MotorTruck November-December 2009 by Annex Business Media

Motortruck

NOVEMBER/DECEMBER

2009

Fleet Executive C A N A D A ’ S

B U S I N E S S

M A G A Z I N E

F O R

F L E E T

O W N E R S

weathering

the Storm

Congratulations, you’ve survived the recession. Are you ready to thrive in the tumultuous recovery? Get started with our Decisions 2010 report.

PLUS: Shippers and carriers share their insights about transportation’s greatest challenges in our 4th Annual Roundtable

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28.1% fewer vehicle out-of-service events, 32.4% fewer driver out-of-service events and 37.8% fewer moving violations when compared against Canada benchmarks.** Based on PeopleNet Professional Services engagements.

contents November/December 2009

Volume 78, No. 6

COVER STORY

Decisions 2010 . . . . . . . . . . . . . . 21 You may have weathered the worst economic storm in decades, but it’s not time to put that umbrella away just yet. The recovery is looking like it will be the slowest and most volatile in recent history, so prepare yourself for the challenges and opportunities ahead with our annual Decisions Report.

PREPARE FOR THE RAINBOW Carriers and shippers who survived the downturn of 2009 were able to do so by deploying some drastic departures from past practices. How can they best survive and thrive in the recovery of 2010? Find out as carriers and shippers share their insights in our fourth annual Issues Roundtable.

BABY STEPS There’s optimism that 2010 will be better than this year, but it might not be anything to write home about. We offer our forecast for the coming months ahead for both the TL and LTL markets, while carriers offer their own projections via our Transportation Buying Trends Survey.

the Storm

DEPARTMENTS VIEWPOINT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The recession may be over, but don’t unbuckle your seatbelts just yet. COMPETITION WATCH. . . . . . . . . . . . . . . . . . . . . . . 8 Challenger Motor Freight buys part of Sandrock Specialized Carriers’ commodity biz; Bruce R. Smith files for creditor protection; Schneider Logistics honours two Canadian companies with Carrier of the Year awards; and more. MY HR SPACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Aboriginal Canadians represent a largely untapped pool of potential employees. Will you take advantage? TAKING CARE OF BUSINESS . . . . . . . . . . . . . . . . . 12 Do you have the attitude to thrive under pressure and to succeed as a new entrepreneur?

SURVIVAL OF THE BEST FINANCED An insider’s view of the mergers and acquisitions activity that will transform trucking in the volatile months ahead.

EQUIPMENT WATCH . . . . . . . . . . . . . . . . . . . . . . . 13 Western Star execs give a comprehensive look at the company’s future strategies, including a product line expansion and upcoming challenges for 2010, while Shell injects some ‘Energized Protection’ into its newly revamped engine oil product line.

GREEN TO GOLD . . . . . . . . . . . . . . . . . . . . . . . . . . 16 FPInnovations has launched two new projects to validate the fuel-saving potential of hybrid delivery trucks through Project Innovation Transport. Plus, a new report offers top tips for shippers and carriers to help ‘decarbonize’ the supply chain.

PROFITABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Is there a better LTL pricing scheme? Dan Goodwill explores the long and winding road to cube- and density-based pricing in part two of this series.

BOTTOMING OUT The Canadian General Freight Index indicates we should prep for a bumpy ride as freight costs hit bottom and then start to climb in 2010.

GOING ON RECORD Is it time to say goodbye to paper logs for good? Carriers and regulators make the case for the mandatory use on electric on-board recorders.

SPECIAL INSIDE

weathering

CITY SMARTS SUPPLEMENT

INSIDE THE NUMBERS . . . . . . . . . . . . . . . . . . . . . 38 Our Transportation Buying Trends survey explores the rate trends, capacity concerns, and surcharges of both LTL and TL freight shippers in 2009 and beyond. NOVEMBER/DECEMBER 2009

what’s on trucknews.com? Blogs • Ray Haight of ATBS Canada reflects on the

rules, rules and more rules that popped up in 2009.

• Dan Goodwill of Dan Goodwill and Associates preps readers for the coming of eManifests.

• Kevin Snobel of Caravan Logistics unleashes his “bull in a china shop” approach to efficient operations.

• IT expert Gagan Goraya ponders the role of

knowledge management as it relates to system development process within the transportation and logistics sector.

Web TV: Transportation Matters • DRIVETEST STRIKE CONTINUES: DriveTest employees gather outside KRTS Transportation Specialists in Caledonia to protest commercial driving tests being conducted on site as the strike continues.

• INVEST IN YOUR DRIVERS: Ray Haight, chief executive of ATBS Canada, discusses the importance of investing in your workforce and hiring the right driver for your operation. • REMEMBRANCE ON THE ROAD: Kevin Sheehan shows off his truck commemorating the 65th anniversary of D-Day. • CRYSTAL BALLIN’ TRUCK FREIGHT RATES: They took a definite nosedive in 2009. Will they skip ahead or lag behind the recovery in 2010?

