Lou Smyrlis

I’ve been at this transportation reporting gig for going on 20 years now and I can’t recall a time when an economic recovery was being faced with so much trepidation, uncertainty and conflicting opinion about the future.

Our own research has been revealing this uncertainty for some time now. We find the majority of motor carrier executives, for example, being more pessimistic about freight volume growth and their ability to charge higher rates than their own customers. The uncertainty and conflicting opinion also surfaced at the two workshops we put on for shippers and carriers earlier this summer, in partnership with Dan Goodwill and Associates. I think I’ve lost track of all the different theories about the shape of the recovery and their assigned letters– V, W, U, L. Heck, there is even a √ (square root) shaped recovery scenario. There’s no shortage of economists worrying about a slip back into recession yet Carlos Gomes, senior economist at Scotia Bank and the opening speaker at both of our workshops, sounded awfully convincing in his assertion that the economic fundamentals are sound. Little wonder then how we ended up at our workshops with Dan Einwechter, the charismatic head of Challenger Motor Freight predicting come September “it is going be busy as hell” while fellow carrier panelists Peter DiTecco of Armbro Transport and Doug Munro of Maritime-Ontario Freight Lines did not see recovery for their industry for some time.

What gives? And, just as important, what does it mean for transportation and logistics?

Of all the commentary I’ve read this year, I’ve been most influenced in my thinking by Noel Perry, a partner with the FTR Associates freight forecasting group and author of The Challenge of Deep Economic Cycles.

Since 1980 the North American transportation and logistics industry was buttressed by relative economic stability which allowed both shippers and carriers to focus on their operations. After enduring four recessions from 1970 to 1982 the industry experienced only two from 1983 to 2007. But Perry believes the US economy (and therefore the North American economy overall) has entered into a pattern of high cyclicality, which will erode the economic stability our transportation system has come to rely upon.

Perry warns that it is time for the industry to clearly recognize this reality and begin its adaptations.

There have been a lot of bubbles burst the last few years -- consumer credit, home prices and financial risk taking – and the North American economy collapsed with them in 2008. Perry believes the reason we will be stuck in a period of rapid economic cyclicality is because there is a fifth bubble yet to burst: governmental debt, most visible in Europe but present in our largest trading partner as well. He figures creditors will prick that bubble sooner rather than later and the resulting shock to the governmental system will create “a wave of chaotic regulations, taxes and spending policies that will add another level of volatility to the transportation environment.”

The recoveries of the 1980s and 1990s lasted 25 and 28 quarters, respectively. That’s the environment both shippers and carriers have become used to operating in. But if we look across a longer time span, the reality is that the average for the rest of the recoveries is less than 10 quarters. If we return to a period of short cycles, as Perry predicts, the time for growth we’ve become used to would be cut in half.

And short recoveries are bad for transportation for a simple reason, as Perry explains: The benefits from an upturn take about a year to come in. It takes six months or more for the average manager to realize there has been a turn; it takes another six months for that manager to take advantage. Four lost quarters out of an eight- or 10-quarter cycle is a significant fraction. Operating in an economy with such high volatility requires shippers and the carriers who service them to respond much faster to changing market conditions than before.

Initially there may seem to be an advantage to shippers if carriers can’t move fast enough to reduce capacity when the economy cycles downwards. Savings in the range of 15-25% were common during the past year as the capacity overhang depressed prices. But if carriers are equally slow to add capacity during the upturn, the penalty the shipper pays for not securing adequate capacity is lost sales, product obsolescence and plant shutdowns.

High volatility will place an emphasis on analysis and planning. Carriers and shippers who do it, and do it well, will pick up on market changes earlier, respond to them faster, and developed relationships with each other that address the entire economic cycle rather than just the latest upward or downward phase.

For at least 18 months now I’ve been hearing about “zombie” truckers, motor carriers which are barely able to meet payroll from week to week yet somehow manage to hang on. Their continued existence maintains the capacity overhang that deflates rates since freight volumes during this recovery, especially in the LTL sector, are not growing as quickly as during prior recoveries. No doubt their desperation to secure any business that can keep them afloat for another week also contributes to depressed rates for the industry overall.

