There is trouble in paradise. For Canada's for-hire carriers, paradise for the last decade has been the U.S. Hauls into and out of the U.S. have been the undisputed engine of growth for carriers mid-s...
There is trouble in paradise. For Canada’s for-hire carriers, paradise for the last decade has been the U.S. Hauls into and out of the U.S. have been the undisputed engine of growth for carriers mid-sized and up (I’m referring to carriers large enough to earn at least one million in annual revenues). The annual increase in their transborder business has averaged better than 14% since 1989, growing into a business that today accounts for about half of their revenues compared to less than third a decade ago. And it has been good growth with rates increasing 4.3% from 1996 to 2000 compared to domestic runs which actually experienced a drop in prices over that time span.
But, as I said, there is trouble in paradise.
I hate to put it in such negative terms, but my last three months attending seminars on industry issues, reading through the latest economic reports and speaking to executives whose insights I have learned to trust, leave me with that distinct impression.
A number of market factors are at play. Chief among these is the continued inability of the U.S. economy to recover from its meltdown. U.S. manufacturers remain in the doldrums. Figures from the U.S.-based Institute for Supply Management show the U.S. manufacturing sector shrunk again in November. Manufacturing shipments, a good indicator of business activity as well as available business volume for carriers, had declined 2.2% year-to-date from the previous year by September. In comparison, Canadian manufacturing shipments remained positive throughout 2002, growing by 0.6% year-to-date by September. The fact the Canadian economy has outperformed the U.S. economy in 11 of the last 14 quarters should be a definite concern for a country that relies on the U.S. market for the large balance of its exports and an industry so heavily reliant on transborder business for its revenues. Canada’s ability to run this far ahead of the U.S. economic pace is doubtful for the long term and carriers can only fall victim to that reality.
Many carriers will likely experience increased troubles getting through the U.S. border next year. While governments on both sides of the border are genuinely trying to ensure security does not impede commerce, some of their efforts should be raising alarm bells. Take the FAST program, for example, which offers carriers dedicated lanes for speedier clearance but requires pre-authorization of carriers, shippers and drivers and the ability to communicate electronically with Customs. I’ve heard it said many times over the past year that eventually if Customs can’t consider your company and its shipments low risk through involvement in a program such as FAST you will be considered high risk and the waiting times at the border will be horrendous. But how will FAST work for less-than-truckload carriers who carry multiple shipments for multiple shippers? As Jeffrey Cullen, CEO of freight forwarder Rodair International points out, if there are 15 different consignees of 15 exporters on one truck and 14 of the 15 are registered with FAST and one is not, every shipment on that truck is now processed to the slowest link on that vehicle, making the investment in FAST questionable.
And when Canadian carriers do get past the border they face more problems. Chief among these is outlandish jury verdicts for Canadian trucks involved in accidents stateside and the resulting spike in insurance premiums as insurers try to recoup their losses. As Mark Ram, President and CEO of Markel Insurance says, the risks associated with U.S. exposure have now become one of the single greatest threats facing Canadian trucking companies. And the situation is likely to get worse as there appear to be no checks in place to keep cash settlements from spiralling even higher. U.S. juries are not governed by precedence as is the case in Canada; they’re free to offer any cash settlement they desire. And U.S. lawyers are able to take cases on a contingency basis, allowing a claim to be filed without a client having to pay money up front. With an opportunity to earn up to 40% of the total court award, it should come as no surprise there is an abundance of lawyers eager to prosecute Canadian carriers, which also tend to carry higher liability limits.
Operating a trucking company it seems is becoming similar to walking through a mine field.
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