Lou Smyrlis

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.

As we begin to get the first glimmers of hope for the resurgence of the North American economy, there are two things we can be certain about: One, the new economy will be significantly different from what we’ve been used to in the past; more government intervention is a certainty, not only in the Obama-led US but even here under a Conservative government. And two, green practices will begin to figure more and more prominently in the new economy.

Trucking both benefited and contributed tremendously to the previous economic expansion. The numbers speak for themselves: The amount of freight carried by for-hire carriers from 1990 to 2003 rose 75%. Trucking was a huge contributor to the ability of manufacturers to trim their inventories by 15% from 1992 to 2005 as they employed JIT delivery strategies. The Canadian tractor-trailer fleet grew by a third since the turn of the century as a result.

Is trucking poised to once again play such a definitive role in driving supply chain efficiency in the new economy sure to rise from the ashes of the currently ruined one? The answer to that we believe depends on trucking’s ability to adjust to and thrive in a carbon-constrained business climate. Learning to understand and profit from government cap and trade programs, answering shipper demands for more sustainable transportation practices and embracing green practices to reduce operational costs will be key ingredients to future success.

Yet at the same time, it’s impossible to ignore the continuing pressure on trucking company profit statements. Investments in environmental projects and programs have to contend with across-the-board cuts in company budgets. This can be a very confusing time for companies trying to reduce their expenses enough to survive the worst economic downturn since the Great Depression while at the same time trying to keep an eye on the future.

Understanding and capitalizing on government cap and trade initiatives will be key is will be effectively evaluating and impementing fuel saving technologies. and working with shippers to reduce out of route miles and detention time during loading and unloading.

If both shippers and carriers take the time to do it right, you can turn green into gold. Taking needless cost and waste out of the transportation system is never a bad idea.

Nulogx today is launching something desperately missing from the Canadian over-the-road transportation industry: a national general freight index relevant to our marketplace.

The index tracks changes in over-the-road transportation costs. It is derived from Nulogx’s database of more than $750 million in annual freight transactions. Included in the index are domestic and cross border truckload and LTL transactions. The index includes base freight charges, fuel surcharges and other accessorial charges. (Not included in the index are liquid bulk, dry bulk, forest products and other specialized freight.)

The index is being developed with the help of Dr. Alan Saipe, president, Supply Chain Surveys Inc., who reviews it monthly for validity. Dr. Saipe is well known and respected in transportation circles. I’ve had the good fortune of working with him on transportation research related projects in the past and his knowledge of the market is top notch.

The Canadian General Freight Index is based upon actual costs in the Canadian transportation marketplace and so Dr. Saipe believes the trends it reveals are good statistical estimates of what has really happened.

Done right and on a monthly basis, I believe this index will provide both carrier and shipper executives with much needed insight into how freight costs are trending.

The first report authored by Dr. Saipe already tells a fascinating story about how freight costs fared while the economy was working its way into recession. In the first seven months of 2008 general freight costs rose 14.4%, driven up by increases in both freight rates and fuel surcharges. From January to July rates increased 7.3% while average fuel surcharges rose by nearly 44%.

Then the realities of the slowing economy in both Canada and the US began to take over. In August average fuel surcharges started to fall tracing the decline in the cost of crude oil. At the same time freight rates leveled off as the economy weakened, and then notched up for the start of 2009. The combined result brought total freight costs steadily down from their peak in mid-08 – the index has fallen 13.4% since July 08. In fact, as Dr. Saipe points out, in May ’09 ground transportation cost less than it did in January ’08.

Dr. Saipe also looked at fuel surcharges and how they responded to changes in crude oil costs. They started down in August 2008 and fell steadily through to March 2009. Then they leveled off, even though the cost of crude bounced upwards in the spring. Technically fuel surcharges have lagged the cost of crude oil; still, they followed crude down within weeks.

And what of freight rates? The key learning, according to Dr. Saipe, is that average freight rates have not come down during the recession – nor have they gone up by very much. On average, rates in May ’09 are up about 1% from July ’08. But the story is quite different in the different segments of the market, Dr. Saipe points out.

Both the Canadian General Freight Index and the Base Freight Cost Index are built up from four sub indexes –one for each of Domestic TL, Domestic LTL, Cross Border TL, and Cross Border LTL –and each segment is different. Interestingly, domestic freight rates have come down in the recession, while cross border rates in Canadian dollars have increased.

