The increased value of the Canadian dollar has had a profound impact on the mix and trajectory of freight moving across the Canada-US border.
There can be no doubt that the dollar has placed a huge drag on the export of manufactured goods to the US.
This has been exacerbated by the slowdown in US aggregate demand and the ongoing woes in the domestic automotive manufacturing sector.
The thickening US border has only made matters worse.
This combined with the over-capacity of trucking services in many transborder lanes has created a teeter-totter effect on the trucking business and significantly altered the balance that had existed over the past 20 or more years.
In today’s market, what was the headhaul for Canadian carriers for many so years – the southbound trip – has been displaced by the northbound shipment. This has created some significant logistical and pricing challenges for many carriers.
For as long as most can remember, most transborder carriers relied on the southbound headhaul as the base rate of revenue.
The northbound backhaul was therefore generally priced at a lesser rate. (There were and always will be exceptions, such as produce shipments from the south). For example, a carrier recently showed me where two years ago the typical truckload rate for a general freight shipment from Ontario to Illinois was over $2 per mile. (All in Canadian dollars and before the fuel surchrage).
The return backhaul rate was usually $1.50 per mile or less.
A comparable Ontario-Pennsylvania trip paid about $3-plus per mile southbound and $1.25/mile or less back to Ontario. Why the gap in north/south rates? Simple. Freight volumes were not balanced. There was a lot more freight moving southbound than northbound.
The US-bound headhaul had to cover the inefficiencies associated with the backhaul – ie., deadhead miles associated with picking up a return load or even the costs of having to come home empty every now and then.
We still have a balance problem today, but this time it’s in reverse. Southbound freight is now much harder to come by (which is reflected in a drop in rates) and we may even be seeing increased northbound freight for some products. In a relative sense there can be no doubt that we are.
Ironically, carriers surely now find themselves in the precarious position where there are northbound loads to pick up in the US, but they don’t have the trucks in the US to get them.
The capacity just isn’t there. Sure, some days are worse than others, but this new imbalance more and more seems to be a common situation.
So what are carriers (and shippers for that matter) to do? Some carriers are reaching back into the old play book to try and achieve a better freight balance by striking interline arrangements with US carriers.
There are several recent examples of this. But, I am also hearing with more frequency of carriers getting paid to go empty to the US in order to get the northbound loads and deliver them to Canada.
I have no doubt that shippers don’t like it but the traditional inbound rates won’t support not getting paid for the southbound trip.
With fuel cost now over 75 cents per mile, it’s absolutely necessary. (It is important to point out that even the empty movements still require a fuel surcharge).
Despite the excess capacity that exists in the US, many US carriers and drivers just don’t like coming to Canada. They don’t like the border; the hassles and costs associated with it.
At the end of the day the economics don’t change.
If carriers charge or are able to charge what they need, then the balance problem (like most other industry problems) becomes less of a factor.
Charging what they need means being able to fully factor in all your costs – fuel, labour, equipment, interest, border crossings, etc. – and take account of balance issues. The rating model is not what it was and although some won’t like it, it’s reality.
As always, it seems so simple on paper. It is easier said than done. The customer wants to pay as little as possible for transportation in order to maintain their competitiveness and maximize their profitability.
And, who can blame them? And, in today’s market, the shipper has the upper hand in terms of rates. What will change that situation?
All other things being equal, a reduction in capacity will surely help. That will be accomplished either by a reduction in the total fleet (voluntarily or otherwise) and/or through a recovery in economic growth.
That is a question of time. But even when the capacity situation begins to rectify itself, there will still be the balance problem. Shippers are going to have to understand that too.
– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.
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