TORONTO, Ont. -- As carriers head into 2013, how do they think they will fare and what strategies will help them?
There was some fierce competition during the recession, “but it made us a better carrier. We found that there were better ways to do things. We went out to look for more long term partnerships,” said Wes Armour, president, Armour Transportation Systems Inc., and a panel speaker at the recent Surface Transportation Summit hosted by Transportation Media and Dan Goodwill & Associates.
During the recession, smaller shipments meant less volume.
“Now, volumes are coming back slowly but it was an impact and it took us awhile to figure out why we were not getting the same revenue,” said Armour.
Headquartered in Moncton, New Brunswick, Armour Transportation Systems used to get a lot of its volume of traffic from paper mills in the maritime region, many of which are now closed.
“This created a huge imbalance that cannot be corrected. That was huge volume for our industry for years and years,” he said.
Now, he added, many carriers are taking on more of an administrative workload as their customers grapple with fewer staff as a result of their own cuts.
“It seems like the customer doesn’t have the horsepower to do the things they used to do. In some cases you can’t even get a phone call back on something that turns out to be their issue. We’ve seen that becoming a big change over three, four years ago,” said Armour.
Another impact of the Great Recession was that freight rates recovered much slower since than many carriers anticipated.
This is not a surprise to those who observed a “race to the bottom on rates” during the recession, said Dan Einwechter, chairman and CEO of Challenger Motor Freight.
“A lot of carriers that weren’t in the east west business decided to go into that marketplace. We made a serious commitment to upgrade our equipment. We went into some different markets in our heavy haul, and we faced some additional competition on the van side,” said Einwechter.
There are challenges ahead for 2013 as carriers continue to try to get compensatory rates in a market of overcapacity and stagnant growth.
“It’s trying to get top line revenue when costs on the bottom are pushing up all the time. It’s about maintaining margins,” said Doug Munro, President, Maritime-Ontario Freight Lines Limited.
(Munro was a panel speaker at Supply Chain Canada’s October 1 breakfast seminar in Mississauga, Ontario.)
The driver shortage was also supposed to have impact on capacity and put upward pressure on pricing.
At the moment this hasn’t happened “because there’s an overcapacity on equipment, forcing assets to keep turning,” Munro said.
“My opinion is that in LTL there is an even greater overcapacity because there are more movements. Carriers are our own worst enemy is terms of pricing-we don’t know our own true costs. If there is consolidation maybe there will be some change but I think we’re at the status quo for awhile,” he said.
Keeping service levels up is also a huge priority.
“It’s educating customers on the one hand, but with the markets so competitive we have to maintain a high level of service. Without that, nothing else matters,” said Munro.
There are some promising niche markets in resources and cold chain, said Munro, but there is just not a lot of growth.
“My outlook is that 2013 is going to be a bit of a tough year but I think we’re getting a bit of market share from our competitors. We’re hoping for increased volumes but whatever volumes we’re getting we’re going to get off our competitors-we’re kind of fighting for a share of the same pie,” he said.
Carrier cash flows and balance sheet ratios also took a hit during the recession and going into 2013, many motor carriers will continue to be squeezed, said Mark Seymour, president, Kriska Holdings Ltd.
“We lost control of pricing,” said Seymour.” What may have saved us was to use the pricing disciplines we had in place prior to the recession. Many organizations thought they were disciplined in cost control but we realized we weren’t as good or disciplined as we had thought. We had to make some hard decisions to ‘right the ship’- rates had to go up and it’s not over,” he told the shipper-carrier audience at the 2012 Surface Transportation Summit.
Kriska Holdings has made some five acquisitions over the last five years, said Seymour.
“There are lots of sellers but buyers are cautious. It’s tough to find good acquisitions in terms of cultural fits. Buyers can’t afford to make mistakes,” he said, adding that carriers should always run their business as if they want to sell it.
A shortage of drivers will remain an issue for carriers and the industry is a tough draw, said Seymour, citing a driver turnover rate that hit 106 % in the US in late September.
“It certainly isn’t sexy. And the associations are trying to protect us from ourselves, trying to do the right thing while many of us go out and do the opposite. We’re putting e-logs in the owner operators’ trucks and they’re leaving like crazy,” he said.
It doesn’t help that there is more regulation coming down the pipe for carriers.
“I’m not against regulations but there are far too many to enforce and too many in the pipeline. It creates an uneven playing field with too many people trying to fly under the radar. And it makes drivers very transient,” he said.
Citing numbers from the Canadian Chamber of Commerce and the Conference Board of Canada, Doug Harrison, CEO, Day & Ross, said the Canadian transport industry is short 27,000 people today, with that expected to grow to 74,000 people by 2015.
“I can order trailers, I can order power, I can buy fuel, but I can’t manufacture people,” Harrison said. “To me, the greatest constraint going forward will be the people side of the equation, not the equipment side or the fuel side.”
Day & Ross is looking to position itself as a “preferred employer” in hopes of attracting more drivers and support staff to its operations.
“It’s people that deliver the value that you provide,” Harrison said. “For us going forward, we’ll be spending more time on our culture, focusing on how we bring people in and how we look at succession plans to ensure we’re a place people want to join.”
Harrison also said the company will be developing relationships with post-secondary schools and First Nations groups to raise awareness of the career opportunities available at the company and within the industry.
Even if drivers were readily available, Harrison said Day & Ross would be cautious about adding capacity in the current environment.
“As an industry, we’re all watching very closely for when is the right time to invest in capacity” Harrison said. “We certainly have to invest in renewal, but when is the right time to invest in capacity? The pragmatic view is caution as we move forward.”
“We’re also spending time looking at innovation-what are we doing to test this within our own businesses? Certainly LNG powered vehicles look promising in the early stages, but not enough to convert our fleet,” said Harrison, who added that the fleet is using remote monitoring to track exceptions to make sure service levels stay high, and is leveraging the use of routing and planning technology.