Yellow Transportation President and CEO James L. Welch on the impact of the Roadway deal in Canada, overcoming challenges at the border, and the need for a new shipper-carrier relationship.The following is part two of Truck News’ exclusive interview with Mr. Welch.

TN: This merger provides the new corporation with considerable muscle to look at providing new services. Are there any areas in particular that you are looking to add services and would those services be offered in the Canadian market?

Welch: Nothing from a definitive standpoint but some of the areas we would be looking at include the further development of premium services, time-definite guaranteed services and global offerings.

But we are not able to get on the road with these until after the close of the deal. Through Yellow Global we want to try to expand further into Canada at some point. That we would like to see happen over the long term.

TN: I would like to touch on a couple of key industry issues. Motor carrier rates have been depressed for some time on both sides of the border.

At the same time there continues to be downward pressure on transportation spending at the corporate level. How do you see the struggle over rates unfolding over the next few years and which factors do you see having a major impact on the debate?

Welch: The market will always win and a lot of that is governed by how the whole economy is doing.

If the economy comes back I think you will see the amount of capacity that has been taken out of the market – with CF going out of business and the failure rate among smaller carriers – have an impact.

I really think it gets back to a blend of supply and demand. When things are going good, it’s easier to maintain rates because capacity is so tight.

When it loosens up, people become more competitive for the businesses and that’s when discounts come up.

What we are going to try to do is maintain the pressure on our internal organization to improve our value in the marketplace, whether that’s through the quality aspect or the breadth of our service portfolio.

Over time we believe we can hold our rate structure better if we are providing superior value and providing our customers with more opportunity to utilize our portfolio.

TN: Capacity of course has an impact on rates. I was speaking recently with the people at the Transcore load matching service. They told me that their general load to truck ratio – which during healthy times runs at about 1.5 to 2.25 loads for every truck in their system – has crept up to four to one.

They say they have never seen such an imbalance. What’s your view of the North American truck capacity situation?

Welch: There is still capacity in the system but it is getting tighter no doubt. We are on average at 90-94 per cent capacity.

If the economy does pick up and sustains growth I think we will see capacity issues.

One of the things the industry is fighting is the shortage of drivers and I think that’s going to cause heartburn for some companies.

But I don’t think we are in immediate danger of being so far out of capacity that people can’t move their loads.

And I think we are seeing probably a bit of a spike in capacity because inventory levels were pretty low and we are seeing some replenishment.

Also, as manufacturing continues to exit our country, that’s changing the distribution patterns significantly.

I think the next two to five years are going to be pretty interesting but I don’t see an immediate crisis.

TN: What is your view of the latest Customs pre-notification proposals and how they will impact the way your company will be able to conduct business?

Welch: I think there are pros and cons to any change but I continue to believe the Canada-U.S. border crossing will continue to improve over time because they are doing a much better job of utilizing technology.

It’s really about trying to get people to change as things progress. I think anything we can do from an information standpoint is key to progress.

TN: Has your company worked out what impact all the new security requirements will have in terms of your cost structure?

Are these costs that shippers should expect to be passed on to them?

Welch: I can’t put an exact number on it, but it is significant dollars. We definitely have committed more resources to making the process work.

I think the market over time will dictate whether we can pass these costs on.

Hopefully if you are doing it in a very valued way your customer will assist but that gets back to the fact the market will always win. We haven’t been as aggressive as other carriers in implementing a security surcharge and it’s not something that’s active for us right now.

TN: Security costs is one example of the many issues that require healthy dialogue and understanding between carriers and shippers.

How would you describe the state of the shipper-carrier relationship right now? Any areas in particular that need improvement?

Welch: I think the shipper carrier relationship is better than it has been in the past.

Certainly the amount of transition that has occurred in the transportation industry with a lot of carriers going out of business and the supply chain process and distribution patterns changing has required carriers and shippers to work closer together than they ever have. But the system that everybody uses to price shipments is antiquated. We are a deregulated industry that is still using pricing mechanisms from a regulated industry and somehow over time that has to change.I hope by building a better shipper-carrier relationship we can hopefully make progress.