You Said It . . . “Every carrier has different cost structures and business mix. So I wish everyone would stop complaining about price…price is market driven and not something that can be controlled by carriers (unless you illegally decide to collude). Look in the mirror and control what you can control (idle, out of route miles, empty mile shifts, network design, maintenance, fleet size and the list goes on). The smartest (not strongest or biggest) will survive.” – Smart Trucker responding to Kevin Snobel’s blog: Why not I thought?

4 motortruck

We now TWEET! Follow us on Twitter Twitter.com/AdamLedlow Twitter.com/JamesMenzies Twitter.com/LouSmyrlis

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Fleet Executive

is written and published for owners, managers and maintenance supervisors of those companies that operate, sell and service trucks, truck trailers and transit buses.

Viewpoint

NOVEMBER/DECEMBER 2009

VOL. 78

NO. 6

Editorial Director

celebrate: the recession is over

Lou Smyrlis (416) 510-6881

lou@TransportationMedia.ca

but don’t unbuckle your seatbelts just yet

Managing Editor Adam Ledlow (416) 510-6890

or most transportation executives, and the suppliers that service them, the year 2009 will be remembered as the year best forgotten. Yet as we finally get confirmation that the worst economic setback to grip Canada since the Second World War is finally over, two very distinct memories of just how afraid we were of 2009 keep springing to mind. I remember driving back home late one night last November. It was a dark, cloudy night with a cold Lou Smyrlis, rain coming down. The weather MCILT Editor outside my car seemed an all too lou@transportationmedia.ca accurate reflection of the mood at the time. I was listening to an worth repeating all-business channel about the “Business owners are going collapse of the US and global to need a recession mentality economies. I remember heartill 2011.” ing interviews being conducted – Meny Grauman, with one prominent business senior economist, leader after another. You could CIBC World Markets hear the bewilderment and the fear in all of their voices. They just could not believe what was happening. Speaker after speaker made reference to the Great Depression of the 1930s. Fear dominated the minds of individuals and businesses alike. A couple of weeks later, during a packed economic outlook session at the Ontario Trucking Association’s conference, I remember one well-respected member of the industry only half-jokingly commenting: “Well, it’s a good thing they decided not to hold this session on the third floor or people would be jumping.” Fortunately our worst fears never did come to pass. Fears about a Great Depression turned into the realities of a Great Recession – although the OTA wisely continued to hold its economic outlook sessions on the first floor. And the damage was real enough: Canada, a nation that relies on exports, has suffered a 25% drop in exports. Corporate profits have dropped 45%. The value of publically traded transportation companies has dropped by 45%, perhaps more. And those are the ones fortunate enough to still be in business. More than 3,000 transportation companies have shut down across North America. The Canadian General Freight Index, a great new tool measuring ground freight costs, has fallen 16% from its peak in July 2008, as shippers pressed their advantage in a market clearly over capacity. The most popular new word in industry

adam@TransportationMedia.ca

circles these days is “zombie trucking,” a way of referring to companies who remain alive only because their lenders refuse to pull the plug while the market value of their equipment is still so low. Yet it’s fair to say the mood among many of the executives attending this year’s economic outlook session ranged from mildly surprised to disappointed that the projections for 2010 were as tepid as they were. As you’ll read in our Decisions 2010 special section, the economic experts on hand basically wrote off 2010 as year where the Canadian economy will take “baby steps” and advised executives to retain their “recession mentality till 2011.” Hardly the uplifting rhetoric we’ve heard following past recessions where growth came fast and strong and trucking led the way out. Is there a chance we are being overly pessimistic and, as a result, setting ourselves up to miss out on some great growth opportunities? Perhaps. Certainly shippers appear to be more optimistic about 2010 than carriers. A country-wide survey conducted by NB Financial and CITT found a much greater percentage of trucking executives were convinced freight volumes would either remain flat or actually decrease further next year. Shippers, on the other hand, proved less uncertain with respect to freight volume growth and projected a slight improvement next year, with 29% projecting a 5-10% increase. Our own national research of both carriers and shippers shows similar discrepancies when it comes to freight volume growth projections for 2010. A survey conducted in November by the Canadian Manufacturers and Exporters showed improvement in manufacturing orders and a hopeful outlook on future employment. And consumer spending in Canada showed its largest increase since the fourth quarter of 2007. But caution may be the best strategy for now. To begin with, despite a 10-15% cut in capacity across the industry, our research clearly shows that shippers still believe there is excess capacity in both the LTL and TL trucking markets. And as great as it was to hear just before I started writing this column that the Canadian economy is now officially out of recession, the 0.4% annualized growth realized in the third quarter was below the Bank of Canada’s 2% growth prediction for the quarter and below economists’ expectations for an annualized growth rate of 0.6%. Nevertheless, here’s to hoping I’m wrong and the optimists carry the day. mt @ARTICLECATEGORY:129;

