Freight Carriers Association / North American Transportation Council
May 1998
YIELD MANAGEMENT FOR LTL TRUCKING COMPANIES
By: Micheline S. Tansey
LTL carriers reported marked improvement in their operating profits and increased freight volumes beginning with the fourth quarter 1996 in the US and the third quarter 1997 in Canada. Improved profitability is due to the better quality of LTL revenue made possible by capacity being more in sync with demand. This is a golden opportunity for LTL carriers to enter into yield management as the airlines did a few years back.
Meanwhile, trade publications are reporting record truck sales indicating that carriers are not merely replacing equipment but adding to their fleets. This gives us cause for concern. Are we re-creating the over capacity situation that caused years of downward pressure on prices and dwindling profits? If carriers are adding capacity in excess of the current demand, in the likely event of an economic downturn our industry will again see margins erode until a few carriers cease operating and the capacity-demand equation is balanced again.
Before adding equipment to fleets, present equipment utilization should be reviewed carefully to ensure it is producing the best possible return on investment. It is time to scrutinize accounts and evaluate their profitability. Are we turning away lucrative business because our equipment is tied up with marginal or non-compensatory business? Are we short on equipment because we park in the customers' yard all the trailers he requests when half as many would be enough? Are we taking on new business willy nilly or carefully selecting that which fits in with our plans to enhance operational efficiency? Are we charging premium price for premium service or adjusting our prices to reflect the cost of opportunity loss due to poor utilization of equipment or human resources by some customers? And so on.
Only time will tell if the current trend in tractor and trailer purchases will create a new capacity glut that will bring on the next rate war. Meanwhile, astute carriers are managing current capacity to maximize profits while the opportunity is there.
SOME SHIPPERS SEEK NEW FUEL SURCHARGE/REBATE FORMULA
By: Micheline S. Tansey
As the media in the US report on declining fuel prices some shippers are requesting their carriers adopt new fuel formulae that will produce either a surcharge or a rebate, depending upon price variations. The following table demonstrates an example of such a formula for TL shipments: (Basis: US Department of Energy national diesel price index.)
| Deisel Price | Per Gallon | % FuelSurcharge | |
|
$ 1.00 |
but |
< $ 1.06 |
- 1.5 |
|
1.06 |
< 1.12 |
- 1.0 |
|
|
1.12 |
< 1.15 |
0.0 |
|
|
1.15 |
< 1.20 |
1.0 |
|
|
1.20 |
< 1.30 |
1.5 |
|
|
1.30 |
< 1.40 |
2.0 |
|
|
1.40 |
< 1.50 |
2.5 |
|
|
1.50 |
< 1.60 |
3.0 |
The base price during the life of the last surcharge was $1.12. (It is interesting to note this particular shipper proposes rebates in 5 cent reduction increments and surcharges in 10 cent increase increments. In other words, a 7 cent increase in fuel brings a 1% surcharge while a 1 cent reduction brings a 1% rebate; a 17 cent increase produces a surcharge of 1.5% but an 7 cent reduction produces a rebate of 1.5%.)
Implementation of such a program would be a nightmare for most carriers as will be discussed below.
Historically, fuel surcharges were implemented only during fuel crises, defined as sudden and sharp increases in fuel prices associated with periods of extreme volatility in fuel prices. Every year, fuel prices fluctuate and carriers absorb gradual increases in line with the escalation of their operating costs until the next general increase is announced. Over the past 12 years, fuel surcharges were implemented by the majority of carriers on only 4 occasions. Each such occurrence was related to a unique situation and the surcharges were suspended when the fuel prices returned to their pre-crisis level and carriers had recovered their additional fuel expense outlays.
As LTL carriers are well aware, it is only practical to assess fuel surcharges when they apply uniformly for all customers.
When general increases are announced when fuel surcharges are in effect, most LTL carriers exclude fuel costs from their cost calculations and leave their surcharge stand, canceling it once the fuel returns to the base price. When no fuel surcharge is in effect, carriers include normal fuel price hikes in their rate increase calculations and the current price becomes their base price.
If carriers were successful in obtaining rate increases that fully recover their cost increases from every single customer every year, a fuel surcharge/rebate program such as the one described above may be feasible. Unfortunately, this has not been the experience of the past ten years. FCA/NATC have on many occasions provided their members with graphs and charts showing the average revenue per hundredweight has been flat since 1988.
If carriers were to adopt the fuel surcharge/rebate concept, there would be different base prices for different customers and different formulae depending on the date of the contract, the type of freight, the territorial application or the duration of the contract. This would result in a costly administrative nightmare. Carriers could find themselves giving fuel rebates to customers while having to absorb other increases in operating costs making accounts non-compensatory. Carriers who chose to embark on such agreements should be aware of the pitfalls and may be doing so at their own peril.
