Are trucking rates likely to drop after three years of significant gains? And how will that affect the shipper-carrier relationship?

The shipper and motor carrier executives participating in our first annual Issues Roundtable, sponsored by Shaw Tracking, had much to say about rates and a variety of other issues critical to effective transportation practices. Over the next few weeks we will share their insights with you.

Participating in the Issues Roundtable were Serge Gagnon; President, XTL Group of Companies; Rob Penner, Vice President, Operations, Bison Transport; Dan Einwechter, President, Challenger Motor Freight; Julie Tanguay; President, L.E. Walker Transport; Neil McKenna Director, Transportation Operations, Canadian Tire Retail; and Bob Ballantyne, President, Canadian Industrial Transportation Association. Lou Smyrlis, Editorial Director of BIG Transportation Media, moderated the roundtable.

This week we look at our panelists views on rates.

Smyrlis: The current downward push on rates has left me wondering whether rates went up simply because of the capacity shortage or because of a growing understanding among shippers that we needed to pay higher rates to keep the industry healthy? If its the latter, then I assume the shipper-carrier relationship, at least as it relates to rates, will remain strong going into the future. If its the former then we are back to the adversarial relationships of fighting over rates. Neil where do you think this is going to go?

McKenna: Over the short-term, things look good from the shippers point of view but long term the demand is going to continue to grow and where the demand becomes greater than the supply, obviously, carriers will be able to demand higher rates. We are a shipper but we also operate a private fleet and so we understand the challenges. Anyone who thinks capacity shortages are a thing of the past is kidding themselves.

Penner: When there are more trucks around than freight, the rates always go down. We spend a lot of time with our key clients working on giving them an understanding that its not the handful of pennies on the transportation side that really impacts their business so much as their demand for service. We ask them to be careful not to put us in a position where we cant invest in new technology or driver training and development because these things do matter. A short-term view will ultimately penalize the shipper. Imagine if no trucking companies were investing in new technologies right now because rates are on the decline while equipment is more expensive to buy and operate. And drivers want to get paid more money and you cant just say hold on for a year from now. You have to deal with these issues because we know at the end of the day there will be a demand for drivers and for our services and if we dont spend that money now and test that new equipment in 2008 or 2009, suddenly we are replacing our fleet at much higher cost without a lot of experience on how to maintain the new engines and little feedback to the engine manufacturers on how to improve their products. This is the first real downturn in a totally new regulatory environment the border requirements, the EPA mandates these are big things. There are no short cuts and there are a lot of dangers in short cuts. Shippers face as much risk as we do if they cant get their product to their customers like they expect them to.

Gagnon: The rates went up in 2004 and 2005 and there have been improvements in reducing detention time. Before that we were waiting two and three hours. But the border crossings still remain a challenge. If we are stuck at the border we still have to pay the drivers waiting time. In general, compensation for the work we do has improved. The new Hours of Service rules helped us to implement it. Productivity was improving because there was a cost factor involved for the shipper. In a lot of cases, this has gone away due to volume shortages and availability of trucks. Most carriers are paying their drivers fair compensation including detention and fuel and border crossing whether the shipper is paying for it or not. This is a big problem for the future. How can we improve productivity if there is no cost involved to the shipper?

Einwechter: Theres multiple kinds of carriers and there are some that are either opportunistic or so entrenched in their views, because of what happened after deregulation, that they have to be dragged into the new world to understand the long term implications. I keep hearing decline, decline. I want to stress that its subtle. We are running the same miles or more than last year. Do we have to work harder than we did last year? Yes we do but we are still marching forward. The sky is not falling, but as you said earlier, the ceiling is a little lower.

Penner: The economic circumstances have actually elevated the focus of forward-thinking shippers on finding efficiencies for us because they know you cant just knock the rates down or push them up either. Having them concentrate on getting costs out of our system so that we can compete at the same level is something weve seen a lot of the proactive shippers do. It is encouraging to see shippers understand the long-term issues.