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INDUSTRY PULSE: Penetration of surcharging shows increasing industry sophistication

TORONTO, Ont. - The degree to which surcharges are being implemented is a good indication of the growing sophistic...

TORONTO, Ont. – The degree to which surcharges are being implemented is a good indication of the growing sophistication among carriers for charging fair value for services, Transportation Media editorial director Lou Smyrlis told members of the Toronto Trucking Association this week.

Fuel surcharges are a reality for almost 100 per cent of shippers using truck transportation today, Transportation Media research conducted in partnership with the Canadian Industrial Transportation Association and CITT at the start of year indicated. And there’s greater than 25 per cent penetration of surcharges for things such as detention time, border delays and border security program costs. With the exception of currency surcharges, trucking has been the most aggressive of the modes in pushing through surcharges.

"What this amounts to, really, is carriers being bold enough to charge shippers based on the shipper’s performance as a client. It is putting the onus on shippers to be among the better performers on the client list or face surcharges, or worse, loss of service," Smyrlis told the Toronto Trucking Association in a luncheon address.

Smyrlis also told association members that more than 80 per cent of shippers using truck transport in 2004 reported paying higher rates than the previous year again, more than that for any other mode. To put the significance of this in perspective, he pointed to a similar market snapshot taken in 1999. Back then only a quarter of shippers reported having to pay higher rates than the previous year.

The magnitude of the rate increases was also revealing. More than half of shippers using trucking services saw their rates rise by greater than four per cent in 2004. And a tenth experienced increases of 10 per cent or higher.

Smyrlis said he supports the rate increases and surcharges, despite the fact Transportation Media also owns Canadian Transportation & Logistics, a publication for shippers, because "the past 15 years of predatory pricing have made for a transportation system that wasn’t based on sound business principles and so was doomed to fail."

"I think shippers are better off paying small annual increases based on sound business practices than becoming addicted to unrealistic and irresponsible predatory pricing and then having to survive the pricing shocks they are going through now. I also believe that a solid return on motor carrier assets is not only fundamental to ensuring long term capacity but to being able to provide the higher level of service required to meet growing supply chain requirements," Smyrlis said.

He added that the challenge for motor carriers will be to keep their growing insistence on getting proper value for your services in balance with shippers’ continuing need to watch costs. He pointed to another Transportation Media survey of more than 700 shippers across Canada completed last October which showed that reducing costs is considered a priority by more than 80% of supply chain managers.

In his speech Smyrlis also addressed capacity concerns, potential growth areas, the growing understanding among executives of the direct link between supply chain management and financial performance and the need for shippers and carriers to work closer together to address future challenges.

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