million cumulatively over the next three years and almost $500 million by 2012,” said Landry.
As well, lamented Landry, even before the carbon tax, collective fuel taxes include a four cent per litre federal excise tax and a 6.75 cent per litre tax levied for province-wide transportation-related expenditures, (not related to the Vancouver TransLink tax).The B. C. trucking industry is also bracing itself for a mandated introduction in 2010 of biodiesel, which Landry is critical of, because it “tends to produce less energy than pure diesel,” as well as new engine standards in 2010, which he says may be less fuel-efficient.
“Coupled with a qualified driver shortage, the cost of trucking in B. C. and throughout North America isn’t expected to abate for the foreseeable future,” he said.
In contrast, the Saskatchewan trucking industry is coping with the rising cost of fuel with an added fuel surcharge, according to Al Rosseker, executive director of the Saskatchewan Trucking Association.
“A lot of it is just pass-through for us, which of course, adds to the inflationary cycle,” he said of an expense that is inevitably passed on to the consumer.
On top of this rising cost, what really grates at Rosseker, as it does the BCTA and much of the Canadian trucking industry, is a four cent per litre federal excise tax on diesel fuel, which the STA and much of the industry would like to have abolished.
“This was a tax that was put on by the Mulroney government to eliminate the deficit,” he said. “Well, the deficit is long gone. The government is still charging four cents a litre on diesel fuel, and they have the audacity to charge the four cents and then put GST on top of that. So it’s the taxing of tax, which is incredible to us. Maybe government looks at four cents and says it’s peanuts. To our profit margins, it could make a small difference. We just think that this is just a wrong tax. It’s a straight tax grab and we think (eliminating) that would be a good starting point.”
Like many in the trucking industry, Rosseker is frustrated with burdensome taxes on top of high fuel costs, considering that this sector contributes to the Canadian economy, and he says, purchases about 16 billion litres of fuel a year.
“Do the math,” he said. “Governments are doing really well off the backs of the trucking industry.”
Rosseker considers that small fleets and owner/operators are “parking” their trucks because of the high fuel costs, which is an ultimate loss to government tax coffers. He added the larger carriers are under contract, and likely have fuel surcharge adjustments as the cost increases. But considering that 95% of all food products in Saskatchewan are hauled by truck, Rosseker feels that when the trucking industry is hit hard by high fuel prices, an important supply chain is affected.
“Basically when the truck stops, the economy stops. A lot of people don’t realize that. We’re hauling water; fuel; bandages; oxygen; cabbages;TV sets. We are essential services and governments seem to want to regulate us into the ground.”
The biggest fear for the STA, related to rising fuel costs, is the potential demise of the smaller trucking firms, considering that these fleets are unlikely to manage this volatile expense as well as many larger, more established fleets.
“We’ve got people parking trucks,”he said. “They’re out of business. They can’t afford the fuel. There are big players who continue to look at some of the smaller companies and then buy them up, because the profit margins on the smaller ones aren’t there. The bigger ones can do it on volume.”
Even before this recent fuel crisis, the executive director of the Manitoba Trucking Association has long been concerned about previous and existing economic downturns that have hurt the trucking industry, such as the US/Canada softwood dispute; the impact of bovine spongiform encephalopathy (BSE or mad cow disease); and the dramatic change in the US economy, which resulted in the closure of Canadian pulp and paper mills; and the ongoing restructuring of the auto industry. Even the high Canadian dollar didn’t help exports, or the trucking industry that delivered those products.
“I guess if you look back historically, the escalating fuel prices are one of the last of many straws that have been placed on their backs,” said MTA leader Bob Dolyniuk, who also favours the removal of the federal excise tax on diesel fuel. “Every little bit will help.”
The only way that trucking companies can survive during this tight economic period with escalating fuel prices is to apply a fuel surcharge on a weekly basis, according to Dolyniuk.
