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where do we go from here?

Shippers and carriers are two sides of the same coin. The coin has been landing mostly shipper-side up the last couple of years, but there's a strong feeling that it is about to change.


Shippers and carriers are two sides of the same coin. The coin has been landing mostly shipper-side up the last couple of years, but there’s a strong feeling that it is about to change.

The consensus among shippers and carriers is that the bleeding caused by outrageous low rates is coming to an end, and that rates will indeed be going up. At the same time, the signposts indicating an upcoming driver shortage were on everyone’s mind.

How quickly things can turn around! Up until recently, few thought the auto manufacturing industry would ever rebound in southern Ontario. Yet the Cami plant in Ingersol is running full bore, as are some other assembly plants and parts suppliers from Oshawa to Windsor. However, the US government plan to print money and buy up bonds and the subsequent devaluation of the American currency, will no doubt pose another challenge to Canadian manufacturers and trucking interests. And if China chooses to react to the US initiative by dampening down its surging economy, the luster may come off the revitalized Canadian resources market.

Transportation consultant Dan Goodwill of Dan Goodwill and Assoc. offers sage advice: “With the Canadian dollar at par and possibly going as high as a $1.10 U.S., this makes it very challenging for Canadian shippers to sell into the US market. It is very important for Canadian shippers and carriers to think globally. Canadian shippers need to look at offshore markets to offset the drop in US purchases. Canadian transportation companies should be forming alliances and partnerships to provide a “land bridge” to foreign markets. This is where things are going and this trend can only accelerate in 2011 and beyond.”

Whatever the future holds, truckers are a resilient bunch, and this is a stronger, leaner group going forward.  Albeit with some reservations, a sense of expectancy of better times ahead seems to run through the comments of the executives we profile in the following pages. One thing we can be certain of is change itself, and the following commentaries are reflective of a trucking community that is ready to embrace change and make it work for them.

Vaughn Sturgeon,

president and CEO

Atlantica Diversified Transport Systems

Is there optimism for the upcoming year? Yes, I do think so, but it’s a bit constrained. I’d call it cautious optimism. Times have been so difficult over the past couple of years and shippers and carriers have started to get a better hand on supply and demand. So there are less trucks on the road and the capacity balance is certainly closer than ever to where it should be.

My feeling is that we’re not going to see a large increase in shipping volumes. There will be some growth but more from the decrease in capacity, so growth will be sporadic and not necessarily consistent month after month. But overall we’re going to see gains in 2010 and hopefully again in 2011.

We got hit pretty badly in the last few years but, from what we hear, not as badly as our fellow carriers  in the US. But I don’t necessarily expect to see a lot more bankruptcies. Fleet size has come down quite a bit. Where once a carrier was running 100 units, they’ve now got 70, and one with 70 units is down to 40.

You’re definitely going to see mergers and acquisitions continuing but I don’t think we’ll get to a state of an oligopoly with only a few big carries. There are still going to be entrepreneurs out there but it’s getting more difficult for the smaller ‘mom and pop’ operation with 20 trucks or so to survive.

Freight rates are definitely going up. How high will depend on supply and demand in the specific lane, but I would expect at least 5-10% overall. Some of the rate cutting that was going on in recent years was just atrocious. Thankfully, that seems to be over as a general trend.

One worrisome issue on the horizon is a looming driver shortage. If you thought the last one was bad,  get ready for this one! Right now there are fewer  trucks on the road and so if you’re looking to add a few drivers here or there, you can probably find them. But the next time we need to increase our driver pool there’s going to be a big problem. The demographics aren’t there. We’re looking at an aging workforce that’s getting ready to retire and their replacements aren’t coming into the industry. In the past we’ve gotten drivers from Germany, the Netherlands and the UK , but even those nations are drying up as a resource.

Jacqueline Meyers,

president

Meyers Transportation Services

Freight rates need to go up, both LTL and truckload. Some of the truckload rates to the US were just decimated in the last couple of years as carriers were quoting rates below their costs just to keep their equipment moving. There’s no more room to go down no matter how much we try to drive out costs and improve efficiencies.  Rates should increase around 6% in the TL market and hopefully 3-4% in the LTL market.