Most of the 6.2% Cross Border LTL rate increase came from the weaker Canadian dollar, although average underlying rates did show a small increase. Only about half of the 9% increase in Cross Border TL rates came from the weaker Canadian dollar, with higher underlying rates accounting for the rest.

The index is sensitive to the Canadian/US exchange rate because some of the charges are in US dollars.

Dr. Saipe will be authoring a report on further findings from the Nulogx freight index for our President’s Issue, later this year.

Nulogx plans to update the index each month, posting the results to their website
www.nulogx.com.

When I was handed the editorial director’s job of Transportation Media more than 5 years ago, I made two promises to myself, our staff and our readers: First, that the publications in our group (Canadian Transportation & Logistics, Motortruck Fleet Executive, Truck News and Truck West) would make every endeavour to reach out to readers in as many innovative ways as possible. And two, that we would evolve into a multi-media company capable of telling a story in the best way for that story to be told. In other words, although the print products would remain our core, we would make every effort to engage our audience in ways that went far beyond that.

That has led us on quite a ride in recent years as we added more and more features to our Web sites (ctl.ca and trucknews.com), published special supplements on key issues, conducted and shared research, spoke at industry events, wrote blogs, produced a weekly Web TV show, put on an annual golf tournament, and organized educational seminars. And from the attention these new ventures have received, it’s clear you believe us to be on the right track.

The next stop on this ride is Twitter. If you are not familiar with this new form of communication, it’s basically technology that allows people to send short (140-characters maximum) updates to anyone who wants to “follow” them.

I have to admit, this new technology left me quite skeptical at first.

To begin with, it suffered from what all these new electronic ventures do: a really stupid name for anyone over the age of 40 (maybe even 30). I mean, how serious does “Twitter” sound to you?

I also wondered why people would want to read short bursts that are the equivalent of a couple of sentences. And to some extent I still think that part is true. If the 140-character update is an update on what someone is having for breakfast, frankly I don’t give a damn and never will. And I doubt any of you would either.

But what if that update was about some breaking news story and provided a link to find out more? What if that 140-character update let you know before anyone else what some important industry person we’ve just interviewed had to say on a key topic? What if it was a heads up that we will be interviewing a key person and that we could pose some of your questions if you send them to us.

It’s a great way to get in the loop and stay in the loop.

As with all new communication tools, I view Twitter as an experiment, but I’m betting you will find it useful. I’ve just started “tweeting” myself (as have Executive editor James Menzies and Managing Editor Adam Ledlow). So far I’ve posted information about a range of topics from what a senior economist had to say about the economic recovery and what Volvo’s president had to say about sustainable transportation to the latest trends on transportation rates and surcharges.

You can find me on twitter.com/LouSmyrlis. I would love to hear from you.

In our cover story on transborder trade this month, features editor Julia Kuzeljevich reports that the smooth flow of trade across efficient borders is still not within reach.

Things may seem better at the border but it’s just the slower economy creating the mirage of more efficient crossings. Shippers, in return for their investment in ‘trusted trader’ programs, want still more transparency, realism and consistency in preclearance reporting.

That almost 8 year after the events of September 11, 2001 we should still be talking about the need for greater transparency and efficiency at the border is, frankly, very puzzling. Especially when you consider the importance of transborder trade to both Canada and the US, and the money and human resources the governments on both sides of the border have put in while trying to create a secure and efficient border.

But then again the border security issue is just one of many puzzling things when it comes to transborder and global trade.

Shippers are right to demand more from their border services agencies. But the transparency, realism and consistency should not stop there. Shippers also need to have a long look in the mirror when it comes to both their transborder and global trade strategies and freight movements.

Consider what can only be called our over reliance on the US market. True, any Canadian exporter would be crazy to ignore such a huge market right on our doorstep. But Uncle Sam is sick and not about to get much better within the rest of the year. Yet a study of Canada’s small and medium enterprises (SMEs) recently conducted for UPS found that 65% of them intend to target the shrinking US market this year, compared to just 19% who have plans to market their products to Asia’s new middle class. This despite the fact 55% of Canadian SMEs believe trade with the US won’t rebound till 2010. In other words, they’re basically willing to sit out the year.

Just as puzzling is the decision to ignore the largest market in the world when every new customer should be considered a blessing. While the US has a consumer market of over 300 million people, India and China have well over two billion combined.

