FREIGHT RATE INCREASE OF 5.9% IS RECOMMENDED
Fort Erie, ON, March 2006 – The Tariff Advisory Committee (TAC) of the Freight Carriers Association (FCA) meets periodically to monitor economic conditions as well as the latest statistics on the profitability of general freight carriers. TAC reviews major issues affecting the industry’s profitability and its ability to maintain and improve service. The Committee recently reviewed the current market conditions and the results of cost studies conducted by FCA, which revealed major cost increases as detailed below. After a thorough review of the information, the Committee recommends that carriers raise their freight to achieve an overall revenue increase of 5.9% effective April 17, 2006.
In making this recommendation, the Committee stressed that cost increases vary by carrier and by customer. Therefore rate increases for some customers may be higher than our recommendation and conversely customers working with carriers to reduce costs may receive lesser rate increases.
If the trucking industry is to be successful in attracting capital and maintaining capacity, rates need to be increased. The driver shortage, increased security costs and regulatory changes are just a few of the drivers currently increasing costs for the trucking industry.
Driver Shortage Increases Labour Costs – The driver shortage is an enduring crisis that impacts carriers across Canada and the U.S. Trucking companies continue to increase wages and fringe benefits, while investing in driver recruitment and training in order to address this long term predicament. The driver shortage in Western Canada has been further exacerbated by the demand for drivers and equipment operators in the oil sands. Carriers will also see costs increase in order to comply with new US security measures, such as credentialing hazmat drivers and the new automated customs environment.
Using information developed by Statistics Canada, FCA estimates that labour costs are rising almost 6% on an annual basis. In addition to labour cost increases, other operating expenses (excluding fuel) are also going up.
Security Costs – Significant investments continue to be made by the industry to improve security and fight the hijackings of cargo and trucks. Carriers are also working closely with government agencies to implement more secure and efficient movement of freight between Canada and the United States through programs such as C-TPAT.
Hours of Service (HOS) – The impact of the new regulations expected to become effective January 1, 2007, is anticipated to be similar to that experienced within the U.S. The cost impact of the new U.S. HOS was estimated by the BB&T Corporation to be 2%-4%. This will also have a snowball effect as it will worsen the shortage of experienced drivers.
The new HOS rules will reduce the maximum driving time for commercial drivers by 19 per cent, from 16 to 13 hours, in a 24 hour period. They will also increase minimum off-duty time by 25 per cent, from 8to 10 hours. The new rules will also reduce daily on-duty time by 12 per cent, from 16 to 14 hours.
Revenue Improvement – Even with a pass-through of increased costs, the Canadian trucking industry’s financial position does not meet the industry standard for operating margins. Based on Statistics Canada’s 3rd Quarter 2005 results for Top General Freight carriers, the industry requires a revenue improvement of approximately ½ percent.
Accessorial Services – The costs associated with providing services such as appointment deliveries, waiting time, protective service, border crossing, return of pallets and handling of dangerous goods cannot be absorbed by the trucking industry. The trucking industry must charge for these and all the services it provides in order to make a reasonable profit. A reasonable profit will attract investors and help assure adequate capacity to the shipping public.
Cost increases noted herein exclude the impact of the fuel price changes. Experience has shown that the most efficient method of handling fuel price changes is through the use of a fuel surcharge program. The shipping public has recognized the need for the current fuel surcharge. This is the reason that the impact of changes in the cost of fuel has been excluded from this rate increase recommendation.
The FCA represents freight carriers operating throughout Canada in matters related to economics, pricing, finances, costing, as well as motor carrier statistics. FCA has been serving the trucking industry for more than 30 years. The TAC is composed of executives elected by membership to monitor the industry’s financial condition and performance and to make recommendations to the industry.
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