I’ve also been hearing for the last 18 months that until the lending institutions pull the plug on these severe underperformers the industry will continue to be mired in its over capacity/low pricing glut. Well folks, we may be waiting for a long time for that to happen.

Elian Terner, director, investment banking for Scotia Capital, was at our recent Carrier Workshop, sponsored by Peoplenet Canada and conducted in partnership with Dan Goodwill & Associates. Terner is a rising star in our industry and he provided his take on the industry’s future direction and what trucking executives must consider to best position their companies for the years ahead. You may not like what he had to say. Terner acknowledged that lenders have been reluctant to force delinquent operators into bankruptcy; used truck prices are still low enough lenders would not get much in return when selling off the equipment.

Would improved pricing for used iron change things? Perhaps, but as Terner pointed out, lending institutions don’t really want to be operating trucking businesses. “Generally speaking they’re not in the business of seizing assets. That’s not what they want to do. In many ways it’s better for them to keep the company alive,” he said.

So if the lending institutions don’t want to fix the industry’s problems then what? We should be doing what needed to be done all along; fix them ourselves.

1.For companies looking to grow organically, there needs to be a focus on limiting capacity. As Mark Seymour of Kriska Transportation recently pointed out at Transcore’s strongly attended users conference: “We are here to create a model we can live with for years rather than months.” That means not adding capacity unless absolutely certain of its long-term need and not getting trapped into other people’s pricing. Market share don’t mean a whole heck of a lot if you’re bleeding red while trying to achieve it.

2.For companies looking to grow by acquisition, Terner believes a number of attractive opportunities exist to acquire troubled carriers. “Consolidation will be a key theme for the trucking industry over the next several years…A highly competitive M&A market will be led by large firms focused on growth by acquisition and financial buyers with strong cash positions,” he says. But before that happens the companies in a good position to be acquirers need to get over their current cautious approach. Few seem willing to risk making a bad investment so soon after recovering from a nasty recession.

3.Company executives looking to sell need to get over their “wait and see” attitude. Those who may want to sell seem to be held back by the cold reality that their company is not worth anywhere near what it used to be. Also, many independently owned and operated trucking firms in the Canadian market do not have firm succession plans in place and in many cases no family members waiting in the wings and interested in becoming second or third-generation operators. Both those factors are pushing owners who could be selling towards a wait and see attitude. Yet, these are times when “wait and see” can have very negative consequences. That was made abundantly clear by the numbers provided by Terner. Consider that back during the industry glory days of 2002 to 2007, when trucking company valuations were going off the chart, we hit a peak of 10.7 x EBITDA. During the trough of the recession valuations dropped down to about 4.2X EBITDA, according to Terner. As he pointed out, can you imagine how much was lost by people who took a “wait and see” attitude because they did not properly understand the market trends and their company’s value? A return to peak valuations will likely take another 5-10 years, according to Terner and will require substantial sustained EBITDA growth.

Seems to me like there is no better time than the present for motor carriers to, as Terner put it: assess their strategic positioning and determine the best path forward.

Last month we held our second annual Profitability Workshop for carriers in partnership with Dan Goodwill and Associates and with the support of Peoplenet Canada. Profitability, of course, has been an all too elusive concept the last couple of years and that has forced deep cuts in supply chain budgets. I know I personally held some reservations about the strength of the recovery and the health of our industry, the jist of a rather frightening economic discussion at a recent truck show still haunting me.

We thought it critical to address the status of the Canadian recovery at our workshop and invited Carlos Gomes, senior economist with Scotiabank, to share his insights. I’m glad we did because Gomes had a very positive outlook on the economy to counter all the fears. The recovery is gaining momentum and the fundamentals are looking very strong, according to Gomes’ economic analysis. In fact, GDP growth could hit 4% year-over-year; in other words we are lurching towards normal.

