Ontario carriers’ optimistic outlook on freight volumes and rates expectedly came back down to earth, but overall, continued bullishness from Ontario’s diversified trucking industry is being sustained by a stable transportation market within Canada and south of the border.
In the Ontario Trucking Association’s fourth quarter 2014 survey of business conditions for the bellwether sector, carrier opinion on the North American freight environment (Intra-Ontario, inter-provincial, southbound US, northbound US) remains buoyant, albeit somewhat tempered from the unprecedented highs expressed in the last 2Q survey. At any rate, as 2014 comes to a close, there is clearly a sustained level of optimism in the air and the post-recessionary skepticism that hovered for years over the industry is in the rearview mirror for most carriers.
Freight Volumes
Nearly half of carriers (47 per cent) said intra-Ontario freight volumes improved in the previous three months – a six point jump from the 2Q survey. Carriers who reported lower volumes within the province sank to all-time low of 3 per cent. Intra-provincially, carriers who say volumes increased were down six points from last quarter’s high of 59 per cent, but it’s still the second highest level since 2011.
Reports of increased freight volumes for southbound U.S. lanes were down by 10 points, but at 55 per cent, it’s still double the rate of carriers who said the same thing a year ago in the 4Q 2013 survey and five times more than the end of 2012. Remarkably, for the second straight survey, no one reported decreased U.S. volumes – the first time ever that’s happened, and an obvious indication Canadian carriers are benefitting from an improved U.S. economy. Northbound from the U.S., reports of advanced volumes tapered off to 38 per cent from last quarter’s all-time high of 62 per cent. The 48 per cent who this time indicated no change in volumes is consistent with typical averages for this category.
Looking ahead, 29 per cent of carriers expect improved volumes over the next six months – about half as many who said the same in 2Q, but consistent with the 4Q13 rate. Nearly 70 per cent said volumes are unchanged, while those who predict less freight is still barely measurable at 3 per cent. Intra provincially, the 40 per cent who expect an uptick is also lower by nearly half, but still 10 per cent higher than the same period last year. The number of carriers who forecasted a boost in southbound freight was also down by 20 points (73 per cent to 53 per cent), but double the rate of 4Q13. Once again, not a single carrier expects southbound volumes to slip at the start of 2015. Over half of respondents expect northbound volumes to remain unchanged (53 per cent), but the number of carriers who predicted more freight for these lanes was largely down from this past summer (61 per cent to 33 per cent).
Rates
Carriers’ recent characterizations of a stronger rate environment continued to varying degrees, but in some cases were expectedly more moderate than the 2Q survey’s exceptional highs. Within Ontario, however, 45 per cent of respondents expected price hikes – the highest ever recorded – and 14 per cent more than the last survey. No carrier surveyed expects decreases either within Ontario or throughout the other provinces. Inter-provincially, those who expect increases were unchanged from 2Q (47 per cent). Expectations for higher southbound pricing dipped to 45 per cent of carriers, down from the record high of 62 per cent, but still the second highest ever. More than half (52 per cent) foresee unchanged rates, a reflection of bolstering confidence in pricing stability. Northbound, 33 per cent expect increases (-11 per cent) and there’s a slight increase in those who expect lower rates, but that’s still only 13 per cent of carriers.
Capacity
The effect of sustained volume increases along with a worsening driver shortage continues to squeeze capacity. Expectations remain largely unchanged for 45 per cent of respondents, but only 27 per cent have experienced capacity increases over the last quarter. Looking ahead, 84 per cent of carriers either don’t expect change (42 per cent) or expect further tightening (42 per cent). Still, 82 per cent say customer contract timeframes are not lengthening, despite all the warnings of driver shortages and documented shipper concerns over truck service availability. On that note, most carriers (59 per cent) insist they plan to add drivers; although, if recent trends are any indication, the majority of these additions are motivated by replacement demand, not expansion.
Carrier Costs
The challenge of at least maintaining capacity levels is leading many carriers to increase wages for drivers, adding to what is already their largest cost. In the 4Q14 survey, 78 per cent indicate driver pay is rising with about 10 per cent of those respondents reporting raises in the 10 per cent range – more than the previous high in 2011. It’s also clear that next generation, clean emission trucks and all the added safety and environmental technology is increasing the cost of new equipment. More than two-thirds (71 per cent) of carriers report truck price hikes in the 5-10 per cent range – a steep rise from the 42 per cent who said the same thing this time last year. Fuel remains a huge expense (about 9 in 10 carriers report increases of some sort). Thankfully, only 6 per cent of carriers report fuel price increases in the 15 per cent-plus range – expectedly much lower than the 38 per cent who indicated extreme price hikes during last year’s brutal winter.
Top Concerns
Driver shortages prevails as the top concern for carriers (55 per cent). Capacity/rates was the second-highest reason for concern (21 per cent). Only 18 per cent stated the economy was their primary concern, nearly half as many (30 per cent) who were most worried about the economy at the end of 2013.