GST INPUT TAX CREDITS FOR REVENUE ADJUSTMENTS
By: Micheline S. Tansey
In our August 1997 newsletter, we informed you of Revenue Canada's decision to let their prior opinion stand with regards to the treatment of GST input tax credits for revenue adjustments. That prior opinion was that carriers could claim GST input tax credits on unpaid balances written off without the issuance of a credit note. Revenue Canada subsequently wrote clarifying their position on this matter as follows: (underscoring added for emphasis)
In a November 20, 1990 letter to the Association, the Department stated that the bad debt treatment is allowable on revenue adjustments if the amount in question is recognized as a bad debt pursuant to generally accepted accounting principles. Whether a particular adjustment is a bad debt is a question of fact. In our opinion, an adjustment that corrects an erroneous billing, or deletes a charge to which the customer had never agreed, is not the write-off of a bad debt. It is rather the correction of an error. In hindsight, we wish that the 1990 letter had made this distinction more clearly, but still, the Department has never agreed that revenue adjustments in the trucking industry are to be accorded bad debt treatment as a general rule.
When this issue arose recently on an audit, we were concerned that the misunderstanding was widespread and could have material impact on the trucking industry. Thanks to the invaluable co-operation we received from you and the Association's members, we were able to determine that most members were not writing off large amounts of revenue adjustments as bad debts, and so there was no industry-wide problem with the application of the law. Nonetheless, we emphasize that registrants in the trucking industry must meet the requirements of section 232 of the Excise Tax Act when seeking a reduction of net tax for revenue adjustments, except for what are on their facts the write-off of bad debts.
We would like to thank you again for your cooperation in resolving the potential problem. Should any other industry-wide concern arise, please feel free to contact us so we can work out a solution together.
It is clear from this opinion that carriers must ensure they maintain an appropriate paper trail for their claims of GST input tax credits on revenue adjustments.
Please review the above clarification and let us know if it poses any problems for your organization
QUICKRATE FOR WINDOWS™ BETA TESTING UNDERWAY
By: Kenneth H. Leising
The next version of FCA/NATC's QuickRate System, QuickRate for Windows, is currently in the beta test phase with the system being tested at 5 different user locations.
Once the comments, suggestions and concerns are received from these test sites final changes will be made to the system. We will then be ready to offer QuickRate for Windows version 1.0 for sale. It will be available on CD ROM or 3.5 diskettes.
Prices to upgrade from the DOS version to Windows will be:
|
PRICES |
||
| MODULE | Member | Non-Member |
| QuickRate | $125 | $185 |
| QuickQuote | 150 | 250 |
| QuickSplits | 125 | 185 |
|
|
|
|
If you are a current user of QuickRate and have a customized version of the software please contact us to discuss what may be involved in moving your system to the Windows version. This includes any rates that are other than the normal FCA/NATC level.
We are in the process of scheduling an information session on QuickRate for Windows and other software for the afternoon of May 26, 1998 at the Toronto Board of Trade - 830 Dixon Rd. - Etobicoke, ON.
Watch for further details. To discuss any aspect of QuickRate for Windows please contact Ken Leising at ext. 203.
By: David J. Sirgey
What percent are revenue adjustments of your total operating revenue? How does this compare to your competitors? Are the terms of payment changing on a large portion of the industry's freight bills? These questions and more will be answered by the Revenue Adjustment Survey, which is currently being conducted by FCA/NATC. To discuss your participation in this survey contact Dave Sirgey @ (800) 559-7421 ext. 214
By: David J. Sirgey
What is an appointment delivery? This survey will help to define quantify and review appointment delivery trends. The survey also addresses the aspect of recouping the additional costs of handling appointment freight. Contact Dave Sirgey @ (800) 559-7421 ext. 214 for further information.
By: David J. Sirgey
FCA & NATC are conducting a Freight Claims Survey that will address everything from your freight claims ratio to truck hijackings.
Participants in the survey will receive the aggregate results free of charge
If you have any questions about this survey, please contact Dave Sirgey @ (800) 559-7421 ext. 214.
By: Warren D. Gawley
On October 1, 1998 the Canadian Firearms Act takes effect. This far reaching legislation regulates all aspects of firearms, from ownership and registration to transportation. Specific sections of the Act that will impact motor carriers handling firearms are: · Storage · Transportation · Importing and Exporting
To assist all parties in understanding their new obligations, the Canadian Firearms Center (CFC) has developed a plain-language "Guide to the Firearms Act". The Guide and other plain-language publications are available through the CFC at (800) 731-4000 or at their website at www.canadianfirearms.com.
Carriers involved in the storage or transport of firearms are encouraged to review these regulations prior to October.
MOVING THE ECONOMY: ECONOMIC OPPORTUNITIES IN SUSTAINABLE TRANSPORTATION
By: Warren D. Gawley
An International conference on sustainable transportation will be held in Toronto on July 9 - 12. The first of its type in the world, this international conference will explore sustainable transportation as a key to economic progress.
An initiative of Transportation Options in partnership with the City of Toronto, Moving the Economy is an international first. With a focus on practical outcomes, the conference will explore how transportation needs can be met while simultaneously improving the quality of life and reducing the impact of transportation. Among the Conference themes that may affect motor carriers are:
Additional information about the Conference can be obtained by calling Christine Sharman (416) 392-1560, ext. 86396 or on-line at - http://www.city.toronto.on.ca/business/business.htm.