Certainly the transportation statistics bear out his optimism. US truck tonnage rose 0.9% in April, marking the sixth increase in the last seven months, the American Trucking Associations reported recently. The ATA's Truck Tonnage Index now sits at its highest point since September, 2008. Overall, US truck tonnage is up 6.5% over the past 7 months. April's tonnage was up 9.4% compared to last April, the fifth straight month of year-over-year gains and the largest year-over-year increase since January 2005. Tonnage is up 6% year to date compared to the same period of 2009.

Share prices for Canada’s handful of publically traded trucking companies is also showing improvement with Transforce leading the way. That’s an indication the market believes the North American economy is improving, according to Elian Terner, director of investment banking at Scotia Capital and also a speaker at our Profitability Workshop.

Truck tonnage volumes are being boosted by robust manufacturing output and stronger retail sales.

For the hard-to-convince, Gomes pointed to several more indicators that the recovery has taken hold: Global trade is bouncing back, with growth in the 14-15% range expected this year. The housing market in the US still has unresolved issues but housing affordability is at one of the best levels on record. The financial system may be tighter than it used to be during previous economic recoveries but it is now healthy and not so tight that it would impede business growth, according to Gomes. And much of the government stimulus, on both sides of the border, will be spent this year.

With so many positive signals, why all the worry about a double-dip recession?

The massive debt western governments are incurring is one reason. Canada’s estimated $50B debt is larger than the mess Paul Martin had to clean up back in the early 90s. But Gomes pointed out it’s important to place the size of the debt in perspective. The Canadian economy has grown a fair bit since the early 90s, enough so that the current debt makes up 3% of Canada’s GDP, which is a smaller percentage than back in the early 90s. In fact, Canada is one of the most financially healthy nations in the western world as we head into recovery.

What explains the volatility we’ve seen in the markets of late? According to Gomes what we are seeing is simply fear-driven concern. Markets hate uncertainty and that’s why we’ve seen some dramatic drops just as things started to improve. But going forward it will be the fundamentals that will drive the economy and, as mentioned, they are solid.

I know skepticism about the health of our economy continues but I must concede it’s hard to argue against a case built on the fundamentals. Perhaps it’s time we all got over the shock of the recession, stopped worrying and got on with the work of rebuilding. For, as Terner pointed out, the carriers that have a clear strategic focus will benefit the most during the economic recovery.

In the meantime, it's always a good idea to stay current with the latest financial outlook, particularly if you can do so while also learning about supply chain strategy. Join us in Torono next Wednesday June 16 at the Airport Marriott and you can accomplish both at our annual shipper workshop, conducted in partnership with Dan Goodwill & Associates. Go to ctl.ca for more detailers and to register.

Over the past decade I’ve chaired or otherwise participated in a number of panels dealing with the considerable and growing gap between what we should be spending on infrastructure every year and what actually is being spent. If I’ve learned anything it’s that our problems are in no way unique; legislators and transportation stakeholders south of the border are just as pressed to find an effective way to deal with this issue as are their counterparts in Europe and Australia. I’ve also learned that continuing with the same old strategies is going to deliver nothing but the same old problems. We need to consider new approaches, no matter how far they may depart from our current practices.

Over the past year, US legislators and stakeholders have engaged in a debate that may revolutionize their greatly troubled approach to infrastructure spending. The debate is worth following; it’s directly relevant and there is much to learn.

US legislators have had to face the fact that their approach to raising infrastructure funding through fuel taxes is outdated. Current stimulus spending may temporarily mask the depth of the problem but this approach to raising funding has for years been falling short of meeting obligations for highway projects. By last year it was estimated that infrastructure investments from all levels of US government are contributing only about one third of the $190 billion that’s needed every year just to keep up with highway maintenance plus some gradual improvements to stay in line with the increases in trade, population growth and geographic movements of people that is normal over the course of years. It has been reported that from 1980 to 2006 the total number of miles travelled by car and trucks doubled yet highway lane capacity increased by just 4.4%. If you adjust for inflation, real highway spending in the US is down an incredible 50% since the heydays of the Highway Trust Fund of the late 1950s.