6 motortruck

Features Editor Julia Kuzeljevich (416) 510-6880

julia@TransportationMedia.ca Creative Director Mary Peligra

mpeligra@bizinfogroup.ca Advertising Creative Directors Carolyn Brimer Beverley Richards

Contributing Editors

Ken Mark James Menzies Ian Putzger John G. Smith Carroll McCormick Harry Rudolfs

Publisher Rob Wilkins (416) 510-5123

National Sales Manager Don Besler (416) 699-6966

Account Manager Brenda Grant (416) 494-3333

Production Manager Kim Collins (416) 510-6779

Circulation Manager Valerie Fraser

Video Production Manager Brad Ling

Research Manager Laura Moffatt

Vice President Publishing Alex Papanou

President Bruce Creighton Head Office 12 Concorde Place, Suite 800 Toronto, Ont. M3C 4J2 Motortruck Fleet Executive is published 6 times a year by BIG Magazines LP, a leading Canadian information company with interests in daily and community newspapers and business-to-business information services. The contents of this publication may not be reproduced or transmitted in any form, either in part or full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. Motortruck Fleet Executive is indexed by Micromedia Limited. PUBLICATIONS MAIL AGREEMENT 40069240 Return Undeliverable Canadian Addresses to: Circulation Dept. – Motortruck Magazine, Suite 800 – 12 Concorde Place, Toronto, ON M3C 4J2 USPS 016-317. US office of publication, 2424 Niagara Falls Blvd., Niagara Falls, NY. 14304-0357. Periodical Postage Paid at Niagara Falls NY USA. Postmaster send address corrections to: Motortruck, PO Box 1118, Niagara Falls NY 14304. Member Canadian Business Press. Subscription Inquiries – (416) 442–5600. PAP Registration No. 11025 We acknowledge the financial support of the Government of Canada through the Publications Assistance Program towards our mailing costs ISSN Number 0027-2108

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CompetitionWatch

CHALLENGER MOTOR FREIGHT has purchased certain assets of the special commodities business of SANDROCK SPECIALIZED CARRIERS. Sandrock is an Ontario-based carrier that specializes in over-dimensional transportation. “The addition of the Sandrock business is a significant moment for both our companies,” said Dan Einwechter, chairman and CEO of Challenger Motor Freight. “With the addition of their equipment and expertise, we look forward to expanding our special commodities division to provide Challenger’s innovative transportation solutions to a wider range of customers as well as our combined existing client base. Having Mark Sandrock and his team join our new division, Sandrock Specialized Transport, will enhance service offers to existing Challenger accounts as well as provide Sandrock’s customers with much broader service offerings from a single source, a true win-win situation.” Sandrock was founded in 1999 and has focused on transporting heavy equipment and over-dimensional freight. BRUCE R. SMITH has filed for protection from creditors under the Companies’ Creditors Arrangement Act. The company filed with the Ontario Superior Court of Justice, which will give it time to restructure its business affairs. KPMG is the court-appointed monitor and Hamilton, Ont.-based law firm Scarfone Hawkins LLP will assist the carrier in its restructuring efforts. Bruce R. Smith has been trucking since 1947 and celebrated its 60th anniversary two years ago. It operates about 250 tractors and 1,100 trailers out of six locations in Ontario and one in Montreal, Que. The company currently employs about 325 people. The company said its creditors are supportive of the application. Bruce R. Smith says it’s business as usual while it restructures, as far as its customers are concerned. It also said it will try to retain as many of its employees as possible. SCHNEIDER LOGISTICS has honoured two Canadian carriers with its Carrier of the Year award. The company made the announcement at its seventh annual Carrier Recognition Conference in Green Bay, Wis. Sept. 16. Representatives from more than 140 carriers attended this year’s event, with 19 transportation companies earning the Carrier of the Year distinction. The two Canadian winners were OTTAWAY MOTOR EXPRESS of Woodstock, Ont. and TST OVERLAND EXPRESS of Mississauga, Ont. The Carrier of the Year distinction is presented to Schneider third-party logistics carriers that serve a variety of transportation modes and are deemed to excel in operational performance, exceptional service and ease of conducting business. Carriers recognized at this year’s conference represent the top 1% of service providers moving freight on behalf of Schneider Logistics’ customers, according to officials. BISON TRANSPORT has won the inaugural Volvo Trucks Safety Award for fleets accumulating more than 10 million miles. The award was presented at the American Trucking Associations Management Conference and Exhibition. Participating companies were judged on accident frequency using US DoT definitions of a “recordable accident” in addition to fleets’ accident prevention programs. Bison boasts an accident rate of 0.19209 per million miles travelled, while operating 1,050 tractors and delivering 3,200 loads per week, Volvo reported. Bison provides drivers with a “toolbox” that contains promises such as the selection of safe equipment, a safe working environment, in-depth training and accountability “so that we don’t lose sight that safety is, in fact, a priority,” according to Bison president and CEO Don Streuber. “Bison has an intense focus on safety,” said Streuber. Bison provides ongoing training for drivers using 15 different courses and four simulators. It also performs risk assessments on every driver and uses targeted training to improve drivers who are identified as being high-risk. Each of the winning fleets received $25,000 from Volvo to put towards their safety programs. MSM TRANSPORTATION, a provider of commercial trucking and expedited freight services, is celebrating its 20th anniversary in November. “We started MSM Transportation in 1989 as an alternative to the large American trucking companies that dominated the US/Canada transborder market at the time,” said Bob Murray, president and chief operating officer. “There was room for a Canadian carrier that combined excellent customer service with a commitment to moving freight across the border efficiently, securely, and with the fastest transit times possible.” Murray said the company has been successful by empowering the customer, guaranteeing satisfaction, delivering expertise, and maintaining financial stability, among other key points.

