TRUCKING INDUSTRY IN THE MIDST OF A PERFECT STORM Fort Erie, ON, June 2003 – The trucking industry finds itself in the midst of a perfect storm. A continued soft economy, rising costs and thin operating margins continue to plague the industry. The situation is further exacerbated by carriers’ difficulty in charging for an ever-expanding plethora of accessorial services. High profile bankruptcies will continue to reduce capacity unless the system is changed. What needs to be changed? The trucking industry must charge for all the services it performs. The costs associated with services such as appointment deliveries, handling of hazardous materials, waiting time, and border crossing delays cannot continue to be absorbed by the trucking industry. Only by charging for these and other services can the industry be in a position to maintain fleets capable to meet increased capacity needs when the economy starts bouncing back. What’s the alternative? There is none. As costs for these services and demand for new types of services increase so will downward pressure on profits, the situation will only get worse. The consequence of not charging for these services is a lack of investment to replace aging equipment or buy additional equipment, resulting in a disastrous capacity crunch for the shipping public when the economy improves.
However, charging for additional services won’t be enough. The industry also needs to increase freight rates in order to offset cost increases. Carriers are faced with major cost increases in almost every aspect of their business including labour, equipment, insurance, security and e-commerce. They have no viable alternative to raising rates in order to weather the storm. This rate increase is urgently needed to recoup higher costs and is essential for the industry to continue to provide reliable, efficient and safe service.
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 a general increase in freight rates of 5.9% to become effective Monday, August 4, 2003. The Committee also recommends that the industry take the measures necessary to charge for all services performed.
Nature of the most significant cost Increases
Insurance and Security Costs Continue to Rise – It’s been almost two years since the events of September 11, 2001 and there is still no end in sight to premium cost increases topping 40% for some carriers. This is in spite of significant increases in deductibles in an attempt to control premium increases. With only two major insurance carriers writing insurance for trucking companies in Canada there is no end in sight to this crisis. New security measures and training have also increased costs for the industry.Environmentally Friendly Equipment Is Costly– The new U.S. EPA standards for environmentally-friendly trucks is a significant cost to the trucking industry and has increased the cost of each tractor by $10,000 or more. For long haul carriers that replace a third of their fleet each year this cost increase is huge. The new equipment also increases the cost of maintenance and lowers fuel efficiency.
Driver Shortage and Increased Demands On Drivers Push Labour Costs Up - Using information from Statistics Canada, FCA estimates labour has gone up by 6.5%. Some carriers are experiencing wage increases close to 10% in addition to increases in medical coverage of 30% or more. The shortage of drivers coupled with increased demands on current drivers in all areas including safety and security contribute to this cost increase. Trucking companies continue to step up their training in order to meet these demands.
In addition to the increases noted above carriers are experiencing cost increases in virtually every aspect of their business.
Fuel Cost Increases Are Handled Through the Fuel Surcharge Program - 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.