The last time the Canadian loonie was worth as much as the U.S. greenback, Jimmy “I will never lie to you” Carter was elected president of the United States. As if there weren’t enough reasons to try and forget 1976.

As far as the Canuck buck went, though, parity was mostly a good thing 31 years ago. It’s not as if 45 percent of Canada’s GDP was based on exports — 85 percent destined to the U.S. — like it is today.

Manufacturing-dependant central Canada has been bearing the brunt of the appreciating loonie (or, more accurately, freefalling U.S. dollar) over the last five years. According to RBC Capital Markets, about one third of the volatility in export levels is explainable by the exchange rate.

The impact on shippers and their transport providers is three-pronged: The appreciation of the dollar directly cuts into the profit margins of companies paid in U.S. funds; the rise of commodity and energy prices costs firms more to operate; and finally, depressed aggregate demand and cheaper U.S. competition bites into volume levels on southbound headhaul lanes.

“It’s always easier to absorb costs if you’re getting more product out the door,” says Jayson Myers, chief economist for the Canadian Manufacturers & Exporters, “but if you don’t produce as much, all the additional costs hurt more because you’re not running at full capacity.”

And if carriers and their customers weren’t already being pinched hard enough with pricing pressures, consumers are now waking up to the fact they’re still paying disproportionately more for the same product in the U.S., despite a supposed even-level buying field.

The price gap for immediate goods like fresh food is starting to close in Canada, but for most other products — especially pre-ordered or warehoused items like electronics and machinery — retailers are reacting painfully slow to the exchange rate.

“As imports [from the U.S.] become cheaper, the companies that bring them in make money on them,” says Myers. “So far, they haven’t been under pressure to adjust prices and it’s very profitable for them not to.”

Until now, that is. If scenes at various border crossings along the 49th over the last month are any indication, consumers are voting with their feet. The Friday afternoon car lineup at the Ambassador Bridge in Windsor these days looks a lot like the truck lane after Sept. 11 as Canadians flock to Detroit in search of better deals.

“I see it every day. The border is just jammed with cars with people crossing just to get milk and bread and gas; basic everyday stuff,” says Moe Faddoul, president of 120-truck auto- parts hauler Moe’s Transport in Windsor. He says the added border congestion is playing havoc with his just-in-time scheduling. “Retailers [here] have to wake up.”

But what side of the bed will they get up from? Rather than trim their own markups to get shoppers back in stores, big box retailers and large manufacturers — as they are in position to do in times of slack capacity — will likely attempt to make up the difference by pressuring an already beleaguered supply chain to reduce costs even further.

“The capacity situation we enjoyed in mid-decade where we were more or less in balance between the demand and supply for freight is not there,” says Ontario Trucking Association (OTA) President David Bradley. The result, he admits, is a return to some of the price wars that plagued the trucking industry throughout most of the ’90s.

Bryan Miller, operations manager for Essex, Ont. auto components hauler, Ram Contract Carriers, confirms there are more “guys in this neck of the woods just trying to get money to change hands so they can stay afloat a little while longer.” Miller, whose 200-truck fleet is almost all owner-op based, insists he won’t chase rates.

In fact, he tells Today’s Trucking that after the dollar crossed the parity line, he handed back a third of his business back to GM. “I quoted these things back when [the dollar]was $1.10 or a $1.15. Now, with it at par — when you start taking those dollars away — I’m losing big. So, I told them they could give me a rate increase or they could take me off the lane.”

GM had the contract up for re-bid, says Miller. “I’d rather have a 100 trucks and stay somewhat profitable than 200 trucks and lose my ass.”

Luckily, Ram recently launched a general goods and a reefer division, which Miller says allows him to keep most of his owner-ops busy. But, he admits, he doesn’t know how many of those seats he can keep running if the dollar continues to rise significantly over par. “Even on [these lanes] it’s getting tough to find high volume freight from places like Toronto going south,” he says.

Losses resulting from the spiking dollar has forced manufacturers
to trim costs; and service providers are some of the first to feel it.

The ground beneath Canadian auto-industry suppliers and service providers is increasingly shaky, to be sure.

David Bradley says Canada’s skilled labor pool and robust productivity rates mean the bulk of Canadian auto manufacturing isn’t going anywhere, anytime soon. But, he adds, “it behooves our parts manufacturers to compete in the global supply chain and be able to supply to the foreign manufacturers as well as domestic.” As well, as Jayson Myers points out: “Buzz [Hargrove] and the gang will also have to make sure their own agreements are competitive.”

Further west down the Trans-Canada, far removed from the economic grind that entangles the auto industry, the bullish loonie has delivered another blow to cross-border agricultural and lumber sectors, just as the storms of the softwood and mad cow disputes have begun to pass.

Already battling protectionist forces in the U.S., it’s just a matter of time before many beef and lumber producers become less competitive than domestic firms south of the border.

So far, says Jim Ryan, the peak “fall run” season has somewhat buffered the cattle industry from the effects of the dollar. However, while southbound volumes haven’t slowed much, the general manager of Butte Grain Merchants in Picture Butte, Alta., admits that in order to keep up with U.S. markets, slaughterhouses here have dropped prices in recent months. That’ll likely put upward pressure on transport rates, which Ryan says “are already stagnant” since the border reopened to live cattle in 2005.

Bright Spots?

The news isn’t all that bad for everyone — specifically diversified linehaul carriers and those in larger specialized niche sectors.
ATS Andlauer, for example, has been able to generate above average results due to its niche focus on pharmaceutical sectors, as well as specialized temperature-controlled services. Trimac’s focus on large bulk contracts, mainly in the west, gives it buying leverage and partially protects the carrier from the weaknesses stemming from the manufacturing sector, reports RBC, which covers the financials of both income trusts.

TransForce, Canada’s largest holder of general trucking assets, is significantly exposed to eastern cross-border traffic volumes, but has been able to mitigate the impact of the loonie somewhat by scaling down capacity and re-allocating drivers to more profitable segments — at least in the Quebec market, where the carrier has significant scale.

But what if you’re a smaller, general cross-border van fleet or owner-operator? Then, you’re probably not so lucky, says RBC analyst Walter Spracklin.

“If you aren’t protected by a specialized market, you have less recourse to capacity management than a large carrier would.”

At least you don’t have to be a huge player to take advantage of the slowly dropping prices for equipment, component systems, and technology. But while it’s true the price of a new truck or a set of tires has come down, many fleets and owner-ops are still hesitant to buy when the economic picture is so cloudy, says Faddoul.

“It’s a good time to buy, price-wise, but people are scared off because they’re worried about losing work.”

Ironically though, the economic environment has strengthened Faddoul’s relationship with his employees and drivers. How so? “I notice that even my drivers are giving it more effort than they usually give,” he says, adding that they’re more conscious of cost-saving practices like fuel conservation and anti-idling. “They’re very concerned about the economy and about what the future holds. For the first time, they’re asking me ‘What can I do? How can I help?’ I’ve never seen anything like it before.

“This is the kind of attitude shift we all need if we’re going to be competitive in the future.” He includes trucking companies, drivers, shippers, and retailers, in his challenge. “Times are changing, and we have to change too.”