“There is not a trucking company in Canada that can survive if they are not adjusting their rates, whether it is straight through the rate mechanism or the fuel surcharge. If they are not adjusting their rates for the cost of the fuel, they wouldn’t be in business today and they won’t be in business tomorrow if they don’t continue to do so. It’s as simple as that,” he insisted.
It’s now a matter of survival for many fleets, added Dolyniuk, who indicates that the volatile economic landscape has caused some trucking companies to consider other markets or commodities, and seek business elsewhere, sometimes on other truckers’ turf.
“You have companies moving into different marketplaces and creating the over-capacity we have today,” he said.
Despite the economic rollercoaster that truckers must contend with, Dolyniuk believes there is an over-capacity in the trucking industry, which will make an adjustment, eventually. “There will be a correction once things level off, somewhere down the road. I don’t think it’s going to be this year. Then, hopefully we’ll start growing once again.”
In Alberta, the economy is still booming, but the past-president of the Alberta Motor Transport Association indicates that the trucking market is going through an extremely competitive period, due to the fuel situation. Gene Orlick of Orlick Transport says many fleets are “discounting” the fuel surcharges to maintain market share, or to capture additional market share.
Instead of charging 47%, which is
what Orlick charges as a fuel surcharge, he says some companies are increasing their base rate, and charging as low as 10 or 20% for the surcharge. “So optics become your new way of selling freight,” he said.
Orlick is also concerned that some of the bigger customers are “pushing back,”or negotiating hard, and in some cases, refusing to pay the going rate.
“My answer is ‘Then I will have to park my truck up against the fence.’ That is my option. I am not in the business to lose money,” he said. “We provide an excellent service. It’s on time, damage-free. This is the rate today. It’s competitive and commensurate with the cost of doing business and for us to retain a reasonable target of 7% profit.”
In reality, Orlick says his profit margin is closer to 4%, due to the increase in fuel costs, but that’s not the only operational expense that a 30-truck fleet like Orlick Transport has to endure.
“Wages go up,” he said. “Costs of parts and services (go up). Even our equipment went up. Our trailers went up $1,200.”
Orlick says the company’s freight volumes are down. Even relations with long-time brokers and other carriers that pass on freight business have been strained, due to current conditions.
“We’re not always getting the correct rate, because the way I treat brokers is that they’re your salesmen and they’re getting a commission to provide you a sale. So I factor that in to the situation. But now the brokers are still trying to get the fuel surcharge based on what it was 35 cents a litre ago. We can’t live on that anymore. We can’t provide that service,” Orlick explained.
Orlick has concerns about the weaker transport companies, which may be unable to make the most important payment of the month: the fuel bill. It’s an inflexible expense and a vital part of the operation. “One of the realities with fuel, is it has to be paid in that 30 days,” says Orlick. “You can’t stretch them to 60. It just doesn’t happen. Where all the other trade payables tend to have the ability to go to 45 or 60 days, now you have this huge component of your cost that you have to have this cash flow for. So, all these little companies that aren’t paying attention, they aren’t getting that fuel surcharge back. Their cash flow is killing them.”
When companies scramble for cash to pay that monthly fuel bill, Orlick fears that other operational expenses may be neglected, like new tires, brakes, or other safety measures. As well, dependable employees that prefer a guaranteed salary might start looking elsewhere.
Unfortunately, Orlick says the smaller, poorly run companies may not even be able to attract a buyer when the financial constraints indicate that it’s time to sell. The bigger fleets aren’t necessarily interested in a struggling operation.
“All these guys – I know them, and I’ve talked to them,” says the AMTA past-president. “I see what they do, and I watch the companies that they buy. They buy good management. They buy companies that fit, what they’re looking to make a model of. They buy companies that make money. They’re not gong to gobble up little companies that aren’t profitable. They’re not interested in them.”
Orlick says the present economic situation has him concerned about his own livelihood.
“It is an interesting problem. I am not enjoying going through it. I am not looking forward to what’s going to happen over the next year.”