Capacity is likely going to be an issue for shippers. Most fleets haven’t bought much equipment over the last three years and some of those older trucks have been coming off the road. Mostly we’ve been buying specialty equipment where we know we can make a return on our investment. Customers are starting to realize they’ve got to be thinking in the long term-if they don’t lock in some capacity with core carriers they’re going to be in trouble. But not everyone is thinking that way.

One thing that is scaring us is the use of American contracts in Canada, Often, the head office in the US will send up a 50-page contract and want Canadian carriers to sign it. The contracts have overreaching clauses that put the carrier into a very risky position where their insurance won’t cover the risks.

The contracts often stipulate that the carrier is responsible for any and all losses and costs incurred regardless of whether the shipper was partly or entirely responsible.  Even if the carrier can prove shipper negligence, the carrier is still responsible.  And their insurance company won’t cover them for shipper negligence.   

For example, if a shipper loads a refrigerated load on our trailer, but fails to advise us of the temperature requirements and the product is damaged by not maintaining the temperature; we would be responsible for the cost of the load.

We’re seeing more and more of these types of contracts. And some of these loads can be worth a million dollars. Some of the shippers will work with us and agree to a revised contract that’s acceptable to us and our insurance company. Other shippers insist on the American-style contract and as a result we have to walk away from large blocks of business.  These indemnity clauses are so unfair that they have been made illegal in 25 states in the US. I’m hopeful that we will be able to convince our government that similar laws are required.

Carriers should not sign these types of contracts without making sure they are reasonable.  And shippers need to make sure they are issuing fair contracts, or be willing to negotiate the terms to be more reasonable. 

We’ve been successful at collecting fuel surcharges but sometimes we get pushback from customers. Some of the big shippers decide, “this is the fuel surcharge rate and this is what we’ll pay.” But in those cases, carriers have to build the fuel price shortfall back into the basic rates.

Overall, I’m seeing some optimism out there but I don’t know of anyone calling for a speedy recovery. If we can get at least 3-4% more from customers this year, and drive out more costs simultaneously, this will help to put carriers back into a more sustainable position. 

Fred Myles,

director of operations,

Rosedale Transport

The next driver shortage is upon us. The shrinkage is there and it’s been there for a while in terms of driver skill sets. The quality and selection of new drivers is very slim. It’s a tech world today and young people just aren’t thinking of trucking as a career.

We started to look for drivers last February, as the economy had somewhat turned for the positive and we started to see an increase in volume. At least we’re holding steady and there’s optimism that more lanes will open up. We’ve lost a few carriers in the last recession, but when a big tree falls the little ones get opportunity to grow or keep growing.

It’ll probably be a bit slow in the first quarter of 2011, but in the second and third quarters there should be some growth and freight rates should creep up. Of course you can expect fuel to go up. As more parts of the economy come back on line you’re going to see more trucks on the road and more demand for fuel.

Assessorial charges, in my opinion, will always be a part of the business. We charge for things like heated service and tailgate deliveries and there’s a built-in cost for all those moves. We don’t have much problem with detention time, unless there’s a delay at the border. Most shippers want to work with you to make sure their freight is delivered in a timely manner. Fuel surcharges are entrenched in the billing, the only debate is about what percentage the customer will pay.

In some ways the recession was a boost to the LTL market. Instead of a customer ordering five truck loads of material, he might just get five or ten skids, because he doesn’t want to get stuck with excess inventory. And carriers, too, have learned how to max out their equipment. Part of the reason that some stability has come into the market is that carriers have learned to do more with less.

A future bright spot is the Vancouver and west coast shipping environment that is bound to pick up once things get rolling. We just opened a terminal in Vancouver and are expecting an increase in business. As the Asian market continues to take off, getting back on its economic feet to where it was in the past few years, this will have a positive trickle effect on the Global markets which in turn will cause a ripple effect across the rest of the Canada.

 

Stan Dunford

CEO and chair

Contrans

Everybody’s in a better frame of mind. You would think revenues would be up, but they’re up very little. Yet if you called any of our general managers across the country they would tell you we’re really busy, we can’t keep up. Well they are, but they’re doing everything with a lot less equipment. Where the profit comes from in this quality of revenue is in the utilization of assets that can offset lower pricing. So you’re working for 5% less than last year, but you’re utilizing your assets better and you’re making more money than a year ago.

