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Rate Wars

TORONTO, Ont. - To hear trucking industry insiders describe it, the current rate crunch is Darwinian in scale - long, drawn out and threatening to change the face of the trucking industry as we know i...


DO YOU KNOW THIS GUY?: Carriers are putting themselves out of business by underbidding on freight and placing unsustainable pressure on rates.
DO YOU KNOW THIS GUY?: Carriers are putting themselves out of business by underbidding on freight and placing unsustainable pressure on rates.

TORONTO, Ont. – To hear trucking industry insiders describe it, the current rate crunch is Darwinian in scale – long, drawn out and threatening to change the face of the trucking industry as we know it.

And it’s all thanks to rate cutting, a practice which, according to in trucking industry insiders, is spreading like cancer and causing an equivalent amount of damage.

“A tremendous amount of rate cutting is happening,” says Caravan Logistics general manager Kevin Snobel. “Between now and next year I’m predicting at least 10% of companies now in existence will have folded.”

First comes rate cutting, and then comes extinction, warn those in the know.

“It’s devastating, very harmful,” says Ray Haight, executive director of MacKinnon Transport and recently elected 2008-2009 chairman of the Truckload Carriers Association. “And it’s a slow death. Eventually the companies who do it go out of business. I hear the survival of the fittest argument – that eventually rates will go up when consolidation happens – but I don’t think a downward pressure on rates is good for the industry at any time.”

Haight says safety is just one of the sacrifices carriers make in order to run for less.

“What I worry about is that smaller carriers will find a way to survive by putting more hours on their trucks on a daily basis than they should legally. It creates all sorts of problems for everyone,” says Haight, who also worries downward spiraling rates will drive truck speeds up.

“Speed limiting legislation would level the playing field of course,” he says, adding the trucks in his fleet have been 105 km/h on the pedal and 102 km/h on cruise for as long as he can remember.

Snobel, meanwhile, is concerned about the long-term effects of rate cutting, namely the amount of time it will take for the industry to recover the gain it made a few years ago.

“If I’m carrying freight that’s worth $1,000 for $850 how long will it take me to get back to the rate I should be charging? With a few percentage points increase per year it’ll take five to seven years just to get back to where I need to be in the first place.”

Consolidation isn’t the answer, says Snobel.

“When consolidation happens, service suffers. The customer needs to understand that,” he says.

But who’s undercutting their rates and why? While Haight says it could be just about anyone, Snobel lays the blame squarely on inexperienced players.

“The type of carrier who cuts rates could be any carrier hauling a trailer,” says Haight, “except maybe the niche carriers, like temperature control and tank carriers who are insolated a bit from the overall crunch.”

“So many people hang out a shingle and just don’t know how to run a business,” says Snobel. “Bad business is the main culprit – just because you own two or three trucks it doesn’t make you a smart business person.”

So what’s the solution? Are low rates here to stay or will the industry recover, one small step at a time? And how? Charging more for backhauls coming from the States is one way cross-border carriers can recover lost revenues, says Snobel.

“Rates are higher coming home now, than going out, which is the opposite of what it used to be in the past, with customers paying more for a headhaul,”says Snobel, who insists the so-called capacity is overstated.

“The industry is overreacting by undercutting rates unnecessarily,”he says. “There’s plenty of reason for cross-border rates to stay up. It still costs money to cross the border, what with ACE and PIP and all the driver training you have to do. And driver shortages and retention are still an issue. Not to mention how much money it takes to keep good drivers happy.”

Parking trucks is an option that carriers should seriously consider, says Haight. “We trim back where we have to,” he says. Avoiding buying new equipment is another option. Diversifying so as not to be reliant on one kind of load is still another, he adds. Not to mention keeping a close eye on expenses, says Haight.

“At the Truckload Carriers Association, we benchmark expenses so we can keep track of what fuel, repairs and maintenance cost,” he says. “About 40-50 carriers’ expenses are now being benchmarked. It’s a cheaper, better way to share knowledge and increase productivity.”


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