OTA fleets: King Cash beat recession, capacity crunch coming

TORONTO – Some of Canada’s most successful fleet owners shared their vision of the future at the Ontario Trucking Association‘s annual conference today, as well as a few secrets on how they weathered the eye of the recessionary storm.

Greg Rumble, president and CEO of Contrans shared his boss Stan Dunford’s conservative philosophy of aggressively managing debt as soon as the first tremors of the recession were felt.

"One thing I didn’t want happening was to have $40 million of debt flip into current liability and have to live with that on my annual financial statements for a year, so we went to our lenders at that point and negotiated a renewal … to put the debt coming due back into long-term," he explains. "That was either great management or just great luck.

"Had I waited and not done that until (later), our rates would probably have been two- to three-percent higher … so we rolled into another five year interest-only loan. So, I’m sitting in a position now where I don’t have to make debt repayments."

In fact, most of the panelists at the economic session – which was moderated by Vitran’s Rick Gaetz and included Jeff Bryan of Jeff Bryan transport and Rolly Uloth of the Rosedale Group – told one story or another about how quick and effective decision-making early in the recession helped soften the impact.

"It’s been a wild ride. Most of us are a little more tired; a little grayer, but a little wiser too," said Gaetz.

Jeff Bryan explained how his company entrenched and focused on asset utilization, selling off idled trucks while values were still decent and, later, parking equipment when he could.

"Cash is king, especially in a recession," Bryan said, echoing similar statements made by Gaetz and Rumble. "If you’re not going to use it, get rid of it. It was one of the best things I did and I got a pretty good dollar."

On the flipside, planning for growth in this first trimester of the recovery is just as key for Rosedale, Uloth explained. In the last year, he’s invested $8 million in turning over equipment and has either opened or expanded terminals in Vancouver, Winnipeg and Montreal. "When the wheel turns, we want to be ready to go."

While rates are now stabilizing – Gaetz says rates are up 6.9 percent this year, "which brings them back up to where they were this time last year" – the panel was unanimous that over-the-road pricing is primed for takeoff in the next few years.

It’s a familiar story, but one that the trucking execs can’t see playing out any other way:

As the post-recessionary dust settles and the last rounds of the so-called "zombie truckers" hand in their keys, capacity will constrain once again.

And considering all the new costly and regulatory barriers to entry in place today — like CSA, for example — as well as the steep demographic dearth Canada is facing, the sharp upward trajectory of freight prices appears obvious, at least after some slow progression from this point.

"Make no mistake about it, the driver shortage is your friend as an opportunity to (increase rates) and reinvest in your company," says Gaetz, who qualifies that by adding that, most importantly, good drivers need to get paid much more.

"(We need) to pay drivers what they deserve so they can play a significant role in this economy."

That sentiment was echoed across the panel. "Drivers have not been respected (and) that has to change in the real world," says Uloth.

One debate that emerged was whether carriers should lock into long-term freight contracts, which is something that savvy shippers are certainly looking to do as they see the impending capacity crunch written on the wall.

Joining the fleet owners on the panel was Rosalyn Wilson of Delcan Corp. and author of the annual State of Logistics report, who suggested that it might be a good idea for carriers looking to expand marketshare during the recovery to negotiate three- to five-year capacity guarantees. "Reliability is the biggest issue facing the industry."

A couple of panelists and several truckers in the audience stressed caution, though. Rumble questioned whether the timing is right for long-term contracts unless volumes are guaranteed and flexibility on moving rates forward is built into the deal.

Added Gaetz: A five-year contract at 2 percent (rate increase) will lead you to a situation where you have a cost base of 2016 and a rate base of 2005."  

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