For Immediate Release –
Buffalo, NY, July 10, 2001 – Major cost increases in labor, insurance, equipment, and e-commerce compelled the General Rate Committee (GRC) of the North American Transportation Council (NATC) to approve a 5.5% general rate increase effective August 6, 2001. The rate increase is needed to keep the industry from returning to low margins that do not allow sufficient funds to ensure its future viability.
The GRC regularly monitors economic conditions as well as statistics on the profitability of general freight carriers on both sides of the border. The committee reviewed major cost increases in the following areas:
Labor - Trucking is a labor intensive industry that has been forced to significantly increase wages in order to retain and attract drivers. The current shortage of experienced drivers is expected to be a continuing problem as Statistics Canada estimates that 13% of drivers are over 55 years old and only 5% are under 25 (the highest and lowest figures respectively for any occupation in Canada). We estimate the labor cost increase to be 4.6% in Canada and 3.4% in the U.S.
Non-labor – The FCA/NATC motor carrier non-labor indexes, which reflect the price movement of goods and services motor carriers purchase shows an annual increase of 3.0% in Canada and 3.1% in the U.S.
Equipment - Over recent years, the trucking industry has been hit hard by a combination of higher equipment costs and a sharp decline in the residual value of its equipment. Current rates of depreciation permitted by law within Canada vastly overstate the book value of carrier’s fleets which in many instances is more than double the actual market value. Left unattended this last problem will cause the demise of many small-medium sized carriers. For a trucking company that trades its tractors in after 5 years, this deadly combination has caused the operating cost of equipment to increase by over 45%. The purchase of new equipment cannot be indefinitely postponed as strictly enforced safety regulations require equipment to be maintained in top condition. The alternative of maintaining older equipment becomes cost prohibitive. Equipment upgrades are also necessary to meet the high-tech demands of the shipping public as well as to recruit and retain proficient drivers.
Insurance – The shrinking capacity in the truck insurance market has forced the cost of insurance up by 50% or more for some carriers recently negotiating new contracts. These premium increases would be even higher if companies had not obtained some relief from soaring premiums by accepting higher deductibles.
E-commerce – In order to meet customer demands and remain competitive trucking companies must invest in technology. This includes investments in hardware, software, communications systems and the necessary training of personnel to implement these new systems.
In summary the GRC felt that the industry must raise the revenue necessary
to meet these important additional costs through a rate increase and therefore
recommends a general increase in freight rates of 5.5% effective August
6, 2001 (The actual impact of the increase is 5.3% as accessorial charges
are excluded from the increase). Many carriers are experiencing much
larger cost increases and will need to recoup larger amounts. In
conjunction with the rate increase the industry must continue to search
for the productivity gains needed to offset operating cost increases due
to lower freight volumes caused by the economic slowdown.
Fuel Cost Increases Are Not Included In The Cost Increase Calculations.
It is important to note that the cost increases discussed above exclude the impact of fuel cost increases. Experience has shown that the most efficient method of handling fuel cost changes is through the use of fuel surcharges that fluctuate along with fuel costs. The shipping public has recognized the need for the fuel surcharge currently in effect. For this reason the impact of fuel costs has been excluded from this rate increase recommendation.
The NATC represents over 90 general freight carriers operating throughout
Canada and the U.S. in matters related to economics, pricing, finances,
costing, as well as motor carrier statistics. NATC has been serving
the trucking industry for more than 60 years.
ance and to make recommendations.