OTTAWA — The Canadian Trucking Alliance (CTA) has picked through the details of the recently announced 2013 federal budget and highlighted the sections that look to affect the trucking industry.

There were a number of positive developments related to border and road infrastructure in the document, CTA said — welcome news.

Highlights:

• Over $47 billion in new infrastructure spending over 10 years starting in 2014-15, for provincial, territorial and local infrastructure including $14 billion for a new Building Canada Fund to support major economic projects that have a national, regional and local significance. Specifically, the budget proposes to provide (a) up to $124.9 million to build a bridge-causeway between Nuns’ Island and the Island of Montreal; (b) $25 million over three years to advance the Windsor-Detroit crossing project; (c)$100 million for Stony Trail Ring Road in Calgary; (d) $705 million for completion of Phase II of highway 30 project in Quebec; (e) up to $365 million to support South Fraser Perimeter Road (Deltaport to TCH); (f) twinning in Banff National Park $267 million; (g) $29.9 million for Highway 8 expansion in Kitchener.

• Under the Beyond the Border Action Plan, the federal government over the next five years will commit to the following measures to improve border efficiency: (1) Upgrading border infrastructure at S-Bernard-de-Lacolle, Que., Lansdowne, Ont., Emerson, Man., and North Portal, Sask., and installing border wait-time technologies at key ports of entry; (2) Implementing a single window for companies to submit electronically all the data required by government departments for arriving shipments; (3) harmonized and enhanced benefits for trusted traders (FAST); (3) Equipping new custom facilities at the port of Vancouver and pilot projects at the ports of Prince Rupert and Montreal; (4) Developing and implementing pilot projects to automate small and remote ports of entry; (5) supporting integrated cross-border law enforcement initiatives; (6) establishing and co-ordinating entry and exit information systems with the United States, including a system where the record of land entry into one country can be utilized to establish a record of exit from the other.

• The government also proposes to implement other measures that facilitate the secure movement of people and goods and ensure that border processing is not a hindrance to legitimate trade and travel.

• The creation of the Canada Job Grant. Under the new labour market agreements, provinces and territories will deliver the Canada Job Grant directly to businesses and Canadians, in addition to other training they provide. Businesses with a plan to train unemployed and underemployed Canadians for an existing job or better job will be eligible to apply for a Canada Job Grant. Canadians seeking training can, in partnership with an employer, benefit from the program. The Grant could provide $15,000 per person or more for training, which includes up to $5000 in federal contributions. Federal contributions must be matched by both provinces and employers. The Grant will be for short-duration training, and will include eligible training institutions, including community colleges, career colleges and trade union training centres. The detailed design of the Grant will be negotiated with provinces and territories over the next year, in consultation with stakeholder groups including employer associations, educational institutions and labour organizations.

• Budget 2013 confirms the government’s intention to create a new and innovative ‘Expression of Interest” immigration management system. It will allow for Canadian employers, provinces and territories to select skilled immigrants from a pool of applicants that best meet Canada’s economic needs. The budget also announced that the government will take action to reform Canada’s Temporary Foreign Worker Program to ensure that Canadians are given the first chance at available jobs.

TORONTO — “Contrasting trajectories of truck freight volumes and freight pricing appears to be further muddying the trucking economic forecast for the next several months,” the Ontario Trucking Association (OTA) said in its first-quarter 2013 (1Q13) Business Survey.

The less-than-peak shipping season that closed out 2012 is also contributing to uncertainty for Ontario carriers, OTA said. The number of respondents who said they were “unsure” about the industry’s prospects jumped from 32 percent in the last survey to 56 percent. That’s more than double from 2012′s first-quarter survey, and, noted the OTA, “the highest level of uncertainty the OTA survey series has ever recorded.”

The level of optimism about the industry’s prospects softened: 44 percent indicated they were confident about the next three months (down from 52% last quarter).

Outright pessimism also subsided as the rate of carriers who were not confident fell seven points to 9 percent, OTA noted.

The Gulf Between Freight Volumes and Rates

The gulf between rising freight volume expectations and a flattish pricing environment could be contributing to the lack of clarity, OTA said.

“Volumes in all sectors experienced only modest fluctuations over the last three months, with a majority of carriers continuing to report unchanged volumes from quarter to quarter,” OTA said in its report.

There were fewer respondents reporting improved volumes in Intra-Ontario and southbound U.S. compared to 4Q12, however Inter-provincial and northbound U.S. volumes improved slightly.