For daily COMPETITION WATCH news go to www.trucknews.com or subscribe to our bi-weekly e-newsletter. 8

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And the

award goes to...

inner 200

alist 200

Canadian O

Awards

ne Publ i sh

ing

nl i

Publ i sh il ne i

Awards ng

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Trucknews.com!

The first-ever Canadian Online Publishing Awards, presented by MastheadOnline, recognize excellence in online editorial and innovation by Canadian magazine and Web site publishers. Trucknews.com was the only transportation magazine to be recognized in any award category. CONGRATULATIONS TO THE TRUCKNEWS.COM TEAM!

Winner/Best Video Finalist/Best Overall Web Site

the human edge

The Aboriginal Advantage Aboriginal Canadians represent a largely untapped pool of future employees

here is no mistaking the fact that Aboriginal Canadians represent an important pool of future workers. Figures from the 2006 Census make that clear. More than 1.17 million people identify themselves as First Nations, Metis or Inuit, and at a time when the trucking industry faces the reality of an aging workforce, almost half of all Aboriginal people are under the age of 24. “A large increase within the Aboriginal working age population will occur in the next decade,” researchers concluded when completing the Essential Skills Needs Assessment of the Canadian Trucking Industry on behalf of the Canadian Trucking Human Resources Council. “Over the next two decades, other segments of the Aboriginal adult population are expected to increase significantly, particularly those aged 35 to 54 who comprise the majority of the working age population.” While Aboriginal people are underrepresented in today’s trucking industry, successful partnerships do exist. Northern Resource Trucking offers a good example. The partnership between Trimac Transportation and the Lac La Ronge Indian Band was originally founded in 1986 to expand Aboriginal participation in northern Saskatchewan’s mining industry. That partnership has since reached out to 12 groups including Metis, Dene and Woodland Cree. Like any other demographic group, there are cultural considerations when reaching out to Aboriginal communities. “In Saskatchewan, where I have most of my experience, people are reluctant to leave their home communities. They have a vast social network in their home community and a strong connection to the land,” says Dave McIlmoyl, vice-president of Northern Resources Trucking. Some of the drivers from more remote rural communities had to learn how to cope with the shift to an urban setting like Saskatoon, where they immediately became a visible minority. There is no avoiding some of the realities of the business. “Trucking is a difficult job. You’re alone most of the time and we travel in very isolated conditions,” he says. “When you leave here, you’re pretty much on your own until you get to the mine.” But some of the isolation was addressed by planning routes so that workers could travel through home communities, or even reset their Hours-of-Service once they got there. The use of mentors within the fleet also gave new recruits the

To find a HR Essentials workshop in your region contact:

