Have you finally managed to tan your body and your brain during your summer vacation? They didn't actually say it (being Canadian they were too polite) but I could tell by the look on their faces they...
September 1, 2008
Lou Smyrlis Editorial Director
Have you finally managed to tan your body and your brain during your summer vacation? They didn’t actually say it (being Canadian they were too polite) but I could tell by the look on their faces they were thinking it.
What prompted this was the idea I floated during several presentations to transportation industry groups this summer that we could actually be an economic uptick away from another serious capacity crunch in the trucking sector and a return to upward pressure on rates -perhaps as early as the next few months.
Talking about a capacity crunch and rising rates in the midst of the worst downturn the industry has faced in a decade is admittedly jarring. I understand all too well that many motor carriers are too busy hanging on by their fingernails right now to have the luxury of thinking ahead.
But there really is a reason to my “madness.” And it has to do with the end result of the carnage going on right now.
The 935 trucking company failures reported in the first quarter of 2008 in the US represent not only a 142.9% increase over the previous year but about 42,000 power units exiting the market or around 2% of the country’s total truck capacity.
To place that in a Canadian perspective, it’s the equivalent of pretty well wiping out the entire British Columbia trucking industry.
Then on May 20, 2008, Jevic Transportation closed its doors, representing the largest failure of an LTL carrier since the departure of Consolidated Freightways in 2003.
Canadian motor carrier bankruptcy figures aren’t as up to date. Al’s Cartage was the biggest name to go under this year and it wouldn’t surprise me if a few more familiar names joined the ranks of the departed.
But it’s just as important to keep an eye on lower-profile small carriers exiting the market; their contribution to capacity, although not what it once was, is still important.
The last economic downturn in the late 90s, claimed about a quarter of our small carrier base.
After 2005, tight capacity was loosened to a significant degree by the pre-buy.
While another pre-buy is likely, it won’t be anywhere near the size we saw back in 2005 and 2006. There simply isn’t much time to put a pre-buy strategy in place this time around and, more importantly, there aren’t as many Class 8 trucks up for replacement.
If we assume a seven year average life cycle there are only 18,361 trucks up for renewal in 2009 -too low a base number to envision Class 8 truck capacity being increased by 35,000 to 39,000 as was the case for 2006 and 2007.
In short, there are enough significant factors limiting supply that as soon as demand perks up we’ll feel an instant impact on truck transportation pricing. •
-Lou Smyrlis can be reached by phone at (416) 510-6881 or by e-mail at lou@