Volume expectations for the next six months jumped across the board, OTA said. Fifty- to 60 percent of carriers surveyed don’t expect changes in any of the four sectors, but there was significant increase in the percentage of carriers predicting near-term improvements:

Intra-Ontario: 40 percent from 32 percent in the last quarter — highest level since 2Q11.

Inter-provincial: 41 percent from 27 percent.

Southbound U.S: 34 percent from 25 percent (highest expectation for improved volumes in this market for two years)

Northbound U.S: 37 percent from 28 percent.

Pricing has not kept pace with carriers’ high freight volume expectations, but it has remained stable throughout the recent soft economic conditions, OTA said. When asked to characterize the rate environment for Intra-Ontario:

69 percent indicated no significant movement

5 percent reported improved rates (down 18 percent from 4Q12)

“There is virtually no volatility inter-provincially as well, as 82 percent report an unaffected rate environment,” OTA reported.

There was no change in carriers reporting lower rates in southbound U.S., OTA said, while northbound rate improvements rebounded up to 37 percent from the previous quarter’s 27 percent.

The Song Remains the Same

Capacity is still at a standstill, OTA said, as carriers are being disciplined when it comes to adding equipment and drivers.

64 percent: carriers that said capacity in their segment remained the same compared to last quarter.

3 percent: the drop from last quarter in carriers that said capacity increased.

“Those rates are virtually identical to the responses of carriers projecting capacity for the next six months,” OTA added.

The rate of carriers indicating customers are lengthening timeframes of contracts fell: from 27 percent to 13 percent. Carriers indicating no net change rose from 70 percent to 84 percent. Only 2 percent said timeframes were shrinking.

Money. Where is it?

The number of carriers that reported customers taking longer to pay their bills jumped to 30 percent from 4Q12′s 20 percent. That’s the second highest level in three years, OTA noted, and double 2Q12 reports. “Meanwhile, the percentage of respondents who say they collect accessorial charges from most of their customers remained at about a third — higher than the 24 percent who reported that was the case a year ago in the 1Q12 survey, but still a far cry from the 45-55 percent who indicated successful accessorial collection in late 2010 and early 2011.

Operating Costs Increasing

“While receivables are being extended, there is no such deferment for carriers in terms of their own costs,” OTA said. “The vast majority of carriers continue to report increases in all the major components of operating cost, such as equipment and maintenance fuel, and labour. On the latter point, 66% of carriers indicate wage increases of 2-5% for drivers.”

TORONTO — TransCore’s Link Logistics Canadian Freight Index closed 2012 with December freight volumes down for both year-over-year and month-over-month by 16 percent, the company said yesterday.

Looking on the somewhat positive side, annual volumes for 2012 were down 11 percent from what TransCore called t”he elevated levels of 2011.” And, they noted, were well above 2009 recessionary levels by 53 percent.

Load volumes for cross-border postings in December averaged 69 percent, while intra-Canada posting averaged 28 percent.

“Equipment postings followed the normal downward trend ending the year at its lowest,” TransCore said. “December 2012 was 19 percent below the previous month, however, had a year-over-year increase of seven percent from December 2011.” Overall, equipment postings for 2012 were 13 percent above 2011 volumes.

Top Five States of Origin for Loads Destined to Canada

1. Pennsylvania

2. Ohio

3. Texas

4. California

5. Illinois

Because of customers like you we’re award winners.

GX Transport has received the 2012 Shipper’s Choice Award for Performance Excellence

Thanks to the survey that many industry professionals like yourself filled out, GX Transport was ranked as one of the top motor carriers in Canada.

We work hard to make sure you receive the best possible service – thank you for your recognition, amazing feedback and business.

For full results, please see the Fall issue of Canadian Transportation & Logistics.

Sincerely,

Your GX Transport Team

From SCDigest’s On-Target E-Magazine

Logistics as Percent of US GDP could Soar, John Larkin Says; Driver Shortage, Changing Carrier Strategies, New Regulations and More Could Hit Shippers over next 2-3 Years

SCDigest Editorial Staff

As usual, the transportation sector analysts from Stifel, Nicolaus & Company did a great job refreshing the understanding of their clients and many others on the state of transportation during last week’s annual “Shaking the Sand Out of the Sneakers” teleconference detailing key logistics themes and trends.