motortruck

chance to discuss challenges of every sort. Hiring fleets may also need to address the challenges that can exist around a candidate’s essential skills. About one in four Aboriginal people list an Aboriginal language as their mother tongue. “There are significant learning needs among Aboriginal people in urban and remote settings in the key essential skills of reading text, document use and numeracy,” notes research by the CTHRC. Successful training programs will also account for cultural differences such as the tradition of oral communication. The commitment to reaching out to this pool of workers continues across the country. In the Atlantic provinces, a recently introduced program known as Building the Road to Aboriginal Workforce Partnerships will introduce 10 Aboriginal candidates to jobs in the trucking industry, along with 14 of their peers who will find opportunities in construction. Carriers including Armour Transportation Systems, Eassons Transport, Clarke Road Transport and King Freight have all contributed their support. “In terms of building relationships with the community itself, it’s also important,” says Kelly Henderson of the Trucking Human Resources Sector Council Atlantic. “What makes this project unique is [that] we have industry employers, private training schools and the Council working together to ensure the candidates receive the best employment opportunities and have the chance to participate in industry standard training.” “It has been our experience that APTEC clients bring good work ethics and dedication to their new career,” she adds, referring to Aboriginal Peoples Training and Employment Commission, the employment and training division of the Native Council of Nova Scotia. “The Council has developed strategies in the past to recruit Aboriginal People to the industry. We have an Atlantic [Memorandum of Understanding] with the Department of Indian Affairs – Aboriginal Workplace Partnerships – which demonstrates industry is committed to Aboriginal Peoples’ inclusion in our workforce.” The Canadian Trucking Human Resources Council (CTHRC) is an incorporated not-for-profit organization that helps attract, train and retain workers for Canada’s trucking industry. For more information, visit www.cthrc.com.

AMTA www.amta.ca

PEI Trucking Sector Council www.peitsc.ca

Ontario Trucking Association www.ontruck.org

Trucking Human Resources Sector Council, Atlantic info@thrsc.com

inside the numbers

Percentage of Companies Conducting Screening Tests

One 8%

None 5%

More than five 56% Two to five 30%

Reasons for Termination/Lay-off

For-hire Private

Discipline problems Poorly qualified drivers Poor driving records Seasonal demand Not willing to drive long-haul routes Decrease in overall business Other

60% 47% 36% 17% 16% 11% 11%

46% 41% 27% 33% 12% 18% 9%

Source: Canadian Trucking Human Resources Council

Types of Candidate Screening by Company Type Do not conduct screening Review driving record Check references Review application/resume Conduct interviews Road test Criminal record check Admissibility to drive to US Attitude testing Reading, writing and basic math Aptitude testing Use prescreened agency drivers Other

For-hire 4% 89% 83% 80% 78% 74% 68% 41% 27% 28% 18% 7% 10%

Private 6% 81% 72% 75% 71% 61% 48% 17% 30% 26% 19% 7% 7%

Overall 5% 86% 78% 78% 75% 68% 59% 30% 28% 27% 19% 7% 8%

WEEDING OUT PROBLEM HIRES

Canadian business is expected to face severe labour shortages in years to come, due to an aging workforce and limited entry into trades-related occupations. Trucking has traditionally experienced acute driver shortages during economic upturns and much of the industryâ&#x20AC;&#x2122;s attention is focused on recruitment. However, having the procedures in place to hire the right employees can be critically important to continuity in key positions and reducing human resource-related expenses â&#x20AC;&#x201C; firings can be a costly business. Research conducted on behalf of the Canadian Trucking Human Resources Council found that discipline problems, poorly qualified drivers, poor driving records, and seasonal demand were the most common reasons leading to terminations. Discipline issues and poor driving records proved to be particularly problematic in the for-hire sector. Screening is an important first step during the recruitment process to weed out potential problem employees and the CTHRC survey found that more than half of fleet respondents had implemented more than five different tests and/or procedures associated with the hiring process. Checking references, reviewing applications and driving records, and conducting interviews were the most commonly used screening techniques. About a quarter of respondents were employing more thorough practices such as attitude, literacy and aptitude testing. Saskatchewan Trucking Association www.sasktrucking.com

British Columbia Trucking Association www.bctrucking.com

Manitoba Trucking Association www.trucking.mb.ca

Camo-route www.camo-route.com

Or Contact the Canadian Trucking Human Resources Council, info@cthrc.com or 613 244 4800 november/december 2009 11

TakingCareofBusiness

stars of tomorrow What it takes to be a successful new transportation entrepreneur.

he recent economic downturn has created a whole new generation of transportation entrepreneurs. Many have acquired a few pieces of equipment from auction sales; others have taken over bankrupt companies. This is good for all concerned. This is the group that will help rebuild our economy. As you travel the path toward success as a new transportation entrepreneur, there will be many obstacles in your way. You will face physical, mental, financial and resource challenges among others. Not many other people work the hours or take the daily risks of new entrepreneurs. Instead of beating yourself up or giving in, it is critical that you develop the ability to learn from setbacks. What is the difference between winners and losers in business? In a nutshell, dealing with barriers, obstacles and setbacks is much more about attitude than aptitude. There are many new entrepreneurs that give up very easily and look for the easy way out. Many return back to corporate life. Do you have the attitude to thrive under pressure and to succeed as a new entrepreneur? Sir Edmund Hillary was three times unsuccessful while trying to climb Mount Everest before the success of his historical climb to the summit in 1953. People who shouted the praises of his triumph said, “You’ve conquered the mountain,” and Sir Hillary said, “No, I’ve conquered myself.” The bitter experiences of the three failed attempts did not hold back Hillary from a fourth one. With strong will, and relentless enthusiasm, he pursued his goal and achieved it. Any experienced new entrepreneurs