The same study also found that a majority of Canada’s SMEs would prefer to see trade barriers remain in place, even though 60% of importers and 66% of exporters actually consider global trade as beneficial. Very puzzling indeed.

I’m also puzzled by the decisions of many companies that do take advantage of global trade opportunities. In my Viewpoint column last month I wrote about the glaring weakness in our approach to global trade: vulnerability to supply chain disruptions. An Aberdeen Group survey conducted a couple of years ago of more than 100 companies involved in global trade found that on average companies had 10 supply chain disruptions over the previous 5-year period. Most puzzling was that many companies were doing very little or nothing to address this obvious shortcoming. Another UPS study found that 1 in 10 companies did not monitor suppliers for anything. About half of the remainder looked only at immediate suppliers. And in nearly half of the companies surveyed, formal risk assessment took place only annually.

Finally, it never ceases to amaze me that, despite technology’s well proven ability to streamline paper intensive processes, how many companies still manually handle their transborder and global procurement of freight services. I can only imagine how difficult it must be to track multiple carriers in multiple countries with varying tariff schedules and currencies. I can only imagine the degree of inaccurate service rates and duplicate invoices the reliance on outdated manual tracking processes must create every month.

As a white paper by JP Morgan I recently read pointed out, without electronic processes, freight procurement errors and problems can only be caught after they occur. And such problems continue to recur until they are identified, with lag time running into weeks and the overpayment of duplicate invoices adding up to thousands of dollars. The situation becomes particularly challenging when companies are dealing with financial systems and processes that automatically pay “expected” or “anticipated” invoices.

Again, a very puzzling way to do business.

WORTH REPEATING

“If you don’t toot your own horn, there will be no music,”
Andrew Miller,
president, ACM Consulting Inc.

The diesel engine is one of the most efficient energy converters we have available to us today, delivering an overall efficiency of about 35%. Compare that to energy sources such as hydrogen or biogas which deliver only about 17-19% of their energy to the vehicle’s driven wheels and you quickly see the advantages of trucking’s main energy source.

Where diesel fuel runs into considerable problems, however, is with its sizeable contribution to greenhouse gas. Yet, as was eloquently pointed out at a Volvo seminar on climate change policy I recently attended in Boston, that does not have to spell the end of the diesel engine. In fact, one of the major advantages of the diesel engine is that it does not have to use conventional diesel fuel or other fossil-based fuels. Through the introduction of some sophisticated technology and minor modifications the diesel engine we’ve come to rely on can be adapted to run on a wide range of renewable fuels that would give our industry a shiny new image because they emit no excess carbon dioxide in powering a vehicle.

Volvo believes that CO2 neutral transport is not a utopian dream but rather a realistic and achievable goal. In recent years Volvo has sought to examine the viability of 7 different alternative fuel sources – biodiesel, synthetic diesel, dimethylether(DME), methanol/ethanol, biogas, biogas-biodiesel and hydrogen-biogas. It has compared and contrasted the benefits and drawbacks of these seven alternative fuels in a variety of critical areas such as climate impact, energy efficiency, land use efficiency, fuel potential, vehicle adaptation, fuel cost and fuel infrastructure.

It has made for a great deal of ground breaking work from an industry supplier that has clearly chosen to neither deny the threat of global warming and our industry’s contribution to it (as some carriers and media personalities shamefully are doing) nor to ignore it or to simply pay lip service to the need for more sustainable energy alternatives. It has instead opted to roll up its sleeves and work to meet the challenge head on.

Sometimes very large companies with a specific and worthy goal in mind can change an industry, creating a market for new technologies. But the challenge of moving towards more sustainable fuel sources is not a challenge that any one company – even one the size of Volvo with its global connections – can successfully tackle on its own.

To make the switch to alternative fuels also requires a leap of faith from government, the transport industry, and the companies that serve transportation’s energy needs. Yet as Leif Johansson, the CEO of Volvo Group, acknowledged, the headway being made towards the production and distribution of renewable fuels on a major scale has so far proved disappointing. In his own words, there seems to be “lots of very good talk, very little investment.”

I think that’s a tragic reality that runs counter to our entrepreneurial business culture. To borrow from Johansson’s insight once again, when we consider the environment, and what we have to do to maintain it, we often get it wrong. We think it’s going to cost too much when, in fact, environmental initiatives such as seeking alternative fuel sources are about reducing long term costs, improving the sustainability of our practices and reaping the rewards.