The material from Stifel Nicolaus, as with other Wall Street analysts in the space, is really meant in the end to be of value to individuals, investment funds, and others interested in making investments in the sector, but nevertheless always contains insights valuable to shippers and transportation service providers.

Analysts John Larkin, Dave Ross and Michael J. Baudendistel delivered a comprehensive overview of conditions in the industry across modes, in general painting a picture that says supply and demand are roughly in balance at the moment across the truckload, LTL and rail sectors, but that there are some looming issues that could move that balance in the trucking industry’s favor over the next few years.

Larkin began with an overview of the economy, which is critical to the amount of freight moved and hence the capacity equation.

He said we are in a flat, slow growth mode in the US, which is likely to continue. The natural tendency to grow faster than the 1-2% levels seen in recent quarters coming out of recession is dampened by a variety of factors, including the seemingly never ending financial woes in Europe, more tension on the Middle East, a slowing Chinese economy, high unemployment and low levels of labor participation in the US, and worries over the looming “fiscal cliff” approaching at year’s end.

He noted that while retail sales numbers in general have looked reasonably strong, when backing out sales of gasoline and indexing for population growth and inflation, retail sales in the US are right now just at levels seen in 1998 – hardly bullish for freight. Retail sales are still down 8.6% today from their adjusted peak seen all the way back in 2006, even though the number is up substantially more than the bottom in Q4 2008.

Larkin also showed a chart that indicated sales growth at 10 of the largest US retailers was just 1.6% in Q2 – which exactly mirrored inflation, meaning real growth was flat.

He then presented some data to just level-set the audience in terms of the US freight transportation market.

As can be seen in the chart below, the US freight market represents nearly $750 billion in annual spend, the vast majority of which is a combination of common truckload carriers and private fleets. The same basic pattern holds true with respect to tonnage moved, although in that view the LTL sector shrinks (obviously indicating LTL is a pretty expensive way to move freight). Rail and intermodal still represent just a small share of the market, though growing more rapidly than the others.

Source: ATA, Stifel Nicolaus

While a balance in supply and demand characterizes most modes right now, Larkin said several factors may upset that equation. Notable are regulations such as CSA 2010, which is knocking many drivers out of the market for safety record reasons. New hours of service rules are compounding the driver challenge by reducing driver productivity. The cost of new trucks continues to rise due to both regulations and increased commodity costs.

All told, “We could see 5, 10 maybe even as much as 15% reduction in capacity in the industry,” over the next few years, Larkin said.

He also noted that in general truckers have maintained strong asset discipline since the recession, and that many of the larger players are eschewing traditional linehaul carriage in favor of intermodal, value added services and other strategies, finding that the pure truckload business is “too seasonal, too cyclical, too driver intensive, and too asset intensive to compete with intermodal.”

In the meantime, many smaller carriers are not turning over their fleets because they are having trouble getting the credit needed to buy the new, much more expensive new equipment (up some 30% per unit over the past few years). Many are simply exiting the business. This too will put pressure on capacity over time.

As a result of all this, Larkin said he believes the cost of logistics in the US, back on the rise after collapsing during the financial crisis and recession, will continue to head higher, perhaps moving from the current level of about 8.5% of GDP, to over 10% in the next five years or so, which would represent a substantial increase to shippers.

Finally in his opening segment, Larkin said he sees shippers moving to what he called “Core Carrier Programs Part II,” in which large shippers will make certain rate and volume commitments to their leading truckload carriers in return for capacity commitments over that same time frame, as shippers realize lack of capacity is becoming a growing threat to their supply chains. The implication, we see it, is that these commitments on both sides will be more firm than they have been in the past.

LTL Sector Has More Pricing Power, If Up from a Low Base

David Ross made the interesting observation that the less-than-truckload sector is largely driven by changes in manufacturing output, while the truckload sector is more dependent on retail sales to drive demand.

The stronger performance overall by the manufacturing sector versus the rest of the economy has helped LTL carriers finally achieve some level of pricing power, though it is still not where they need to be to achieve solid profitability, Ross said.

Ross noted that the LTL sector is even more concentrated than the TL group, with the top five carriers currently controlling about 55% of the total US freight market. Ten years ago, Ross said, the top five carriers controlled just 30% of the US freight market.

He expects rate increases to be in the 3-5% range for LTL providers through the end of the year and into 2013, whereas Larkin sees truckload rates flatter, up just 1-3% over the same period.