Things have changed fundamentally from when the dollar was 70 cents, and now it looks like it could stay close to par for a considerable length of time. That’s created the biggest change in trucking I’ve seen in 43 years. Historically your headhaul was your premium rate and your backhaul was the discount rate.  When it’s a 90 cent dollar, it’s completely reversed. Now the headhaul is the US freight coming to Canada and the backhaul is Canada to the US.

I you’re not going to see much change in volume late into 2011. The economy’s not going to take off; it’s going to be very slow or it might just stay flat. Rates are hard to predict. But the main thing that’s going to drive the rates back up to an acceptable level is the driver shortage. There are enough guys that have already left the industry and there are not a lot of good replacement drivers out there. It’s not going to take much of an (economic) improvement for customers to get scared when they can’t get service. Then they’ll be willing to pay a bit more and lock into a contract.

Mergers and acquisitions have slowed down overall. In 2009 we didn’t make any at all. In 2010 we looked at about 80 companies and we acquired two in the waste management business (in Edmonton and Calgary). I like that business, it’s consistent and not subject to market fluctuations. It’s also regional and I don’t have to worry about foreign exchange rates.

Claude Robert,

president and CEO

Groupe Robert.

We are partially out of the recession but the economy of 2005-6 will never come back. The economic picture in Canada is very, very soft. The strong Canadian dollar along with consumers with a high degree of debt is the perfect combination to put us back into recession.

Transport companies have to be very careful. I just had a meeting with my managers. Aside from the 50 Liquid Natural Gas tractors we’re are buying, and a few special pieces of equipment for special contracts, we’re not going to be buying any equipment right now.

We’re going into LNG because I strongly believe that the experience we acquire is going to put us at an advantage when others are ready to come on board. There are things in life that people are afraid to try because they are risky. But we could use some tax support from the governments in Ontario and Ottawa. Quebec allows us to write off a significant amount of depreciation on alternative-fueled vehicles.

Trucking companies are shortening up the distances they travel. If a shipper wants to ship to Texas he uses rail. And there’s a new generation of drivers out there. Some drivers want to be home at night so they prefer driving a gravel truck to hauling long distance. The drivers that used to count on 3,000 miles a week to survive, will not be able to do it, unless they cheat.

The big problem in the industry is that the shipper is used to getting the cheapest possible rates. They don’t have a clue why the rates need to go up. Big customers are asking for price increases, yet they want a rate decrease in freight rates. People need to be realistic.

Right now customers are going for very short contracts, if at all. One shipper I know needs 25 trucks per week but won’t commit to a dedicated carrier. Instead he is looking on the internet for people to move his freight. But that will change. Just wait for CSA 2010 and onboard computers to kick in.

The only positive thing I see on the horizon is that many private fleets and carriers will get out of the business. Trucks are dying everyday and smaller companies are not going to be able to afford the price of new trucks and insurance premiums.

Murray Scadeng,

president

Triton Transport Ltd

We’re a heavy haul carrier and our market is heavy equipment for construction, mining and forestry, and we have a flat deck division. A mini-recession hit us from March 2009 to about March 2010. It came later than we expected it, and some of our weaker competitors may have dropped by the wayside.

We’ve hired back and replaced the owner-operators we had to let go during the slow period. Even so, many owner-operators and older drivers have left the industry and we’re not finding the good young drivers that we had 20 years ago. This is going to be a real challenge going forward.

It’s hard to tell where we will go from here. We see the Alberta market as more volatile, while in BC some large projects have started up and volumes are up, as is pricing.

We haven’t suffered the same turn down as the rest of Canada , but the resources industry is hard to predict. I don’t see us getting back to 2007 levels in the near future – it was the one time I can remember when, in our sector, demand outstripped supply. The present-day US economy is just too weak, even though the Pacific Northwest is much stronger than other parts of the States.

Fuel is going to keep going up, but I don’t think we’ll see the volatility that was so hard to manage previously. We can manage slow increases, but in many cases fuel surcharges, or the way they were handled turned out to be a bit of a cash grab for some carriers.

One issue that concerns us is what will happen with the 2010 engines. Although the 2007 engines may have been better for the environment, we have found them more costly to buy, less reliable and less fuel efficient. Hopefully our experiences with the 2010 EPA engines will be better.


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