Mike Gray, who for 17 years played a central role in creating the behind the scenes magic that turned Dell into a poster child for supply chain management innovation, fashions himself a supply chain evangelist these days.

And like a true evangelist, his message at the recent SCL-CITA conference was simple but carried a great deal of meaning. His message to the impressive number of supply chain professionals who turned up for the two-day affair was that they should work to a simple rule: Always have enough and nothing left over.

Sounds simple but it’s a tall order for logistics managers in charge of globally extended supply chains answering to company executives seeking drastic cost cutting on the one hand and service performance that attracts new customers and retains existing ones on the other.

It’s often said that in business these days the only constant is change and the only certainty continued uncertainty. To that I would add my own observation that companies that fail to deal effectively with change and uncertainty are certain to fail, particularly during the difficult economic times we are facing.

Nowhere is this more true I believe than in the arena of global trade, the focus of our cover feature this month (see our four-feature coverage starting on p.16.) It seems like just days ago when we thought the expansion in global trade would go on for ever and was immune to the economic slowdown of any one region. Yet the World Trade Organization has forecast a 9% drop in export volumes for 2009, the largest such contraction since the Second World War (see our story on p. 12) and forcing a focus on cost control. It was as recent as the Fall of 2008 that high fuel and transportation costs were leading companies to reconsider their offshore sourcing strategies in favor of near sourcing distribution. Then the sudden drop in fuel costs combined with the drastic drop in business in the final quarter of 08 left many companies either uncertain about which direction to take or taking a wait and see approach.

I say the harsh economic climate presents Canadian companies with the perfect opportunity to deal with a glaring weakness in our approach to global trade: vulnerability to supply chain disruptions. The results of a recent study sponsored by UPS found that nearly half of companies with global supply chains lived in fear of major disruptions in their ability to source, produce and ship goods around the world. And there’s very good reason for such fear. An Aberdeen Group survey conducted a couple of years ago of more than 100 companies involved in global trade found that on average companies had 10 supply chain disruptions over the previous 5-year period. Such disruptions caused missed delivery dates, manufacturing line slow downs or shut downs and store shelves left empty. The UPS study found that the tighter and leaner the supply chain, the greater the risk. Half the companies took the opposite approach to such supply chain resilience problems by holding additional stock. Both approaches, of course, fall far short of meeting Gray’s rule of “always have enough and nothing left over.”
Most puzzling, however, is that many companies are doing very little or nothing to address this obvious shortcoming. The UPS study found that 1 in 10 companies did not monitor suppliers for anything. About half of the remainder looked only at immediate suppliers. And in nearly half of the companies surveyed, formal risk assessment took place only annually.

Yet this is one area where paranoia is a good thing. The Aberdeen Group study found that for a large number of Best-in-Class global traders “fear of supply chain disruptions” was a top pressure forcing them to initiate and implement global supply chain visibility and performance programs. These same “paranoid” Best-in-Class global traders were much better at meeting customer commitments (always having enough) while reducing inventory (and nothing left over). The Best-in-Class companies were able to meet customer-requested ship dates at a rate of 90% vs. 40% for companies whose practices represented the industry average or lagged behind it. And the Best-in-Class companies were able to reduce their inventory levels by 39% compared to 22% for the rest of their competitors.

Seems to me there’s no better time than now for global supply chain managers to figure out how to best follow Gray’s rule of “always have enough and nothing left over.” I don’t think you would want to go up against those that have figured it out in this economic climate or any other.

*****

For supply chain professionals interested in getting some first hand insights into global supply chain strategies, I highly recommend attending CITT’s session Near Shoring: The Next Wave or Just a Faze.

The session, which I will be moderating at the CITT’s annual conference in Niagara-on-the-Lake this November, will include a panel of experts will discuss the pros and cons of near shoring, including control issues, shorter lead time, potential loss of intellectual property and who is doing it, and how.

The panelists include:
•Garland Chow, Associate Professor, Sauder School of Business, Director, Bureau of Intelligent Transportation Systems & Freight Security The University of British Columbia
•John O’Reilly, Director, Customs & Traffic, EQL, Toshiba of Canada Limited.
•Jim Kilpatrick, Principal, Deloitte Supply Chain Management

For more information, contact: 416-363-5696 or go to www.citt.ca

Every year at this time I get to speak to the people in charge of some of the best transportation and logistics service suppliers in Canada. It’s part of our Award Winning Suppliers issue in Canadian Transportation & Logistics and it’s always a learning experience as I get to discuss pressing issues with these leaders.