Ross sees most of the massive wave of consolidation over the last decade in the LTL sector having ended. One leader in that consolidation wave was of course YRC Worldwide, which continues to struggle with the hangover from a number of mergers.

He said that YRC Freight – the old Yellow Roadway – is the unit that continues to struggle the most, in part because of its dependence on national accounts, which can resist price increases more effectively than smaller and mid-sized shippers.

Ross added that if the company took the drastic step of shutting down YRC Freight, or even just reducing its network by shutting down a lot of terminals, it could benefit LTL carriers and lead to rising rates overall by taking out still more capacity.

He added that while LTL has continued to lose share versus other modes, it is probably close to a bottom, and may gain share if truckload capacity does tighten, with some “spillover” freight that can’t easily find a TL carrier being pushed to LTL.

Ross also noted that parcel shippers continue move more boxes via ground than express air shipments, especially as the greater efficiency of both UPS and FedEx serve to reduce the service difference between the shipping options. The challenges for both these carriers will be to redesign their networks to optimally accommodate this continuing trend, he said.

Ross also noted that freight brokers in the truckling industry continue to do well, with margins remaining high. However, he believes enough new players are entering the market (often carriers themselves) that the amount of competition may soon drive margins down, meaning lower prices for shippers as brokers compete for the business.

The world of freight transportation is changing rapidly. The signs are there and they are unmistakable.  Recognizing and responding effectively to these signals may help determine which shippers and carriers will survive in the years ahead.

• The era of cheap oil is over

The steep escalation in fuel prices this year is a harbinger of things to come for shippers and carriers. This time there will likely be no major recession to bring energy prices down. The sad fact is that 95% of transportation
modes – both passenger and freight – run on petroleum products and the likelihood of finding new sources of supply or of shrinkage in global demand is highly unlikely. In fact, the use of petroleum in countries such as China and India is on the rise. The result will be tighter truck capacity, greater use of intermodal rail services, the electrification of transportation systems, the relocation of factories and distribution centres and the slow shift to cleaner, cheaper fuels. It will drive more LCV’s (long-combination vehicles) or “turnpikes” and more triple trailer configurations. This may be the impetus to harmonize our laws throughout North America to remove barriers to the movement of the most energy efficient vehicle combinations across our highways. To curb use, many countries will have to begin looking at the Danish example of higher taxes on fuel inefficient vehicles and higher taxes on petroleum.

• The driver shortage is real

The driver workforce in North America is aging. The “Route 66” lifestyle of the longhaul truck driver no longer appeals to most people. Like everyone else, truck drivers want to be home with their families most nights of the week. After all these years, driving truck is not a certified recognized profession. The compensation for truck drivers (e.g. $40,000 to $50,000) is not great. The relentless push for freight cost reductions makes it difficult for trucking companies to raise driver wages and remain competitive. There is no “quick fix” and the problem will get worse before it gets better. Driver compensation and, as a result, freight rates will have to increase. Immigration policies will have to change to bring more foreign existing and potential drivers to North America. Driver training programs will have to improve to expedite the process of providing the new pool of drivers with the required skill sets to perform as professional drivers. Shippers will have to look at their supply chains and seek out cheaper modes (e.g. rail intermodal) and more local sources of supply.

• The key word for shippers and truckers will be efficiency

Modern computer and communications technologies have revolutionized many industries and they are in the process of revolutionizing freight transportation. Transportation Management Systems for shippers and Freight Management Systems for carriers allow for the efficient and optimized movement of freight. An electronic on-board recorder is an electronic device attached to a commercial motor vehicle, which is used to record the amount of time a vehicle is being driven. The relatively new Hours-of-Service legislation in the US and Canada are rules intended to prevent driver fatigue, by limiting the amount of time drivers spend operating commercial vehicles and tools are now available to manage the activities of every driver and company asset. They can pick up on the time worked by each driver, identify drivers who are not energy efficient or spot trailers sitting in a yard for more than 48 hours. Not all fleets have or can afford the new technologies. In the case of some tools such as trailer tracking, they are significantly underutilized and undervalued. The effective use of technology will accelerate the exodus of poorly managed, inefficient fleets. It will drive down costs. The market will dictate that freight business will go to the carriers that have the most efficient networks utilizing the most efficient technology. It will go to the modes and carriers that best manage people and assets.

