What does the Loonie’s swan dive mean to truckers?
March 1, 2014
The Loonie has been under attack in recent months, falling to a four-year low of 89.09 cents compared to the US dollar on Jan. 31 and bringing back memories – both good and bad – about how the Canadian trucking business is impacted...
The Loonie has been under attack in recent months, falling to a four-year low of 89.09 cents compared to the US dollar on Jan. 31 and bringing back memories – both good and bad – about how the Canadian trucking business is impacted by something completely out of its control: the value of our currency.
Canadian drivers who haul stateside and carriers who serve the US market both feel the impact of a rapidly rising or depreciating Loonie. We spoke to experts to find out how everyone – from drivers, to carriers, to manufacturers – will be impacted by a Canadian dollar that of late has seemed to be in freefall.
Canadian carriers with US customers stand to benefit from a weaker Loonie. Bill Cameron, the owner of small cross-border flatdeck company Parks Transportation, noted American customers almost always pay in US dollars.
This means revenue on northbound loads is generally better when the Canadian dollar is weak and the opposite is true when the Loonie is at par, or above, as has been the case in recent years.
“Several years ago, when the dollar gradually went from 64 cents to par, we had an awful time convincing US customers that their rates had to increase, so that our revenue remained consistent after exchange,” Cameron recalls. US-originated freight paid for by Canadian companies, however, is generally paid in Canadian dollars and won’t be affected by a depreciating Loonie.
Cameron pointed out carriers could suffer because a weak Loonie means Canadian retailers are less likely to bring US product north. This could also affect northbound volumes.
“Any Canadians bringing product from the US to Canada are now at a disadvantage, therefore cutting down on the northbound freight,” Cameron pointed out. “The difference in the dollar may help on one hand, then hurt on the other. Overall, it’s a wash. If, in this slow economy, the dollar drops into the 80 cents range, I think it’ll mean trouble because the freight availability will be lopsided with more freight going south than north.”
Canadian manufacturers, for the most part, have adjusted to the reality of an erratic Loonie, according to Derek Lothian, national director, communications with the Canadian Manufacturers & Exporters.
“I think a lot of manufacturers in Canada have been caught off-guard with sudden fluctuations in the market over the past decade; but most have learned their lesson and have implemented proactive strategies to hedge against risk and minimize exposure where they do business,” he told Truck News. “Obviously, the US remains a primary export market for manufacturers – and much of what they sell into other parts of the world is sold in US dollars as well, so ultimately a weaker Loonie means Canadian products are much more competitive globally.”
Lothian added: “That also tends to balance out the negative impact a softer Loonie has on investment. Because a large portion of those global sales are in US dollars, that essentially means more cash is flowing onto the balance sheet that can be reinvested into new product mandates or ramping up production. I should add, however, that the longer the dollar remains weak, the more I’d expect companies to diversify their supply chains, and shift their sourcing away from American-made components to Canada or other lower cost jurisdictions.”
Mergers & Acquisitions
We asked Mike McCarron, head of mergers and acquisitions with Wheels Group, how a lower-valued Canadian buck will affect mergers and acquisitions, as it relates to Canadian companies buying American firms, or vice-versa.
“It puts a premium on Canadian companies that Americans are looking to buy and discounts American companies Canadians are looking to buy,” McCarron said.
“What’s not so obvious, however, is that Americans are already very skeptical of doing business in a ‘foreign’ country. They are far more benign and uninformed about Canada than we are about America. The sinking dollar provides another risk or uncertainty that I think will make American companies sitting on the fence think twice about buying a Canadian company. It’s an additional element of risk that they don’t understand and cannot control. What happens to your deal if the Canadian Loonie drops to 85 cents US? I think the sharp decline exasperates the situation. If the dollar had been at 93 cents for years there would be less uncertainty than one that is dropping rapidly with no end in sight and no real hard or fast explanation.”
Drivers who run the US will pay more for everyday expenses such as food, and O/Os will shell out more for fuel, but drivers we spoke to say it goes largely unnoticed since such things are still considerably more expensive in Canada. Angelo Diplacido no longer runs the US, but did so in the mid-90s when the Canadian buck was valued at 62 cents.
“Food prices were not the issue at all. It can cost $15 for a meal in Canada, where you may get a similar meal for $7.99 in the US,” he said.
Alfy Meyer, who drives for Erb Group as a company driver but once worked as an owner/operator, said a weak Canadian dollar is a “double-edged sword” for O/Os.
“On one hand, our Canadian products become more attractive to US consumers, so demand for it rises thereby increasing loads to the US. More freight means more miles, means more revenue. A good carrier gives fair fuel surcharges so this helps compensate fluctuations in fuel costs,” Meyer said. “The other edge to that proverbial sword is that US goods become too cost-prohibitive for the Canadian consumer, and return loads become more difficult to secure. As long as the Loonie remains within the 90-cent range, the disparities aren’t as sharp or acute as to affect us too adversely.”
Carriers and owner/operators looking to buy new trucks will be adversely affected by a weak Canadian dollar. With the strength of the Loonie in recent years, Canadian truck buyers have been somewhat insulated from the high cost of the latest generation engines. That’s about to come to an end. If the Canadian dollar loses five cents compared to the US greenback, that could equate to a $6,750 price increase on a $135,000 truck.
Derek Varley, manager of fleet services with Mackie Moving Systems, says he’s always looking ahead in an effort to project what the exchange rate will be.
“There’s a lot of money to be saved with good planning,” he said. “It behooves fleet managers or owners, whoever is doing purchasing, to understand what may take place with the dollar and what is happening with the dollar and to work those projections to your advantage. I’m looking three months ahead. There are some strong projections that by mid-summer it could be back to an 85-cent dollar and that’s not going to be a fun time to be replacing equipment.”