By: Kenneth H. Leising
We are nearing completion of our annual postal code update based on the latest data available from Canada Post. It appears that in excess of 500 points will be subject to changes that will require amendments to their listing in FCA-NATC Tariffs and software. These changes also affect any carriers' base rate structures dependent on postal codes.
Our updated postal code information will be available in a variety of formats including printed publication, ASCII file or PC based software. Each contains postal codes for over 11,000 Canadian locations. Anyone who purchased last year's postal code information will be receiving notice concerning this update. Anyone else interested in receiving the postal code information should contact Ken Leising at (800) 559-7421 ext. 203.
By: Warren D. Gawley
On April 14 and 15, Dave Sirgey and Warren Gawley presented "Emerging Trends in Transportation" at the First Annual Link Logistics Subscribers Conference. The Conference, held for users of Link Logistics' software, provided the FCA and NATC the opportunity to present their views and opinions on trends that will increasingly affect all motor carriers. Among the subjects presented were:
Traffic Patterns between the US and Canada - Using data from the US DOT and Statistics Canada, current and historical information about the source of shipments from the US to Ontario were presented. Particular emphasis was paid to the continuing shifts in freight among various US regions. Similar information is available between all state and province pairings.
Quality of Service: US vs. Canadian carriers - The results of our 1996 joint study with Niagara University were presented. The study measured the extent to which quality initiatives have been undertaken by US and Canadian carriers and the degree to which they differ.
Appointment Freight - The growth in the percent of shipments that must be delivered in specified delivery "windows" and its impact on motor carrier operations was discussed. Using data developed from a special FCA/NATC survey, several aspects of the issue were addressed. These included the continuing growth of this type of freight, the changes in operations that are needed, the increase in costs and the approaches being used to offset or recover the costs.
Financial Condition of the US and Canadian Transport Industries - Operating results of US and Canadian LTL and TL carriers were presented.
We wish to express our thanks to Link Logistics for the opportunity to present and to those participants who made our time worthwhile.
Copies of the transparencies or the Power Point presentation used are available to all FCA or NATC members for a cost of $25. For additional information or to order a copy, contact Dave Sirgey at (800) 559-7421, extension 214.
By: Kenneth H. Leising
U.S. federal law [49 U.S.C. 13703(g)] requires that a carrier using any part of a NATC Tariff must be a participant in that Tariff. Consequently a nonparticipating carrier cannot use any rate, rule or other provision of a NATC Tariff. In fact, a nonparticipating carrier using any NATC Tariff provision could be subject to a number of legal detriments. For example a shipper could refuse to pay the freight charges of a nonparticipating carrier if the determination of those charges reflected the use of any NATC Tariff provision.
Participation in NATC Tariffs is shown in Section 1 of Tariff 172 series. Please refer to this Tariff to verify that you are currently listed as a participant in the tariffs you are using. There is no additional fee to a member carrier to participate in additional tariffs. Charges are incurred only for the purchase of hard copies, data or software.
If you do not have a copy of Tariff 172 and wish to verify in which Tariffs you participate, please call Jennifer Corupe at ext. 200.
By: Warren D. Gawley
We need your e-mail address. Remember when communicating meant a phone call or a letter. Then came the fax. Today we find ourselves in the midst of another communication revolution.
Using e-mail, we are improving efficiency in communications with customers are in the planning stages to provide software upgrades, survey results and even this newsletter via e-mail.
To assist us in this project please take a moment to send your e-mail address by Phone (800) 559-7421, Fax (905) 994-0117 or e-mail (info@fca-natc.org). Also, if you would like to receive this newsletter via e-mail, please let us know.
By: Kenneth H. Leising
Anyone interested in learning more about ISO 9000 quality assurance standard may want to visit the following website:
http://www.connect.ab.cal~praxiom/
This site, by Praxiom Research Group Limited, was developed in order to make it easy to learn about ISO 9000 in plain English. It offers information on ISO's quality standards, requirements, guidelines, a quality system development plan, three internal quality audit programs and more.
By: Warren D. Gawley
The US DOT has issued their final rules on labeling hazardous materials for transport. Scheduled for mandatory compliance on October 1, 1998 (voluntary compliance is set for May 1), the new rules were designed to more easily identify the nature and risks associated with transporting hazardous commodities.
The rules are the result of the Hazardous Materials Transportation Uniform Safety Act of 1990. That Act required better indication of hazardous materials during transportation and obligated shippers to be more detailed in describing the hazards of the products being shipped.
Additional information on the new rules can be found on-line at http://hazmat.dot.gov or http://www.rspa.dot.gov.
On a related note, the Federal Highway Administration continues to study the issue of registration of hazardous materials carriers and is requesting comments on procedures for registration. Comments are due by June 29. The FHWA is competing with a group of state and local government officials for control of the registration system.