Much of the discussion this year focused on the economic situation – how it’s affecting suppliers’ ability to offer services, how it will change the industry and the shipper-carrier industry. But there was one issue we haven’t heard much of late that really caught my attention: transborder trade and changes at the border.

Although the border is not making headlines the way it used to a few years ago when long lineups were the norm, the reality is there are some funny things going on. It would be fair to say things are not as they seem. For example, as Robert Murray of MSM Transportation pointed out, the transborder business has been on the decline since about the fourth quarter of 2006. Yet the statistics don’t bear that out. The rising value of energy exports from Western Canada for much of 2007 and 2008 served to mask the consistently declining volumes of exports from the manufacturing sector in Central Canada. While to many politicians an export is an export, the reality for motor carriers, and those based in Central Canada in particular, is that the demise of manufacturing exports is a serious issue that requires addressing.

The other mirage at the border is that more than 7 years after 9/11 and the myriad of security programs that were spawned, it is actually getting easier to cross it. Certainly the extended border delays that frazzled the nerves of transborder truckers for years have eased. But, as the Canadian Trucking Alliance (CTA) pointed out when it recently appeared before the House of Commons Standing Committee on International Trade, this should not be taken as any indication that all is now running smoothly. All it shows is a temporary reprieve caused by the drop in truck traffic crossing the border. The problems that have thickened the border in recent years – inconsistency between US and Canadian regulations, border guard staffing issues and inadequate infrastructure – have not been solved. In fact, CTA argues that despite the drastic drop-off in volumes, border processing times have barely changed at all.

When the North American economy eventually recovers, the problems that plagued motor carriers and their exporter customers will quickly rise to the surface and will do so at a time when we can least afford any obstacles to what may prove to be a fragile recovery for our beleaguered manufacturing sector.

And things could get worse if legislation currently being considered by our own government is adopted. The Canadian Border Services Agency is proposing to turn back trucks if the importer data has not yet been received before the truck arrived at the border. The truck would no longer be moved in-bond to an inland facility for clearance.

What should be done? A huge part of the problem at the border stems from the fact there are too many government agencies involved in setting legislation. As David Bradley, the head of the CTA, points out it can be a challenge just to find out who’s who and to get the different people working together. CTA’s recommendation to create a cabinet committee on the border and/or a specific ministerial or senior bureaucratic position with authority for all aspects of the border is a sound one and deserves consideration.

Hopes that there is finally light at the end of the tunnel based on recent reports of US truck tonnage showing a spike in January are, unfortunately, wishful thinking.

US truck tonnage did spike 3% in January but that’s only because December’s numbers were so dismal. Put the spike in perspective and you see why there’s no reason to be optimistic: compared to the previous January, the month was down 10.8%; and the month’s tonnage was the second lowest since October 2002.

As the American Trucking Association’s chief economist Bob Costello pointed out, just because the tonnage figures show the occasional spike is no indication the US economy is on the mend. The reality is that tonnage is still showing significant drops on a year-to-year basis.

FTR Associates, well known for their transportation sector outlooks, sees economic activity declining sharply in the US with the first quarter economic activity forecast to decline another 4.8% after falling 3.8% in the final quarter of 2008. Loadings are forecast to drop another 10% over the next several months and be off by more than 7% in 2009. That represents more than a doubling of the dropoff forecasted just a couple of months ago.

FTR expects the US economy to continue contracting right through to the third quarter of 2009. To make matters worse, there is also concern about a protracted “down cycle” in which the US economy remains stuck in neutral into 2010.

Canadian exporters are also not looking at the US market through rose colored glasses. Sentiment among Canadian exporters has hit a record low. They now see the United States as among the riskiest markets in which to sell goods, according to a semi-annual confidence survey conducted by Export Development Canada.

At the same time, concerns about the domestic economy hit a new high, with 57% of respondents expecting domestic conditions to worsen, a 15% leap in just six months.
Despite all the bankruptcies of the past year, FTR points out that the amount of excess capacity in the market remains troubling. Its latest forecast has capacity utilization staying below 70% through the third quarter of 2009.

There is already a great deal of pressure on rates but motor carriers with 30% of their equipment lying idle will likely be pressured into more rate cuts and perhaps even more questionable business decisions.