understand the inevitability of running into numerous barriers. The difference between those who succeed and those that fail is their perspective on how to deal with the barriers they encounter along the way. People often stumble over obstacles and even consider them as excuses for their failures. Setbacks and difficulties are an inevitable part of life. While they often challenge your skills and temperament, it is those who are willing to spend the time assessing the obstacles as they arise, and who refuse to submit to their various trials, that will succeed. The ability to blow through barriers must become a passion if you want to achieve sustainable success in the business world. Generally speaking, there are only really two ways to address difficulties: 1. You can either change the circumstances surrounding the difficulty, or change yourself to better deal with the circumstances or the difficulty itself. Do not wish it was easier, wish you were better. 2. You can deal with difficulties properly and leverage your experience (or better yet, the experience of others) to enhance your confidence, or you can deal with them incorrectly and let them seriously damage your confidence, performance and ultimately your reputation. If you can see and face challenges in a positive way, you will gain immense experience and knowledge from it. As the old saying goes, a smooth sea never made a skillful sailor. Following are some points to consider when setbacks do occur: • Be honest enough to acknowledge what has happened. Don’t hide from the reality of the situation at hand. Setbacks happen – don’t be discouraged. Learn from

Mark Borkowski is president of Mercantile Mergers and Acquisitions Corporation. Mercantile is a mid-market M&A advisory firm focused on the sale of privately-owned business. Mark can be contacted at (416) 368-8466 ext. 232 or mark@mercantilema.com.

them, deal with them, and move on. • Turn setbacks into learning situations by asking positive questions such as: What are the positives surrounding this situation? How can I make the most of this situation? What can I learn from it? What are the facts underlying this problem? How can I avoid this situation next time? • Acknowledge the fact that setbacks occur to everyone and you are not being singled out. • View setbacks as a challenge to overcome rather than an issue or problem. As you know, a diamond cannot be polished without friction. Use obstacles and failures as an opportunity to polish your skills. I think Winston Churchill said it best when he noted, “The pessimist sees the difficulty in every opportunity; the optimist sees the opportunity in every difficulty.” mt @ARTICLECATEGORY:3361;

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EquipmentWatch Western Star execs outline company’s strategic course By Paul Hartley The simple, overarching message Western Star officials delivered at the company’s recent dealer meeting in Las Vegas, Nev. could be summed up as a paraphrase of Mark Twain’s famous line: “The reports of my death are greatly exaggerated.” The company is very much not dead, executives told reporters during a press event, nor are there any plans to kill it. In fact, Western Star has apparently been given the opportunity to chart its own strategic course, without clearing every budgeting and marketing decision with its corporate parent, Daimler Trucks North America. The change would put it on par with status of Freightliner Custom Chassis Corp. and Thomas Built Buses. At first glance, this reorganization seems to be a mere shift in accounting practices. Managers stressed, however, that their newly found freedom would affect everything from dealer relationships to marketsegment expansion to research and development. Heading up this charge is a fresh, independent management team composed of: Michael Jackson, general manager; Ann Demitruk, director of marketing; James Looysen, sales manager; and Richard Shearing, director of product planning. Many of the company’s detailed plans for the future – some based on suggestions gleaned at the dealer meeting – are still a bit fluid. Nevertheless, the four top executives laid out their near- and long-term goals for Western Star during an hour-long chat with members of the trucking industry media. Here are the highlights from that conversation: Overall plans: Jackson: “We are renewing our interest in Western Star. We want to get people pumped up about the brand again…and to put the emphasis on the segments where we really play well.” Demitruk: “From a marketing strategy,

we intend to partner with our dealers to host (ride and drive) events that bring in customers and put them behind the wheel.” These events will be held at dealerships,

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truck stops and customer facilities. Looysen: “We’ve previously focused on our historic markets. We now plan to expand (into other segments), putting more