Sound familiar?

The problem is a flawed approach to generating revenues for infrastructure spending. The tax is tacked on the price of each gallon of gasoline or diesel yet purchases of fuel are actually dropping as Americans drive more fuel efficient vehicles. For example, Americans drove 108 billion fewer miles in 2008 than they did in 2007. Recessions, of course, further drive down mileage. And with US president Barack Obama pushing for a 40% improvement in gas mileage for cars and light truck fleets by 2020, the continuing demise of the current infrastructure revenue collection strategy seems inevitable.

So the US Congress chartered a special commission to look into the infrastructure funding gap and the commission came back with an interesting recommendation: Phase out the collection of fuel taxes and move towards a direct user-fee system where vehicle owners are charged based on the miles they drive. This way, the cars and trucks that use the nation’s roadways the most, and thus cause the most wear and tear on roadway surfaces, end up paying the most.

How would the government know who is using the highways the most? Well, this is the electronic age so you know there would have to be a technological solution. The commission believes that tracking technology and wireless communication could be used on a grand scale to calculate each vehicle’s travel miles and initiate the billing. The technology to send the data would have to built into all new vehicles over time.

One more thing I learned from the infrastructure panels I chaired or participated in was that if there is an interesting new idea, it’s likely already being tried somewhere. And so it is with user fees based on vehicle miles traveled. Several European countries are either already using them – Germany, Switzerland, Austria -- or planning to in the near future –the Netherlands, Denmark.

Germany’s experience has shown supply chain management improvements such as a clear incentive to consolidate shipments and cut down on out-of-route miles; move a portion of traffic to rail and purchase trucks with cleaner burning engines (the government gives a discount for doing so).

No doubt there are negatives to this approach (errors in tracking spring to mind plus the obvious invasion of privacy through tracking vehicle destinations) but overall I think this approach is worth consideration. What do you think?

Motor carriers were squeezed by the recession like never before. With a tentative recovery in hand, how will they start to grow again in 2010? In this second part of my interview with Mark Seymour, head of the Kriska Transportation and a former chairman of the Ontario Trucking Association, we take a look at the hard road ahead.

CT&L: A large part of the reason why there was such downward pressure on rates is because available capacity was considerably larger than the demand for transportation during the recession. There were a lot of new entrants in the years before the recession that contributed to this excess capacity. Will there be enough barriers to entry during the recovery to keep capacity from growing out of control once again?

Seymour: I hope there will be enough barriers to entry for new players and barriers to growth for existing players. Typically, what would keep you from getting in or bigger is banks, finance and insurance companies. I think those institutions will have to repair some of the damage they’ve inflicted upon themselves and for anybody trying to get in now, that may prove to be much more difficult. But we also can’t discount the growth we saw from established players. There was just a lot of growth in the industry.

CT&L: Despite the difficulties of the past year, Kriska did manage to grow. Tell me about your acquisition of Clark Transport. What does it add to Kriska’s capabilities and why was it a good fit?

Seymour: Clark Transport was an eastern Ontario based company and their business was primarily in the temperature controlled market and it was a good fit for what we do from a customer perspective and a network perspective. It added quality people and quality customers and that’s what we look for with our acquisition strategy.

CT&L: About a year ago you also purchased TL carrier BMD Transportation. Why did that purchase make sense for Kriska and how has that purchase worked out?

Seymour: It has worked out very well. It’s the same principle, with an eastern Ontario based company with good people and customers and strong relationships. It added more scale to our company and was very complimentary to what we already did. Both BMD and Clark were merged immediately with Kriska because they fit so well; there wasn’t duplication in terms of terminals and customers and equipment. Anything that we do these days is with scale in mind. If you are doing something, it’s always in your best interest to do more of it and get more scale. It helps diversify our business as well.