Update – Royal Assent given to Rail Service Bill, CP’s start up plan is initiated, embargo rescinded

The Bill for the resumption of CP’s Canadian rail service has now been given Royal Assent. CP’s start up plan is now initiated.

CP’s Canadian operations will resume as of 0645 EDT Friday, June 1.

The embargo application for shipments routing to and from CP Canadian locations has been rescinded. Any shipments which you had previously billed while under the embargo still exist, and consequently, you do NOT have to rebill these shipments.

Any new shipments should now be billed with all the required information to ensure the shipment can be moved once Canadian operations resume.

All components in our system are positioned for a safe and effective start-up:

All CP Facilities are prepared and staffed for full operation

• Intermodal terminals will resume normal operations and gate hours as of Friday 
• Local service will operate as per schedule beginning early Friday morning
• Staff is in place to process all required shipment documentation and local service requests

CP’s start up plan has been developed to ensure that Canadian operations commence in a safe manner, making certain that fluidity and balance returns to the entire Network as soon as possible, to the benefit of all of our customers.

May 31, 2012:  Update – Rail Service Bill to progress to Senate

The Bill calling for the resumption of rail service will progress to the Senate for consideration and passage today (May 31).  Following Senate approval, the final step would be the Governor General’s Royal Assent which could occur later today. The Bill comes into force 12 hours after Royal Assent is given.  This would allow CP’s Canadian operation to resume early Friday, June 1st. We are monitoring progress closely, and will provide any further updates as they are made known.

CP’s operations group is prepared to initiate the Canadian start up plan as soon as notification of Royal Assent is given.

CP’s start up plan has been developed to ensure that Canadian operations commence in a safe manner, making certain that fluidity and balance returns to the entire Network as soon as possible, to the benefit of all of our customers.

All components in our system are positioned for a safe and effective start-up:

• Yards and terminals are prepared and staffed for operation
• Locomotives and assets are placed for service resumption
• Significant preventative track maintenance has been completed, allowing a swift and efficient start up.

Included in this plan is resumption of all local service, following normal LSOP scheduling. This is consistent with all preparation and planning done for the return of our Canadian freight service.

While an embargo application for shipments routing to and from CP Canadian locations remains in effect, it is CP’s intent to rescind this application as soon as it is confirmed that the legislation has been successfully passed, and that CP is activating the operational start-up plan.

The embargo currently in effect applies to:

• All shipments originating in Canada which are billed to any Canadian or US destinations
• All shipments originating in the United States which are billed to any Canadian destinations
• The embargo can be rescinded at any time

CP-TCRC Negotiations Update

May 27, 2012

Freight service on CP’s Canadian network remains shut down due to the unnecessary strike by the Teamsters union.

While the parties met this weekend, the federal mediator withdrew from the negotiations this afternoon, and the talks between CP and the TCRC ended.

CP is disappointed that a negotiated settlement was not reached, and will cooperate with any decision by the Minister of Labour and Parliament.

The back to work legislation is on the Notice Paper for introduction in the House of Commons on Monday, May 28.

CP has a comprehensive and detailed operations start-up plan to ensure that operations commence in a safe manner, and in a way that ensures that fluidity returns to the entire CP network as soon as possible to the benefit of all of our customers.  We will begin the safe implementation of this plan as soon as the expected legislation comes into law.

An embargo application for shipments routing to and from CP Canadian locations is in effect. This embargo applies to:

• All shipments originating in Canada which are billed to any Canadian or US destinations
• All shipments originating in the United States which are billed to any Canadian destinations
• The embargo can be rescinded at any time

In April, the TransCore DAT North American Freight Index achieved the highest volume in a single month since the Index was established in 1996. On a year-over-year basis, volume increased 17 percent, and rose 3.5 percent compared to March volume.

TransCore’s monthly DAT North American Freight Index reflects spot market freight availability on the company’s network of load boards in the United States and Canada.

Truckload freight rates increased in April month-over-month, following seasonal patterns on the spot market. Rates for dry vans increased 3.1 percent compared to March, flatbed rates gained 4.9 percent and refrigerated (“reefer”) van rates rose 5.5 percent compared to the previous month. Compared to April 2011, spot market rates remained relatively stable, rising 0.1 percent for vans and 1.2 percent for flatbeds while rates declined 1.8 percent for reefers.

Rates are derived from the company’s DAT Truckload Rate Index, and do not include fuel surcharges. Spot market rates are paid by brokers and 3PLs to the carrier.