Some of the nation’s top shipper executives -Mark Gallant of Home Depot Canada, Mike Owens of Nestle Canada and Ginnie Venslovaitis formerly of Unilever Canada -speak their minds about freight volumes, rates and capacity. It may, or may not, be what you wanted to hear.

MT: Every year, with the help of CITA and CITT, we survey both motor carriers and shippers to get an idea of where they see freight volumes going, and where they see rates and capacity going. One of the interesting things to come out of our latest batch of surveys was the difference between where motor carriers saw things going, and where shippers saw things going. Interestingly enough, motor carrier executives were actually more pessimistic than their own customers when it came to projecting freight volume growth. Looking ahead to 2011, how do things look for your specific companies in terms of the direction of freight volumes?

Gallant: I do think there was a bit of recovery at the end of last year. The end of this year will be relatively flat to last year. I cannot see us growing as a retail industry. What I am hoping for is some stability. Into 2011, we are optimistic; we feel that there could be some crawling out of the W-shaped recovery. We think that the stability of the back half of this year may lead to some incremental growth next year. Do I know what percentage that will be? Not a clue. I would not say that it is going to be a large percentage.

Owens: I expect that recovery is going to continue. Last year was a tough year. We did everything within our power to maintain our volumes; we saw very lumpy volumes. What I mean by that is that certain categories took off while other categories just took an absolute beating as consumers switched. They got out of going to restaurants, we saw a lot more of the take-home type products. We have seen a good start to 2010 up to the end of May. We are actually hitting our plan and then some; again it is still lumpy. We have one category that is just taking an absolute beating, so it suggests to us that there is still not a high level of confidence in the consumer at this point; however, we are seeing an improvement, and I think that we are going to see that through to the end of the year. Next year, I expect we are going to see the same. I think we will be relatively stable from a volume perspective, and again I think it will be a bit lumpy, but I am hoping that it will be a little less lumpy because it makes it a little easier from our planning perspective. I do not see volumes crashing unless something absolutely dramatic happens.

MT: I want to touch on the subject of rates next. When we surveyed both carriers and shippers, the feeling from six in 10 shippers was that rates are going to remain flat this year. One of the interesting things that I found on the research was that, again, carriers tended to be more pessimistic about the direction of rates than their own customers were. There was actually a certain contingent of motor carrier executives who felt that rates were going to continue to go down in 2010, whereas a very small contingent of shippers thought likewise. From your perspective, do our survey findings match what you are seeing in the marketplace for 2010?

Gallant: I would agree with the flat 2010. I am not seeing anything that tells me different than that. For 2011, I still think that there is a lot of capacity in the market, and it is a market that is driven very much by the capacity within the lanes as well as the assets themselves. With the outlooks we have just talked about, I cannot see there being anything that is dramatically different in 2011. Maybe a point or two either way.

Owens: I would say the domestic rates are going to be holding pretty steady. I would not think of a drop. Where I see there is potential impact is coming out of the US into Canada. I can see that there is probably going to be some rate increases there potentially on certain lanes, and it really comes down to the equipment balance.

MT: Ginnie, we have been through recessions and recoveries before. As we head into this recovery, do you see any areas in particular where you expect to see the most upward pressure on rates?

Venslovaitis: I would say the cross-border piece. The domestic seems to be holding its own east to west. West to east, it is all about backhaul where the volume is moving. But I think the cross-border seems to be extremely volatile depending on where you are coming from and the dollar fluctuation. That is the biggest concern.

MT: When a carrier is coming to you folks and asking for a rate increase, as I am sure many of them will be, what would you advise that motor carrier take into consideration and communicate to you?

Owens: I would say come in and bear your soul a bit. That might not be easy, but come in and do your justification, and do not be greedy. Do not start putting fictitious numbers down in front of somebody. Be open and candid, and say, This is what we need to service your business. You have got a big component being fuel that is being looked after. We do not have that luxury, so keep that in mind. When we want to get a Kit Kat chocolate bar at $0.50 on the shelf, it is not going to be $0.52 because fuel went up at the oil head. We are eating a lot of that, so just understand that, and understand that when you are putting through an increase that you have to be very transparent. The other thing is, on your fuel surcharge if the (price of diesel drops below the base rate), there needs to be a fuel surcharge rebate on the invoice. That might help you sell it in.

Venslovaitis: Tell me what the real problem is. Tell me what the systemic issues are. Maybe it is a certain lane that is just totally out of whack, and I can look and say, Yeah, I can give you $100 more per load on that because that is your problem area. I do not want to take a 5% increase on everything if it is one lane that is the problem. I also expect the carrier to tell me what is driving the cost and why they need the rate increase. Also, what are you doing to keep your costs down? What are you doing for fuel economy? What are you doing to make yourself more efficient, because we are having to do that as manufacturers. That is the key. And so is understanding each other’s business; you understand what I am doing, how I am shipping, what my constraints are, and I can understand a bit more about what you are doing and what your thing is, and what your challenges are from a costing perspective.

MT: Mark, can I flip the question for you? What are the worst things that a motor carrier coming to you asking for a rate increase can do?

Gallant: There is one that comes to mind that I actually just had to laugh. It was an e-mail to one of my team members, and it was ‘Here is your rate increase.’ We had a conversation and that will not happen again. My company, Home Depot, we are passionate about customer service and respect. That goes so far; it is everything we just talked about. Show us, be specific. That goes a long way. If you come in and it is a number on a page you are going to get a reaction that a number on a page would get. I do not care if it is a tight market or it is a market with capacity in it, you are still going to get the same reaction. It is a loose market today, it might be a tight market tomorrow. We know that, and you know that, and we have just got to treat each other with respect.

Venslovaitis: I just wanted to jump in to build on that. If you are having regular meetings with your carriers, rate increases usually do not come as a surprise because you know what the underlying situation is with your carrier; you understand what the challenges are. If you have been telling me all along that you have some of
these challenges, I am not going to be shocked when it is the end of the contract and you are coming to me and saying, ‘You know, we have been talking about this for the last six months and I really need 3%, or I need 1% or I need to fix this lane.’

MT: We have spoken so far about freight volumes and rates. The other important part in this equation is capacity. Motor carriers have parked a lot of stuff, and in some cases gotten rid of a lot of equipment. Certainly, they have not invested in new Class 8 tractors in the last year or two the way they have in the past. The recession has left quite a few motor carriers just barely hanging on and perhaps we will see by the end of this year several more companies exiting the market. As buyers of transportation services, do you have any concerns as the economy picks up and freight volumes start to grow of another capacity shortage in the future?

Gallant: I think that there is capacity right now. What I do not know is how much latent capacity there is before it will tighten. And I am not sure geographically where that will be first. I think that one common theme that you will find in Canada among shippers and retailers is that we are going to be, and we are right now, investing more in the West. What you will see is that we will be making more use of inter-West units. I do not think that we have ever truly solved the issue in the Maritimes, so we need to think about that as well.

Venslovaitis: My concern is more around the capacity that is out there; is it still road-worthy? I know there is a lot of equipment parked up against a fence. It gives me the shivers when I think that I have gone to a new carrier or there are some new lanes and somebody has bid on some business, that the truck going down the highway, has it been serviced and has it been taken care of, or is it one that just got pulled out of the back 40? That is the part that I feel I am not comfortable with right now. I really do not blame carriers for not investing -what do you do with this thing that has not been moved in a year? Do you want to sell it and buy a new one? Probably not, that would be foolish, so I think we are not in a good spot right now.