CT&L: Why does there seem to be a preference to pick up fleets of this size rather than pursue much larger acquisitions?

Seymour: In my opinion, nobody can afford to make a mistake right now. The bigger the nut, the bigger the risk. Mergers or standalone share purchases can be very distracting. They can also be very disruptive to customers and employees, so you have to be very careful. So I think the smaller the acquisition, the less dramatic and risky it can be. But at the same time there can be benefits. To go into the market today and try to grab $3 million or $5 million of new revenue is very difficult. An acquisition, if you do it right and convince the customers you are going to do it right, brings you that. We believe we have to continue to look for such opportunities that are of low risk. If you don’t grow you are going to shrink.

Attending Scotia Capital’s transportation and logistics night this week I picked up on a valuable piece of insight I think all motor carrier executives, and the shippers who deal with them, will want to consider.

The night featured a Jays game watched from Scotia Capital’s private box at Rogers Centre overseeing first base but in reality it was a great excuse to bring together a menagerie of transportation industry leaders for a few hours. Scotia Capital proved to be a most attentive host keeping us all well fed with plenty of good stuff to quench our thirst too.

The guests I had a chance to chat with included motor carrier execs such as Dan Einwechter of Challenger, Doug Harrison of Calyx, Nasser Syed of Apple Express and Brent Jones of Wilson Transportation as well as Pat Loduca of Upper Lakes Group and John Kim, the new CFO of Cargojet.

Talk naturally turned to the state of the Canadian transportation industry and I must admit I watched but a few minutes of the game the conversation being as interesting as it was. But it was Elian Terner, director of investment banking at Scotia Capital, who I thought provided the most thought provoking insight.

For a couple of years now motor carrier executives have been hoping the excess capacity in their industry would be removed when the financial institutions finally decided to shut down the many trucking companies basically operating from week to week - the “zombie truckers” as they’ve come to be called. The line of reasoning was that soon as the recession was over and the equipment owned by these carriers hanging on by their fingernails was worth something again, we would see the banks getting a lot more aggressive in calling their loans. In other words the banks would play a major role in consolidating the industry.

This view had a great number of adherents and I must admit to being one of them. But there are two problems with it:

First is the sheer scale of the capacity that needs fixing. The number of small carriers in Canada increased by about 25% during the pre-recession years; there are about 2,000 small carriers that would need to shut their doors before we could return to the capacity levels Canada experienced at the start of this millennium. And that’s not counting all the capacity added on by medium sized and large carriers. They did not grow much in number but they did increase the size of their fleets.

The second problem with this line of reasoning is quite simple. If this is what’s going to happen, why hasn’t it started happening yet? The recession is over, we are several months into a fragile recovery and certain sectors are already showing strong growth.

Scotia Capital’s Terner believes we haven’t seen the banks play a major role in consolidating the industry because they don’t want to. They’re not in the business of trying to sell off equipment and terminals; if these companies can squeeze by, they just may very well let them.

As Terner emphasized, if motor carriers feel the need to consolidate their industry to cure the excess capacity woes that have placed such downward pressure on pricing the last two years, they’re going to have to take care of it themselves.

In recent weeks I've had the opportunity to discuss some of the most pressing issues in transportation with some of the most respected minds in transportation and warehousing. I would like to share those conversations with you over the next few blogs.

First up is a two-part blog with Mark Seymour, head of the Kriska Transportation and a former chairman of the Ontario Trucking Association.

Q: Most people in trucking would say that the best thing about 2009 is that it’s over. Yet I’m sure there are some good things to come out of the recession. How is Kriska a better company today by surviving the challenges of 2009?

Seymour: We are more efficient because we’ve had to be. As good as anyone thought they were, they’ve had to find new and better ways to get things done. From that perspective I would say we are better. We are better at identifying costs and waste and pulling it out of the system. But there just wasn’t that much waste in the system to be able to give back to the magnitude that we have in terms of rates. When we pull out of this, those are valuable lessons that we can’t forget but we’ve got certain things we have to address, such as wages. Driving a truck is a very challenging job with a lot of regulation and a lot of time away from home and eventually in order to retain and attract people to this industry we have to address pay. It has been nothing but contracting the last couple of years because it represents such a significant portion of our costs. For most TL carriers, wages represent 30-40% of our cost base thus the reason for the pressure there.

