Rising loonie clipping profits: OTA
TORONTO (May 20, 2003) — Increased administration for new border and security initiatives, fuel, and insurance have all done their part to take a bite out of carriers’ bottom lines. Now a new economic trend is squeezing margins even thinner — a depreciating U.S. dollar which has in effect caused the loonie to soar.
The Canadian currency, which was worth less than 64 cents (US) at the beginning of the year, commenced its upward trajectory late last week and was trading above 73 cents (US) –a 15 per cent rise in less than 6 months.
Costs for Canadian carriers involved in cross-border business are in Canadian dollars, but they are usually paid in U.S. currency. Such carriers thereby rely on a cheap loonie, which allows them to offer shippers more attractive freight rates. The trend is also impacting many of the trucking industry’s customers whose prices of export goods have become more expensive and therefore less attractive to U.S. buyers, says the Ontario Trucking Association. Today, one U.S. dollar converts into less than $1.37 (Cdn), compared to $1.57 in January. In an industry with such thin margins, even a moderate rise in the loonie squeezes revenue out of the bottom line, says the OTA.
Unlike fuel cost increases — whose volatile nature lend them to being passed along, at least in part, to shippers — changes in the value of the dollar, which tend to remain on a downward or upward trajectory over extended periods before stabilizing, must be recovered through freight rate increases, the OTA suggests.
“Carriers need a rate increase to make up for what they are losing as a result of the change in the value of the Canadian dollar vis a vis the US currency,” says OTA president David Bradley. “The profit margins just aren’t there to absorb the currency shock as well as all the other cost shocks the industry is trying to cope with.”
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