Cover Story
Canada catches a cold

By Eric Bérard
Special to Land Line

 

Canada – north of the border, there is a popular saying that goes: “When the U.S. sneezes, Canada catches a cold.” And the trucking industry is a very big part of that equation.

As much as 80 percent of all Canadian exports are sent to the United States. And with the U.S. economy struggling, people consume fewer goods. And even when they do consume, Canadian products are less attractive to American consumers and companies. That’s because the Canadian dollar is almost at par with its U.S. counterpart, only a couple of months after a Canadian dollar was worth about 70 cents U.S.

In a nutshell, Canada’s exports to the U.S. are down, so there are many fewer trucks crossing the border.

“Fewer Canadians are able to get south to get the northbound loads; consequently, more Americans are coming to Canada in lanes that Canadians once dominated. That has hurt revenue,” said Joanne Ritchie, the executive director of the Owner-Operators Business Association of Canada.

The economic slowdown caused further reductions in freight volumes, leaving struggling carriers desperate for cash. That’s led to rate-cutting based on shorter payment terms, purely to produce cash flow, not necessarily profit.”

And the credit crisis is not helping either, as larger fleets typically are able to borrow money more easily than owner-operators. As for the ability to collect fuel surcharges, owner-operators are disadvantaged once again, Ritchie said.

“Many owner-operators still rely on the carrier to collect it from the customer; in some cases, carriers are not passing the fuel surcharge on to the owner-operator, but at the end of the day, it’s up to the owner-operator to decide whether or not to move the freight,” she said.

But the good news is, according to OBAC’s Ritchie, that the “small guys” might be better positioned than some fleets to recover from the crisis.

“The high-volume, low-margin carriers will be the first to go. The specialty carriers and owner-operators, and those who have established a loyal customer base, are best positioned to weather the storm,” she said.

“Some owner-ops tell me they’ve never done better than they’re doing today. It costs more to operate a company truck, so owner-ops remain the favorite on low margin loads.”

Better driver treatment
At the Canadian Trucking Human Resources Council, Executive Director Linda Gauthier thinks that good things will also come out from the current crisis.

“One thing is clear: Companies today are more cognizant of doing a better job in treating their people and retaining them. There is still more work to be done, but human capital is now a key issue for more and more companies. People will always need what trucks can deliver,” she said, admitting that damages have occurred.

“A number of companies have gone bankrupt, and we see parked trucks. On the other hand, the demand for drivers and the vacancy rates have gone down. The challenge for a number of carriers when they are trying to fill seats is to find qualified drivers,” Gauthier added.

Need for partnership with shippers
David Bradley, president and CEO of the Canadian Trucking Alliance, said fleets are taking a hit in Canada, too.

“Canada will not be immune. No country on the planet is as vulnerable to the economic situation of one trading partner as Canada is to the United States,” he said.

To illustrate how bad the situation can be, Bradley pointed out that between 2006 and 2007, trucking bankruptcies in Canada increased 7.3 percent. In the first half of 2008, total Canadian trucking bankruptcies had already surpassed the total for all of 2007.

Yet he said he believes that enhanced partnerships with shippers can be a relief, especially if some of them, short on cash, stop delaying their payments to the carriers they do business with, whatever their size. He thinks shippers that use that practice “are creating the conditions for a long-term capacity shortage.”

Cash-strapped motor carriers, who have already seen margins squeezed and their creditors tighten the screws, could be in for a rough ride. All economic sectors will need to work together to weather this storm, Bradley said.

“Carriers understand the challenges that their customers are confronting and want to build long-term relationships. They are only asking for the same understanding from their customers,” he said.

Bradley closed his remarks by noting that credit might be more available in Canada than in the U.S., but to look at the cost.

Trucking is already undercapitalized. Debt-equity ratios are higher in trucking than in many other sectors, according to Bradley.

That might not be a huge relief for American trucking professionals, but at least they know that the situation is not really better north of the border and that Canadians too are trying to find ways to solve a crisis that is everything but a single nation’s issue. LL

 

Editor’s note: Award-winning journalist Eric Bérard covers the trucking industry as a freelance writer for Bérard Communications in Quebec. He’s currently chairman of the board of directors of the Truck Writers of North America. He also serves as the Canada/Europe press director for TWNA.

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