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EquipmentWatch emphasis body builders as well. We think our product line fits well there. It’s very body-builder friendly, but it’s often been overlooked in the past.” Benefits of greater corporate independence: Looysen: “To be a true premium brand, you need to be flexible and quick, and the new organizational structure will allow that. The processes you have in a big corporation are good for a company like Freightliner. But for Western Star to retain its premium identity, we needed to break away to offer customers a quicker, more nimble approach.” Challenges in preparing for 2010 and beyond: Shearing: From an engineering standpoint, “mining trucks have probably been one of the toughest (design challenges), for both the 4900 and 6900. We have our Tier III off-highway engine to supplement that business, but there are plenty of applications requiring EPA2010 on-highway certification.” Some of these operations are quite remote so the hardware must be particularly robust, and the dealer organization needs to be capable of providing support wherever customers are located. Jackson: “As we mentioned, we’re also adapting our products for SmartWay certification. We need to better understand that process and maybe change a little bit of the aerodynamic packaging of the Western Star product to make it a little bit more competitive in the on-highway business as (future) regulations start kicking in. “In terms of pure aerodynamics, I think Freightliner’s Cascadia is probably the leader. Western Star isn’t going to introduce a truck that will compete with the Cascadia. Our roll is within the traditional market. At the same time, we need to be sensitive to some

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of the changes coming along, then create aerodynamic improvements based on a traditionally-designed truck.” Product line expansion Looysen: “We’re looking at everything. There might be a place for a lighter Western Star, but I don’t know that ‘medium-duty’ would be the best definition of that. We are, however, trying to determine if we can be a little more competitive in a somewhat lower GVW. If we did build something lighter, it would have to be in line with segments where we’re already strong or plan to be strong. Western Star will never be an overall marketshare leader. We’re targeting only those applications for which our trucks are best engineered.” Shearing: “It’s safe to say that we’re not going after the ‘commodity’ markets of the medium business.” Builds with 2010 engines Shearing: “We’ll be building trucks with 2010 Detroit Diesel engines when the new year starts.” Cummins engines will be available a little bit later, and some of the specialty vehicle engines are expected to arrive about mid-year. Looysen: “We can continue to build trucks using 2007-compliant engines through the first quarter of next year, as long as the engines are already assembled (by Jan. 1), and we have firm orders for the trucks.”

Shell injects ‘Energized Protection’ into new engine oil product line By James Menzies Shell is completely revamping its heavy-duty engine oil (HDEO) portfolio to offer improved protection and performance while at the same time reducing customer confusion by eliminating some of its brands. Gone are Quaker State, Pennzoil and Rimula brands. In their place is a more complete portfolio of Shell’s more popular Rotella brand. Shell explained the changes to the Canadian trucking press during a recent unveiling in Toronto. The new portfolio boasts several performance and protection improvements and is now dubbed Shell Rotella Energized Protection. The new portfolio, comprised entirely of CJ-4 products, includes: Rotella T1, a straight grade engine oil available in SAE 30, 40 and 50 grades; Rotella T3 15W-40, which Shell says offers maintenance savings; Rotella T with Triple Protection, which promises a 22% reduction in engine wear over the previous Rimula Super 15W-40; Rotella T5 Synthetic Blend, which is available as a 10W40 or 10W-30 and offers increased protection and fuel economy over a conventional 15W-40 oil; and the most premium of them all, Shell’s Rotella T6 Full Synthetic SAE 5W-40, which offers the most advanced low-emissions technology for aftertreatment sys-

EquipmentWatch tems as well as fuel and maintenance savings, according to the company. All of the products that comprise the new portfolio are compatible with EPA2010-compliant engines and are also completely backwards-compatible for use with current and legacy engines. Especially noteworthy to fleets may be the fuel-saving potential of the Rotella T5 synthetic blend and the T6 full-synthetic. Dan Arcy, Shell’s OEM technical manager, pointed out fuel savings of 1.5% are possible by moving to the T5 or T6 from a conventional CJ-4 HDEO. That can amount to about $800 per truck each year based on 120,000 miles per year averaging 6 mpg. Company officials said more than 40 million miles of testing went into developing the new product line and the results have been impressive. Shell officials spent much of the press conference highlighting the performance improvements of its higher-end options. Rotella T with Triple Protection boasts an average of 50% less wear than its CI-4 Plus predecessor in industry-recognized engine tests, we were told. It also boasts up to 38% less iron wear than the soon-to-be discontinued Rotella CI-4 Plus 15W-40 and 22% less iron wear than Rotella T3 15W-40. Stepping up to the synthetic blend Rotella T5 allows fleets or owner/operators to extend drain intervals and improve fuel mileage. In testing, a fleet of medium-duty trucks performing city and on-highway deliveries achieved 1.6% better fuel economy using Rotella T5 than a conventional 15W40. Rotella T5 is especially strong in the areas of wear and deposit control as well as piston cleanliness, Arcy explained, and it’s specially designed for use with diesel particulate filters (DPFs). Shell Rotella T6, a full-synthetic 5W-40 sits at the top of the new portfolio’s food chain, delivering the best overall performance as well as: extended drains, fuel economy, engine cleanliness, wear protection, and high- and low-temperature flow. Compared to Shell’s previous 5W-40 for-

mulation, T6 offers, on average, a 34% improvement in wear. Shell officials also claim Rotella T6 can extend starter and battery

life in cold weather. More information on Shell’s new line is at www.shell.ca/rotella.

