At one time, in the not too distant past, when we’d have been licking our lips anticipating the volumes of pre-Christmas traffic, we are today, evaluating the so-called peak season behind us, and battening down the hatches for what could be a long and nasty downturn. What a difference a few quarters makes.

There really wasn’t a pre-Christmas rush this year — at least not how we used to understand it. The Internet has changed all that, he says. More and more people are ordering gifts online rather than buying retail. That’s shifting freight to the small package carriers that deliver door-to-door rather than to the big trucks that deliver to retail outlets or distribution centers. Another sign of changing times.

We’d better get used to change, there’s lots of it coming our way.
The biggest change, the one that’s driving almost everything else right now, is the value of the dollar.

Historically, our weaker dollar has kept the competitive playing field between American and Canadian markets more or less level. Economists say we’re competitively positioned when the loonie is valued at about 80 to 85 cents. But our dollar has been steadily gaining ground on the Greenback since it hit an all time low of 61.79 cents (U.S.) on Jan. 21, 2002. Carriers billing in U.S. funds at that time enjoyed quite a premium on the value of their work. Today, with the dollar at par and higher, we’ve lost more than 40 percent against that record-high exchange rate.

To make matters worse, exports are down and imports are up — thanks of course to, you guessed it, the exchange rate.

Not only is cross-border volume disappearing, we’re having to compete with lower-priced American carriers, and they may soon be coming north into Canada with what used to be our loads.

Historically, Canadian trucks have hauled the lion’s share of international trade, but it’s becoming cost-prohibitive to run south empty or at a loss to pick up north-bound loads. Canadian carriers could lose certain lanes to U.S. carriers who can cost-effectively move freight north into Canada. They have only to run empty as far south as the border to reload again.

Traffic from Asia will keep container ports, and
drivers in that sector, busy into the foreseeable future.

With the U.S. economy in a bit of a slump, American truckers could start looking north as a means of regaining revenue lost on domestic moves.

Ironically, the thickening of the U.S.-Canadian border could help us here. The Yanks don’t like crossing the border. We’re used to the hassles.

Recently, U.S. truckload giant, Contract Freighters Inc., of Joplin. Mo., announced a new driver-inspired pay package that included making trips to Canada voluntary rather than mandatory. CFI president Herb Schmidt said he was surprised by his driver’s reluctance to travel into Canada. “We had no idea the paperwork was seen as such a problem for drivers.”

Small consolation, it’s true, but with rates paid to contract owner-ops in the U.S. running consistently under a dollar-a-mile (plus a fuel surcharge), it’s going to be tough going head-to-head with pricing like that. Canadian owner-ops currently average somewhere in the range of $1.30 per mile, everything in.

Brother, Can You Spare a Load?

In 2005, carriers were adding to their fleets as fast as the supply of drivers would allow. And many more fleets bought heavily in 2006, getting in under the EPA 2007 wire. Now we have too many trucks chasing too little freight.

We’ve already seen several major international truckload carriers announce rate cuts to owner-operators and drivers, as well as lay-offs of contracted help in an effort to shed capacity. Inevitably, some carriers will soon be folding their tents — voluntarily or otherwise.

“Some will take measures to address the capacity situation voluntarily, others will be forced into it,” says David Bradley, CEO of the Canadian Trucking Alliance. “Continuing to chase freight that doesn’t pay just to keep trucks rolling is not sustainable.”

“It all comes back to rates,” says Liberty Linehaul’s Brian Taylor. “For what some shippers are squeezing us for, they have to know that it’s unsustainable.”

Taylor says many shippers are trying to compensate for the ground they’re losing to U.S. pricing. A quick check of some web-based load boards revealed some frightening figures:

More freight is moving from east to west these
days, but not anything close as much is coming back.

A van load from Niagara Falls to Chicago: $600. A van load from Boston to Halifax: $750. A flat from Calgary to Tampa: $2,680.

Oblivious of cost, freight is moving at vastly deflated rates. Sooner or later, Taylor warns, it’s going to become a safety issue.

“You can’t maintain a truck for long at those prices,” he says.

Interestingly, this undoing of the market comes at a time when enforcement is being stepped-up on both sides of the border. Anyone who travels Ontario’s Highway 401 in the Windsor area will have noticed the new “super-coop” that the Ministry of Transportation (MTO) has opened on the eastbound side.

The capacity there has increased dramatically, and with more than a dozen more officers patrolling the sideroads in southwestern Ontario, it’s going to be tough to get away with running shoddy equipment.

“I can tell you — anecdotally — of all the dealers in the Toronto area, all our parts and service business is down 30 to 40 percent,” says John Nelligan of Harper Ontario Sterling. “Fleets aren’t doing any better than owner-ops. Our parts sales to fleets are down too.”

People are not spending enough money to keep trucks in the condition they should be in because they can’t afford it, Nelligan warns. “They’re saying patch it, do whatever you can. I can’t afford to redo it completely.”
With fleets running 20-percent fewer miles, and less-than-compensatory rates, nobody is spending any more money than they have to.

That too is an unsustainable situation. If this (insert the R-word here) lasts long enough, these issues are going to show up on the carrier safety records. That’s when the insurance companies will take notice. Can anyone afford a hike in premiums because of a bad showing at a ministry audit? But they think they can afford to haul buck-a-mile freight.

The Domestic Outlook:

With the U.S. economy teetering on the edge of recession, the overall economic outlook for Canada remains healthy. It has been suggested, recently, that our economy may be in the process of “decoupling” from the U.S. economy to some extent.

We haven’t yet been sucked down the tube along with the U.S., this time, because of a shift in trade patterns. Our commodity exports to countries like India and China are keeping our heads above water for the moment, and imports from those countries are driving up traffic in marine containers over here. Granted, the railroads do the long-haul work, but local and regional cartage operations in parts of the country near railheads are doing very well.

Vocational sectors are doing well in most parts of the country. More freight is moving east-west these days, and rates there are holding, we’re told. The problem is, more U.S.-focused carriers are diverting idled equipment to domestic service, putting downward pressure on rates in popular lanes, like the Montreal-Toronto corridor.

It’s hard to see any silver lining to the dark clouds hanging over 2008. It’s going to be a rough year, and there will be losses, and an overall realigning of the workforce and the carrier population. We’ll see many mergers and acquisitions over the coming months, and we’ll see many fleets and drivers disappear.

Adjustments are a necessary part of any business cycle, and ultimately, the stronger, smarter operators survive. I hope you’re one of them.