negotiation time

MT: The economic recovery to this point has been weaker than hoped. When you are looking at the rest of 2010 and into next year, how do things look within your company as far as freight volumes are concerned?  
Weibe: We certainly saw an uptick in the loads we shipped late last year. Because we did not see a drop-off, we do not see a significant surge this year. We are going to grow our regular freight 3-4%. From a dollar-spent perspective, we are slightly down, but that is primarily because the Canadian dollar is trading higher relative to the US, and we bring about 1,000 loads per week out of the US into Canada. That has a significant impact on our spend, but not on our load count or our shipping counts.
Kelly: For us, it looks like it is going to remain flat with maybe a slight increase. The food industry is a little bit shielded from downturns.
Stapley: Our volume is going to be remaining flat for the next 12 months, as many of our customers – the big one being the government – are dealing with budget cutbacks, so they do not have to the money to spend. What is going to change is how we ship. For example, although our volume is going to remain flat, we may be moving more into a courier environment to go direct to the customer, as opposed to LTL or truckload into Canada, and then courier out.

MT: Our research shows that motor carrier executives are very reticent to jump in and believe some of the freight volume projections that we have been hearing. Are carriers justified in taking a more cautious approach? Were shipper projections for 2009 out of whack? When looking back at the projections that you had within your company for 2009, were they close to the mark or far off the mark?  
Weibe: I would say that carriers are going to be a pessimistic bunch right now as they have just gone through probably the worst year or two of their careers or their companies’ lifespan. It is human nature to be a little more pessimistic about it. From our perspective, what we had projected to do in 2009 was roughly what we did, if I take out the effect of the US and Canadian dollar exchange. Again, and Allen has said it as well, food was not immune, but was not as impacted by the recession. We saw a bit of an uptick in a lot of our grocery stores, primarily because people were not going to restaurants.  
Stapley: I think carriers are being very pessimistic. A lot of the carriers came in to meet with us and expressed some frustration and disappointment about volume declines, but we were just telling them to be patient because it will improve. If you hang in there, it will improve.

MT: Is the volume growth basically replenishment, or are you seeing some growth in inventories towards 2011?
Weibe: We have a fairly large general merchandise business, and we are seeing some of our inventory grow mildly. Although we are not seeing a tremendous boom in terms of the number of cases or the dollar that we are inventorying, I think what we are doing is being judicious in terms of what we will order relative to what our sales forecasts are, and I think most Canadian retailers have done the same.

MT: The expectation is that the direction of the Canadian dollar is going to be upwards. What is the impact of the Canadian dollar going to be on your supply chain practises?
Weibe: I know it is going to hammer us on produce. As the dollar rises, we certainly get a deflationary environment in the produce that we purchase down from the US, and the transport that we purchase just on the exchange arbitrage. Where we are certainly seeing it is there are a lot of deadhead miles. Carriers that were traditionally getting a lot of loads out of Toronto, the Atlantic, British Columbia and down into California, to reposition their reefers and pick up our produce, that is not available to them any longer, and we are paying more in terms of the northbound freight to get the same number of pounds and that same freight level back into Canada. It has had an adverse effect on our transport side. I think, from a supply chain perspective, what it does make us do is look again more towards some of those offshore options. Asia may grow at an exponential rate, potentially because we do not have that gap, and typically they price in US dollars.

MT: Let us move on to everyone’s favourite subject: rates. What are your projections?
Kelly: In our food industry, I am saying they are going to stay flat. Unless there are some carriers out there that are going to have some surprises for me, but that is what we are predicting and budgeting for.

MT: What about for 2011? When you look that far ahead, what do you see?
Kelly: I think that the strategy for shippers is to really look two years out and lock in for two years with quality carriers. I think if you do not, you will probably have to restock the panic room because there are going to be some carriers that are not out there, or they are going to have very substantial increases. Our strategy is to get out there with two- and three-year contracts.
Stapley: We are putting more and more pressure on these carriers to come forward with solutions and set some strategies that can improve our business. With that comes a cost; the carrier has to invest money in order to make money, and I think that is going to be reflective in the rates. Certainly, I expect an increase in assessorials appearing on freight invoices. I agree with locking in a multi-year agreement with the carriers to lock in the rates, but also to give the carrier the opportunity to demonstrate themselves. I know most companies are doing one-year contracts, but I find that when we switch carriers and implement, it takes a few months. If it takes three to four months to make that transition, then there are only about six to eight months left of the agreement.  

MT: Rates in trucking have dropped as much as 18-25%. In ocean and air, we’ve seen drops in business of about 30%. We know that for these companies to be able to survive, they are going to have to come back and be aggressive with their rates. Robert, I want to ask you, when you have carriers coming in and asking for a rate increase this year and going into next year, what kind of things as a shipper do you want them to communicate to you in order to justify that increase?
Weibe: There is usually the opening sell: “We had a really tough year.” In a lot of cases, folks will come in and say, “We rode the downward spiral with you. It is starting to come back up, and we are going to need to see a market rate that is going to make sense for us.” We generally get into some pretty detailed conversations with our carriers, especially our large partners, in terms of where their wages are going. It is certainly not in our best interest to put them at a disadvantage relative to hiring drivers and getting good gear on the road and we will not accept that. I think that it really just gets into those detailed conversations and just understanding what is going to drive that price increase. What is the bottom line? Is it the driver’s wage? It is probably not going to be that. Is it that the market has changed? Has a head haul lane now changed into a back haul lane? We have certainly seen some of that in some of the places in Canada. The more detail you bring to the conversation, the more credible that conversation is, and it gets a little bit easier to have. If it is really just, “Gee, things were crappy last year and we would like a little more this year,” that is not going to get the carriers very far.
Kelly: Carriers have got to cause justify the increase. Right now, we see a big trend on the cost of c
ompliance, and that needs to be broken out. If that is the reason for the increase, let’s put it on the table and talk about it. Do not think that we want any carrier to be out of compliance, and if they need something in that area we will look at it and consider it. Crossing the border is such a big issue; C-TPAT, PIP, all these security programs that are out there do add costs to transportation. Just bring it to the table.
Weibe: As a fairly large shipper and user of transport services, I think we also have to be very aware of the fact that when the rates came down last year, we really were not asking guys to sit in front of us and tell us how their costs came down. We know tractor prices did not come down and we knew wages did not come down, but we still asked for a rate reduction to get us in line with the market. We have to be aware of the fact that when the market changes, we typically do what these folks do and enter into two-year arrangements in our inbound contracts and then we will go about five years on our outbound contracts. So they are pretty detailed discussions, but when those rates came down, we were certainly a shipper that asked for those rate reductions, and I think we work with our partners well, but we also felt we could not be out in terms of our competition. mt

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