Q: How will the efficiencies you’ve gained impact your dealings with shippers?

Seymour: There will come a day soon as the economy picks up when capacity will be tight again and it will be hard to find reliable, competitively priced and stable carriers. Efficiency and quality should be important to customers because if you have aligned yourself with anything less, you are putting your product to market at risk.

Q: How will the trucking industry that emerges from the recession be significantly different than the one that entered the recession?

Seymour: I hope before anybody gets in a growth mode again they are going to be in a repair mode first. I would hope there will be a limit to capacity growth in favor of repairing the balance sheet damage that has been done the last couple of years. There has been a lot of damage done and I think it will take years to repair. In a stable year you get a 5% rate increase in TL. We’ve experienced a contraction in pricing in the TL market between 15% and 25% over the past 24 months, exclusive of surcharges. We didn’t have that much to play with and give back yet we did. Five percent increases compounded over the next three years are only going to take us back to where we started. We have to take the initiative to address this problem. Shippers are not going to address this issue for us. We all have to get serious about doing it; it has to happen.

Q: How do you get solidarity in an industry of 10,000 carriers embroiled in cut-throat competition?

Seymour: I don’t know how you get solidarity but the issues have to be addressed. The market always prevails and sorts out its weakness. This will get fixed because it simply can’t continue. There is a lot of desperation in the market right now amongst carriers for volume and shippers are taking advantage of that. You can’t blame them. The convergence of the two makes for very interesting times. It’s a buyer’s market. The shippers will take all that we will give and we seem to be willing to give more than we have available. It’s really crazy. We have to start educating shippers that this is not sustainable. We require a certain amount of income to operate responsible, sustainable businesses. As an industry our operating ratios at the best of times have been in the mid to low 90s for the best operators. How can we give back 15-25% and have it be sustainable? You can’t. Worse, some are trying to stretch out payment terms. We’re not banks. We pay fuel and wages every 7-14 days and that’s 75-80% of our operating cost. We need to be paid faster, not slower.

Q: How will this impact the shipper-carrier relationship going forward?

Seymour: Shippers need carriers and the opposite is also very true. No one wins when you continue to grind one another. It may have short term benefits and it may appear to be saving money but it’s not a good long term strategy. We all know that. Shippers are trying to capitalize so intently on this desperation in the market they are bidding the business every time they think they can take another cut out of it. How are we supposed to operate our business with strategy and continued investment when the relationships with customers are potentially coming and going? You can’t. At the end of the day, we all want to give our customers what they want and pay for. In order to provide that, we have to build long term relationships and strategy together. Not one year at a time. That’s managing chaos, not partnering.

The Arctic has been described as a world made beautiful, treacherous and bountiful by ice. But today that ice is melting and as it does so commercial interests are looking northward.

Because of global warming, scientists estimate the Arctic could be ice-free in the summer in about three years .The Northwest Passage was free of ice in 2007 for the first time in modern history.

The melting ice could pave the way for new shipping channels and road and rail access to the Arctic’s vast store of natural riches. In this issue our marine shipping specialist, Leo Ryan, offers his first report in a two-part series about shipping on the Arctic frontier. Over the next two issues of CT&L we will examine the opportunities, the challenges, the issues and the players involved in this most challenging of new shipping frontiers.

Canada is among several northern countries scrambling to lay claims to Arctic seabeds and develop commercial plans for the region. (Under the U.N. Convention on the Law of the Sea, countries bordering the Arctic can assert ownership of natural resources up to 200 miles off their coasts.) Last month the Canadian government met near Ottawa with four countries with Arctic coastlines -- Russia, Norway, Denmark and the United States -- and discussed pressing issues related to developing the region.

