SPECIAL REPORT: The UVWs of the freight market

TORONTO — Alphabet soup-style economic forecasts continue to simmer.

On the North American hot stove, there’s been much talk of a ‘U’-shaped recovery (a gradual upturn) in 2010, although how stretched out the bottom will be remains open to debate. A handful of economists have dared to guess we’re on the brink of a sharper V-shaped upshift; while other, more pessimistic observers warn of a ‘W’-shaped trend. No, that doesn’t mean the last U.S. president is coming back to politics, but that, perhaps, a double-dip recession could be in the cards — at least for the U.S.

At the Ontario Trucking Association’s annual conference this week, a few more economists and freight transportation execs took their turn at stirring the pot of predictions.

John Larkin, a respected freight market analyst with Stifel Nicolaus is with the majority who say that both the American and Canadian economies have touched bottom, but recovery will be elongated and painfully slow. 

Many macro economic indicators that spell out the U.S. economy are still evolving — consumer demand, credit availability, rising unemployment, future taxes and national debt — clouding the long-term forecast for freight haulers, including those involved in Canada’s export-based economy, Larkin noted in an opening session at the OTA conference.


The LTL segment, says Larkin, has by far been the most negatively impacted; while consumer-driven general truckload and flatbed, which is intimately tied to construction, have seen some of their worst volumes in 25 years.

Truckers chasing rates down to the depths of the market
are getting lifelines from banks and lenders, carriers complain.

People still need food and medicine so temperature volumes held up relatively well during the recession, says Larkin, although rates are hardly more robust than other sectors.

"Just because volumes are higher doesn’t mean customers aren’t asking for, or getting, (discounts)," he says. Overall, "pricing across the board has never been this bad." It’s "flat out miserable," he says. (More on pricing later).

Larkin’s co-speaker Meny Grauman of CIBC World Markets agrees that the economy is taking "baby steps" toward growth. 

Canada is expected to outperform the U.S. over the next 24 months, although he admits that bodes well mostly for regional truckers operating exclusively in Canadian lanes.

Still, "2010 is going to be a year where businesses have to be careful and continue even with a "recession-like mentality."


Those conclusions were not at all inconsistent with what most Canadian fleet owners experienced these last 12 months, nor what they expect for 2010.

A panel of about a dozen large and small carrier execs led a State of the Industry" discussion in the afternoon. They discussed whether the recession has changed how they do business; if current conditions will alter shipping patters indefinitely; the role of enforcement in the 21st century and, of course, rate cutting.

Bruno Muller of Edmonton-based liquid bulk hauler Caron Transportation says things have stabilized somewhat this fall in the West — "the peaks and valleys aren’t as high or low" — but the fall throughout 2009 has been steep. Muller discloses that at one point, month-to-month sales were 42 percent down from last year.

From the other wing of the country, Vaughn Sturgeon, president of New Brunswick’s Warren Transport half-joked that there’s no bottom or bust in the Maritimes because "there’s never very much of a boost" to begin with.

In all seriousness, though, while part of the modest jolt in fall freight volumes might be driven by the expected pre-Christmas "Santa Claus," Sturgeon too sees shades of sanguinity returning in regional lanes, although commodity-driven activity along the Atlantic-U.S.-Ontario triangle remains very soft.


The truckers felt that on par, a decent percentage of carriers have done a reasonably good job cutting capacity in a bottom-feeding rate environment. 

Dave Pogue of smallish fleet EG Gray Transportation says that "it’s not that big a deal" to park paid-for trucks along the fence. "If you owe on every piece of equipment, it’s obviously not as easy to do, but don’t be afraid to park trucks you own if the rate means it’s not going to make any money."

Shippers know 40% discounts aren’t sustainable. But
they’ll ride them as long as they can, says MSM’s McCarron.

Still, while some established carriers shed capacity, even more — with little grasp of their own costs — continue to depress rates.

MSM Transportation’s Mike McCarron and Muller didn’t hold back in their criticisms of lenders and leasing companies’ lax treatment of underperforming carriers. Rather than take back equipment of debt-ridden truckers at 25 cents on the dollar, financial institutions have given poorer operators lifelines at the expense of their competitors who pay their bills.

"There’s guys out there running around for free," says Muller. "There’s no way some of these guys out there can be out there without backing. They have nothing at stake and they cut the rates out of everything."

Theoretically, shippers should be wary of unreliable fly-by-nighters charging a buck twenty a mile ("sport trucking," as George Ledson, of Cavalier Transportation dubbed it)

But McCarron insists the severity of the market downturn has been enough incentive to take the risk. "They don’t care. The (shipper) is as desperate as the (carriers) are. They’ll use them until they go out of business. Sure, they know it’s too good to be true, but they’ll ride it out as long as they can."

The bottom line, though, is — and few will argue this has always been the case — that carriers are their own worst enemy.

"We can’t just blame banks and financiers. We have to change the direction of price ourselves. Customers continue to take because we continue to give," says Seymour, noting that he, like many others in the room, can’t be absolved from contributing to the self-deprecating strategy at times.

But now, he says, "there’s nothing left to give."

There are, however, some obscure signs that buying leverage is at least leveling. "The flurry of tenders and RFQs that existed a quarter ago have slowed down," says Seymour. "Perhaps some (customers) realize the window to get decreases is closing."

It’ll be up to truckers, though, to keep it closed for the foreseeable future.

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