FREIGHT RATE INCREASE OF 5.5% IS RECOMMENDED
Fort Erie, ON, June 2002 – Add skyrocketing security and insurance costs to the list of operating cost increases piling up on the trucking industry and it becomes evident that immediate revenue relief is essential. The trucking industry which was already faced with major price hikes for new equipment, e-commerce investments, as well as labour and fringe costs, now faces ballooning insurance and security costs. The higher incidence of cargo thefts together with the events of September 11, 2001 have provoked a sharp rise in the cost of insurance and necessitated the continued enhancement of security measures. The industry has also experienced a sharp increase in bad debts due to more and bigger bankruptcies in major activity sectors it is dependent upon. A rate increase to offset these cost increases is essential so the industry can continue to provide reliable and efficient service.
The Tariff Advisory Committee (TAC) of the Freight Carriers Association (FCA) meets quarterly and monitors 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 results of cost studies conducted by FCA which indicated major cost increases detailed below. After a thorough review of the information and in light of current market conditions, the Committee felt that the industry must increase rates to offset the cost increases in order to maintain the current level of profitability. The committee therefore recommends a general increase in freight rates of 5.5% to become effective Monday, August 5, 2002.
Insurance and Security – The events of September 11, 2001 combined with the shrinking number of providers in the trucking insurance market, the imminent threats of more terrorist acts, and ever increasing cargo theft have caused the trucking industry’s insurance and security costs to skyrocket. Increased insurance premiums of 50% or more, combined with increased spending on all aspects of security have increased carriers’ total cost by over 1% in some cases. Unlike some other modes of transportation, the trucking industry has not sought to offset these increased costs with a surcharge.
Labour/Non-labour – FCA estimates the labour cost increase to be 4.5%. The increased demands on the drivers in all areas including security and safety require that we maintain our dedicated professional workforce. In the fight against terrorism, the Trucking Security Working Group, a task force of transportation organizations in Canada and the U.S., has suggested that truck drivers receive additional training in spotting and reporting suspicious activities. Trucking companies have stepped-up their training to meet these new demands. The increase in non-labour costs is estimated at 2.6%. FCA monitors non-labour cost increases through the use of various Statistics Canada indices
Equipment – The new U.S. EPA standards will significantly increase the cost of equipment as well as the cost of maintenance while it lowers fuel efficiency. Equipment upgrades are necessary however in order to meet the high-tech demands of the shipping public as well as to recruit and retain proficient drivers. The need for real time information has resulted in increased investment in technology both inside and outside of the tractor. The lower value of the Canadian dollar also increases the cost of equipment as much of the equipment and/or parts are manufactured in the U.S.Expense Increases Summary Table
E-commerce – In order to satisfy customer demands and remain competitive trucking companies must continue to invest in technology. This includes investments in hardware, software, communications systems and the necessary training of personnel to implement these new systems.
Increase in bankruptcies and related liabilities – A 100% increase in bankruptcy liabilities reported by the Office of the Superintendent of Bankruptcy for 2001 v. 2000 has hit the 3 industry sectors most impacting trucking. Manufacturing, Wholesale and Retail Trade reported increases of 74% to 145% in the amount of liabilities related to these bankruptcies (See Exhibit 1). This results in more bad debts for the trucking sector. The transportation and storage sector has itself has seen an increase of over 200% in bankruptcy liabilities during the first quarter of 2002 (See Exhibit 2). History has shown there is a close correlation between sharp spikes in fuel prices and the number of bankruptcies in the Transportation & Storage where bankruptcies increase sharply on the heels of fuel crises, (See Exhibit 3). This trend would indicate another surge of bankruptcies may be on the horizon, stressing the importance of promptly recovering cost increases.
Market Conditions – The following market conditions, not included in our calculations, have also significantly increased costs for the trucking industry:
~ The continuing economic downturn;
~ Increased demand for appointment deliveries;
~ Increased waiting time.
Fuel Cost Increases (Excluded) - 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 increases is through the use of fuel surcharges that fluctuate along with fuel cost changes. 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 FCA represents over 90 general 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.
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