Industry Issues: Industry Will Grow, but at Modest Pace in 2007
January 1, 2007
Trying to get a handle on the outlook for the Canadian trucking industry is difficult any time, but perhaps even more so now. The job would be a whole lot easier if two things were true. A: There were...
MORE SECURE: Liquid bulk haulers will be more immune from the manufacturing slump than those who haul van trailers.
Trying to get a handle on the outlook for the Canadian trucking industry is difficult any time, but perhaps even more so now. The job would be a whole lot easier if two things were true. A: There were one, homogenous trucking industry, which we know there is not. And, B: the Canadian economy was a more uniform entity, which it is not.
So, the outlook for 2007 really depends a lot on what sector of the industry – TL, LTL, van, bulk, domestic, international, etc. – and which lanes/regions you are talking about. There is nothing new about this, although one might argue that the differences are perhaps more pronounced today than at other times.
Take the Canadian economy, for example. Over the last couple of years, there has been an evident shift in growth from east to west, reflecting the strong demand for energy and other resources and the explosion of imports of every conceivable manufactured product from China arriving at the West Coast ports.
As you move east, the pace of economic growth has been dragged down by lower exports of manufactured goods and sluggish demand for automobiles and pulp and paper products. Interestingly, the demand for one region’s key output (oil) has contributed to an appreciation of the Canadian dollar versus the US greenback, which in turn has had negative impact of the key output (manufactured goods) of the other. Such is the Canadian conundrum.
As trucking is a derived demand industry, the prospects for the industry, if I can use a blanket statement, will basically track the level of economic activity – at least to a degree.
Clearly, one can anticipate more robust demand overall for trucking services in the west than in the east. But, there is more to it than that. Some sectors of the industry are less susceptible to swings in capacity than others.
For example, on the truckload side, the bulk sector is likely to fare better than the van business in that regard.
Strong growth, even in the west does not guarantee boom times for all carriers.
If you are in the van business, a lot of freight is going to Alberta, but not a whole lot is coming out. As products from China end up in warehouses in Toronto and Montreal, some LTL carriers are sure to benefit.
We have already seen a shift in recent years in Canada-US transborder traffic patterns.
With exports of manufactured goods being dragged down by the strong Canadian dollar, all of a sudden the traditional northbound backhaul became the headhaul.
Many TL carriers shifted focus from the transborder market to the domestic market (indeed that is where most of the growth in trucking came from in the last couple of years) adding capacity to already competitive lanes like Toronto-Montreal.
A further slowdown in US economic growth could further exacerbate the situation.
In addition to US economic growth and currency fluctuations, the other wild card will be – as always – fuel prices.
But, the industry continues to weather that storm by imposing fuel surcharges.
So, what is my outlook for next year?
More of the same, really. And, while growth may be slower there will still be growth – although it will be more modest in some regions and sectors than in others. No one is calling for a recession in Canada or the US at this time and moderate, sustainable growth is preferable to wide cyclical gyrations.
What’s more, there is in my view no fundamental reason for long-term rate softness, even in the regions where growth may lag.
All the major components of operating costs will continue to escalate and need to be paid for. The single most important factor driving the capacity of the trucking industry – the driver shortage – will only worsen.
The demographic of the driver population virtually ensures that. So, barring a steep downturn in economic prospects, any additional capacity created by slower freight growth will likely be more than offset by natural attrition in the driver pool.