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Softer capacity could be short-lived but fuel costs, driver shortage not going away

TORONTO, Ont. -- Despite the recent fall-out from the appreciation of the value of the Canadian dollar and the resu...

TORONTO, Ont. — Despite the recent fall-out from the appreciation of the value of the Canadian dollar and the resulting manufacturing softness, the president of the Ontario Trucking Association is not predicting a recession as economic growth remains relatively strong.

A higher Canadian dollar, combined with the continued emergence of China as manufacturer to the world, is having a significant impact on some of the traditional bulwarks of the Ontario economy which in turn is being visited upon the province’s trucking industry, says the OTA.

“While it may be hard to see the forest for the trees right now, the fundamentals that under-pinned the improvement in carrier balance sheets up until the last six months or so, have not changed all that much and certainly do not warrant excessive price discounting or turning the clock back to where we were prior to the last few years,” noted David Bradley, president of the OTA.

For the past few years the tight trucking capacity allowed the industry to firm up freight rates, but outside mitigating factors have dampened truck rates in some markets. Despite industry efforts to improve fuel efficiency and productivity, the major components of operating costs will continue to escalate.

“Fuel costs continue to escalate and it may not be long before we see crude near $100 a barrel. Equipment costs are going up because of the new, tougher environmental standards,” Bradley said. “We understand that many shippers are also faced with competitiveness challenges, but in the grand scheme of things freight costs are not the determinative factor in whether a business or a sector will survive. North American freight rates are as competitive as anywhere else in the world, if not more so. Trucking margins are still nowhere near thick enough to absorb the kind of cost increases we are seeing.”

“The driver shortage is only going to deepen; the demographics of the industry ensure that,” he continued. “This is not only going to continue to push up wage rates, but it will inevitably suck up any excess capacity that may temporarily exist.”

As fuel prices and the value of the loonie remain wildcards in economic foresight, Bradley credits the Canadian economy for showing resiliency.

“Businesses are restructuring to compete under the new global realities and there is a huge role for government to help industry to adjust or to at least get out of the way,” explained Bradley. “I am really having difficulty understanding the Bank of Canada’s tight monetary stance when inflation is low and the dollar is above 90 cents U.S.”

While Bradley would not speculate on how soon the market would turn around and he cautioned against an over-reaction to current circumstances by both shippers and carriers. “The market can be a fickle, confounding creature at times. Every few years it takes a breather but one thing is sure, it always bounces back and then people will be scrambling to get their freight moved.”

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