The as yet unexploited opportunities in the area are many. For example, Tom Paterson, vice-president, owned fleet & business development at Fednav, sees tremendous potential in the central Arctic region around Izok Lake, 350 kms north of Yellowknife, where big gold, zinc and copper deposits have been discovered. Of the Canadian companies involved in commercial shipping in the Arctic, Fednav is widely recognized as the pioneer of conquering the ice-dominated waters and is the focus of one our reports.

The Arctic has been open to oil and gas drilling for many years, but was considered too expensive to develop. But higher oil prices and dwindling supplies of oil may change that in the future. We could hit a peak in current world oil extraction between 2020 and 2030. In 20 years the world’s focus for new sources for oil development could be centred on the offshore deposits of the Arctic and Far East seas, according to many experts. The Arctic seas possess from 90 to 250 billion tons of oil equivalent, according to Professor Vladimir Kontorovich from the Russian Academy of Science.

Plans for transporting the Arctic riches are already being drawn up. Norwegian and Finnish transport authorities have started a study of the needs for development of an Arctic train connection from Rovaniemi in Finland to Kirkenes or Skibotn in Norway with connection to Sweden and Russia. Another study shows that there could be a market for up to 40 daily trains from Finland to the Barents Sea coast to transport iron ore, oil and gas.

Nor are countries with Arctic territory the only ones showing keen interest. As the world's largest shipping nation, China has expressed a strong interest in the shipping routes being opened by the melting sea-ice. For example, liquefied natural gas from the Barents Sea could be sent to Shanghai through Russia's Northern Sea Route; luxury German cars could go straight "over the top"; while Chinese goods headed for the eastern U.S. could use the Northwest Passage.

But remember this is a world that ice has made both beautiful and treacherous. The challenges to developing a viable transportation infrastructure in the Arctic are at least as large as the dreams of doing so.

For example, as Paterson himself attests, getting at deposits of gold, zinc and copper near Izok Lake would involve, among other things, hundred of millions of dollars in investments in an all-weather road connecting with a deepsea port to be built at Bathurst Inlet.

Moreover the prospect of the Northwest Passage becoming the next Panama Canal (connecting the Atlantic and Pacific Oceans) has to contend with the reality of the passage remaining plagued with the unpredictable presence of iceberg bits and growlers (a low-lying mass of floe ice not easily seen by approaching vessels owing to its dark indigo colour).

And there are also territorial issues and considerable environmental concerns that remain to be addressed. We’ll discuss those in our next issue. In the mean time, enjoy our first report about shipping on the frontier.

Anyone purchasing truck transportation these days knows motor carriers remain in a weak bargaining position because despite more than 3,000 bankurptcies in the North American trucking industry over the course of the recession, capacity remains a critical issue.

Canadian shippers responding to our annual Transportation Buying Trends Survey (conducted in partnership with CITT and CITA) rated both TL and LTL as being in over capacity. As a result, there are still bargains to be had in moving freight by truck. The cost of ground transportation for Canadian shippers declined again in October, the Canadian General Freight Index indicates. Since the beginning of the year, the index has fallen in eight of the ten months, and has declined 9.6% in aggregate.

Many shippers have chosen a transportation strategy geared towards reaping the cost benefits of short-term rate reductions. Does this come at the possible expense of long-term value? Will it bring about radical change in the trucking industry? As 2009 drew to a close I attended a very frank discussion among some of the trucking industry’s leading executives. Excerpts from that discussion are included in the January issue of Canadian Transportation & Logistics.

There are several comments that stood out for among all the insights offered about why trucking has found itself in the state it’s in and how it will emerge. Many are very relevant to shippers and will have clear repercussions on rate negotiations in the months to come.

There is a great deal of debate on whether trucking has hit bottom. Obviously trucking CEOs hope that it has. As Mark Seymour with Kriska Transportation says: “I think we’ve hit bottom because I can’t imagine how much further we can go.” But I wonder if Mike McCarron’s comment will prove more prophetic. He remarked that trucking won’t hit true bottom until the banks finally pull the plug on the operators who are on the ropes.

