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Melting in the heat

All winter and spring, I have been hearing from carrier executives about the need to get aggressive on rates. Carrier executives were looking to a confluence of events - an improving economy, higher freight volumes and tighter capacity - to...


All winter and spring, I have been hearing from carrier executives about the need to get aggressive on rates. Carrier executives were looking to a confluence of events – an improving economy, higher freight volumes and tighter capacity – to create the right conditions for significant rate increases.

This was no wishful thinking brought on by several years of downward pressure on rates, the likes of which the industry had not experienced in some time. Many transportation industry analysts were forecasting the same thing. Consider this statement from a report I recently read entitled Domestic Transportation, Finding the Right Balance of Volume, Capacity and Pricing: “Supply chain professionals who are responsible for securing transportation services – regardless of mode – are about to reap the benefits (or pay the price) for how strategic and mutually beneficial their company’s carrier relationships have been over the past two years. But make no mistake, costs are on the rise in either case. The only question is whether a company’s increase will be closer to 2% or 20%.” (The report, published by Tompkins Supply Chain Consortium, was written for the US market but it reads true easily enough for the Canadian market as well).

By April, the Canadian General Freight Index was showing signs motor carriers were indeed able to make good on rate increases. Up to that point increasing fuel prices were the major factor affecting rising truck transportation costs for shippers but in April, the Base Rate Index, which excludes the impact of fuel surcharges, increased 1.1%.

The much-waited upward momentum on rates was here at last. Or so it seemed. That momentum seems to have melted with the warmer weather. The latest economic and trucking indicators do not look particularly promising.  Manufacturing output and new order growth weakened further in June, according to the RBC Canadian Manufacturing Purchasing Managers Index, a newly launched monthly survey, which offers a comprehensive and early indicator of trends in the Canadian manufacturing sector. The headline RBC PMI, a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector, registered 54.8 in May, down from 56.3 in April. It fell again in June, down to 52.8. (Anything above 50 indicates a growing economy).

Across the border, US truck tonnage dropped 2.3% in May after a revised decline of 0.6% in April, according to the latest data from the American Trucking Associations. Tonnage was up 2.7% year-over-year, but May’s total was the smallest year-over-year gain since February 2010.

ATA economist Bob Costello believes truck tonnage in recent months shows the economy has hit a soft patch. Both Scotia Bank Group’s senior economist Carlos Gomes, the opening speaker at our annual Profitability Seminar held in partnership with Dan Goodwill & Associates, and Robert Hogue a senior economist with RBC Royal Bank, who spoke at the recent SCL-CITA annual conference, forecast continuing but “unspectacular” growth for the economy. It all adds up to carrier executives having to work on their patience while hoping the analysts who believe the soft patch is a temporary event are right.


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