http://blogctl.ctl.ca/lou/ en Copyright 2010 Tue, 27 Jul 2010 18:43:14 +0000 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss 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. http://blogctl.ctl.ca/lou/2010/07/why_analysis_planning_and_carr.html http://blogctl.ctl.ca/lou/2010/07/why_analysis_planning_and_carr.html Tue, 27 Jul 2010 18:43:14 +0000 http://blogctl.ctl.ca/lou/2010/07/no_better_time_than_now_for_mo.html http://blogctl.ctl.ca/lou/2010/07/no_better_time_than_now_for_mo.html Wed, 21 Jul 2010 21:16:05 +0000 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. http://blogctl.ctl.ca/lou/2010/06/fear_may_drive_markets_but_sol.html http://blogctl.ctl.ca/lou/2010/06/fear_may_drive_markets_but_sol.html Fri, 11 Jun 2010 00:23:56 +0000 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? http://blogctl.ctl.ca/lou/2010/06/is_it_time_for_a_much_differen.html http://blogctl.ctl.ca/lou/2010/06/is_it_time_for_a_much_differen.html Mon, 07 Jun 2010 22:05:29 +0000 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. http://blogctl.ctl.ca/lou/2010/05/why_smaller_is_better_in_truck.html http://blogctl.ctl.ca/lou/2010/05/why_smaller_is_better_in_truck.html Mon, 10 May 2010 03:40:19 +0000 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. http://blogctl.ctl.ca/lou/2010/05/motor_carriers_are_going_to_ha.html http://blogctl.ctl.ca/lou/2010/05/motor_carriers_are_going_to_ha.html Mon, 03 May 2010 02:28:33 +0000 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. http://blogctl.ctl.ca/lou/2010/04/kriskas_mark_seymour_on_the_ne.html http://blogctl.ctl.ca/lou/2010/04/kriskas_mark_seymour_on_the_ne.html Mon, 26 Apr 2010 02:02:21 +0000 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. http://blogctl.ctl.ca/lou/2010/04/shipping_on_the_arctic_frontie.html http://blogctl.ctl.ca/lou/2010/04/shipping_on_the_arctic_frontie.html Mon, 19 Apr 2010 02:21:25 +0000 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. http://blogctl.ctl.ca/lou/2010/01/the_future_of_trucking_not_as.html http://blogctl.ctl.ca/lou/2010/01/the_future_of_trucking_not_as.html Sun, 17 Jan 2010 20:23:06 +0000 http://blogctl.ctl.ca/lou/2009/11/smart_decisions_require_insigh.html http://blogctl.ctl.ca/lou/2009/11/smart_decisions_require_insigh.html Mon, 30 Nov 2009 01:55:08 +0000 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. http://blogctl.ctl.ca/lou/2009/10/taking_needless_cost_and_waste.html http://blogctl.ctl.ca/lou/2009/10/taking_needless_cost_and_waste.html Fri, 02 Oct 2009 16:09:39 +0000 www.nulogx.com. ]]> http://blogctl.ctl.ca/lou/2009/09/finally_a_freight_index_releva.html http://blogctl.ctl.ca/lou/2009/09/finally_a_freight_index_releva.html Wed, 09 Sep 2009 15:13:07 +0000 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. http://blogctl.ctl.ca/lou/2009/06/twitter_a_great_way_to_get_in.html http://blogctl.ctl.ca/lou/2009/06/twitter_a_great_way_to_get_in.html Mon, 29 Jun 2009 01:09:55 +0000 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. http://blogctl.ctl.ca/lou/2009/06/why_our_approach_to_transborde.html http://blogctl.ctl.ca/lou/2009/06/why_our_approach_to_transborde.html Mon, 15 Jun 2009 04:22:23 +0000 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. http://blogctl.ctl.ca/lou/2009/05/an_alternative_look_at_powerin.html http://blogctl.ctl.ca/lou/2009/05/an_alternative_look_at_powerin.html Thu, 14 May 2009 19:17:37 +0000