There’s a new phrase in trucking circles these days: phantom or zombie trucking. It refers to companies who by all rights should be bankrupt but remain alive only because their equipment asset values are not worth bothering with right now. Bankruptcies in Canada have not been as prevalent as they were in the US. But I doubt Canadian motor carriers will be saved the axe. Soon as the economy starts to improve and equipment values start to rise, the banks will move more aggressively to cull the herd – there is general agreement about this within the trucking industry.

There is also a great deal of self examination going on about rates, capacity and the willingness to learn from past mistakes. While many motor carriers point the finger at overly aggressive shippers for reducing rates to non-profitable levels one remark from George Ledson of Cavalier Transportation stuck with me. Ledson has been around longer than most trucking execs and he believes truckers should look in the mirror before pointing fingers: “We’re our own worst enemies. Why do people feel their product doesn’t need to be properly paid for?… Soon as the shipper says he can get a better rate down the street, we back off the rate.”

Many trucking CEOs say they’ve learned their lesson about capacity; they swear they won’t get overzealous about growing their fleets in the future, which would have clear implications on the future availability of truck service and influence rates upwards. I wonder if that will prove true, however. My impression over the past 20 years covering the transportation industry is that lessons learned during hard times start to fade as economic fortunes improve. Or as Rob Penner of Bison Transport pointed out, the lesson on capacity may not have been learned at all: “If we can go through the toughest period in our era and still have excess capacity, I’m not sure we have learned our lesson.”

This is a volatile time for trucking companies and the shippers who use them. Those of you interested in continuing and expanding on this discussion may want to follow me to Winnipeg this February 17-19 to the Future of Trucking Symposium. I’ll be kicking off the event with a presentation entitled, The North American Trucking Industry: Where we are and where we are going.

The symposium itself is designed to analyze how trucking will evolve in response to changing freight movement patterns, environmental concerns, fuel price volatility, and labour availability over the next 20 years. Several prominent industry figures will be speaking at the event, including Clayton Gording, president of YRC Reimer Express Lines, Don Streuber, president and CEO of Bison Transport, and Claude Robert, president and CEO of Robert Transport.

For more information, contact Kathy Chmelnytzki at 204.474.9097 or at transport_institute@umanitoba.ca.

I hope to see you there.

Private, regional and city trucking combine to make up the quiet Goliath of the Canadian trucking industry. While their over-the-road counterparts capture most of the government attention and much of the media spotlight, the private and government municipal and regional fleets make up a large and important component of the Canadian trucking community.

The for-hire transportation industry itself accounts for about 3.7% of economic output as measured by gross domestic product, but when private transportation services are included, the contribution of the entire transportation sector rises to 6.3%. Truck and delivery van services dominate such “own-account” transportation, accounting for nearly 89%.

Not only do the private and municipal or regional fleets that ply our nation’s city infrastructure have an important role to play, they also have equipment and informational needs distinctly different from their over-the-road cousins. Having easy access to the information necessary to formulate sound management strategies can be difficult, however, when the primary focus of the business is on the product or service it provides rather than the trucks necessary to deliver it.

That is the reason we launched City Smarts last year and why we have continued with it this year. It is designed as a guide to help private and municipal and regional fleet managers make more informed and strategic decisions in a variety of areas ranging from spec’ing components to managing safety and green practices.

In this year’s supplement, coming soon with your issue of Canadian Transportation & Logistics, you will find information about the latest emissions standards and how they will affect medium-duty truck buying practices; driving practices no sound safety plan should be without; a primer on the ins and outs of ergonomic city driving; and everything you need to know to make a smart decision when buying tires for city or regional applications. In addition, we have pulled some highlights from our research on private fleet practices.

More information is available in the City Smarts module on our sister Web site, www.trucknews.com.

We trust the information provides the fleet managers in this sector with an insightful and rich source that will help in their every-day decision making.