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.
Comments (2)
Mr. Smyrlis, your article intrigued me. It highlights the responsibilities of both the Shippers and the Trucking Companies, but we need to often remember that Shippers are not always looking for cheaper rates to simply take advantage of the economy, but often to remain competitive against others who do.
As a Logistics Manager, it is often a difficult balancing act of taking advantage of the market and securing good rates, while at the same time being fair to carriers and building long term relationships to ensure the Supply Chain is in a good position when, not if, the demand for trucking, out strips the supply quality carriers.
The catch 22 that shippers are facing, is that quite often their competition are the "Overly aggressive Shippers". This has a domino effect, forcing shippers to ask for rate reductions not to match another carriers lower rate, but to remain competitive against other shippers that have negotiated those lower rates, or be priced out of the market. Logistics and Traffic Managers must look out for their bottom lines and as George Ledson points out, so long as Carriers are willing to “back off on the rates”, shippers will and often must take advantage of it.
Posted by Todd Strickler, CITT | January 22, 2010 3:09 PM
Posted on January 22, 2010 15:09
Lou, won’t the economic model for the bottom of the trucking industry be based somewhat on the asset value of the equipment. Once the bankruptcies begin and the assets are sold they will be reintroduced into the market at a lower capitalized value which in turn may drive down the transportation rates. Two other factors may actually facilitate the turn around. Operator shortages and the California environmental policies. One question may be whether the California emission controls and environmental policies may influence the turn around in the industry as carriers participating in that market must modify or upgrade their equipment to meet the new requirements over the next few years.
Posted by Barry Frain | February 2, 2010 5:01 AM
Posted on February 2, 2010 05:01