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GreentoGold

put to the test PIT conducts fall Energotest and announces two new hybrid testing programs B y

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PInnovations, Feric Division, whose claim to fame is putting fuel-saving devices to the test during the twice-annual Energotest, is launching two new projects to validate the fuelsaving potential of hybrid delivery trucks. FPInnovations detailed the two projects – the newest elements of its Project Innovation Transport (PIT) – during an open house at a Sainte-Therese, Que.-based Paccar plant Sept. 18. The first test will compare the fuel consumption of a traditional medium-duty delivery truck to that of a hybrid while making real-world liquor deliveries for the Societe des Alcools (SAQ). Yves Provencher, business development director for FPInnovations, told Fleet Executive that researchers will instrument two regular SAQ trucks to measure their fuel economy in real-world conditions as they deliver alcohol to stores and restaurants. Those same trucks will then be taken to a test track (either the oval at Blainville or another nearby road course) where their typical driving conditions will be replicated in a more controlled environment to get a better handle on their true fuel consumption. Then, that exact same duty cycle will be replicated using a Kenworth medium-duty hybrid to calculate a direct fuel economy comparison, Provencher explained. The goal is to determine the payback in pickup-and-delivery applications similar to that of the SAQ. “They say you’ll save 30% (fuel), that’s the number everyone is throwing around, is it true?” Provencher asked. He hopes FPInnovations will have the answer by the time the test concludes. Medium-duty hybrids currently cost about $45,000 more than traditional drive vehicles, so by the end of the project Provencher says his organization will be able to help fleets determine how long it will take for them to recover their investment in typical P&D duty-cycles. In another separate test, FPInnovations has partnered with Agropur, Paccar-Kenworth, Fourgon Transit, Carrier and the Ministere des Transports du Quebec to develop guidelines for drivers of hybrid vehicles. “These trucks are great, but nobody knows how to drive them efficiently,” Provencher told Fleet Executive. “That’s the essence of this project, to find the best driving techniques for these trucks.” Agropur has been provided with a medium-duty Kenworth hybrid that will be passed between 12 different drivers in various duty cycles. First, each of the drivers will have their regular truck fitted with an on-board computer capable of measuring driving conditions and styles. Then they’ll be given the hybrid to use on their regular

M e n z i e s route for one month. FPInnovations’ researchers will compare the data to find out which driving styles and techniques coax the best fuel economy out of the hybrid. In the end, FPInnovations will develop a set of driving guidelines for drivers of hybrid vehicles that enable them to maximize their fuel mileage. “We hope to develop a new, dedicated (driving) technique for the hybrid,” Provencher explained. At the same time, he hopes that by providing Agropur drivers the opportunity to drive a hybrid, they will see the benefits of the technology first-hand and may consider hybrids when making future purchasing decisions. “We want to also demonstrate the technology by passing the truck around to 12 different drivers in 12 different regions of Quebec and maybe Ontario as well,” he said. “The idea is to present that truck to many people, so they are able to see and compare, ‘I’m doing the same milk run every day, I’ve been doing that for 10 years and I know how much I consume, now with this truck there’s a difference.’” As with all PIT projects, member fleets will be the first to receive the results. The tests will conclude in 12 to 18 months with PIT members receiving the data shortly thereafter and the general public about a year after that. While Provencher and Paccar were hosting members of the trucking industry and the media, FPInnovations researchers were hard at work testing some 18 fuel-saving technologies and practices at the nearby Blainville test track. The fall version of Energotest 2009 was held from Sept. 16-23. As always, the test was going smoothly, but it was not without a few unexpected challenges. Provencher told Fleet Executive one of the test trucks was involved in an accident on its way to the track and weather was once again causing some delays. However, besides the inevitable hiccups, he said testing was going well. “It’s going well so far,” said Provencher as morning rain gave way to blue skies. “Even today, I just got a message that they’re starting to test now. They will finish late, but at least they can complete the program for the day.” The appeal of having early access to PIT’s findings has led more fleets to join the organization. PIT’s roster already boasted some heavy hitters such as Bison Transport, Robert Transport, SLH and Yanke Group. During the VIP day festivities, Provencher welcomed three new members: RST, Grand Island Express, and Centre de Gestion de l’equipement roulant. mt @ARTICLECATEGORY:3361;

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take a strategic approach Report offers up top tips on ‘decarbonization’ B y

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he World Economic Forum’s Logistics and Transport Community, and Accenture, have released a 2009 report quantifying and ranking opportunities to reduce carbon in the supply chain. Supply Chain Decarbonization examines the role the logistics and transport sector plays in reducing emissions in its own operations and by influencing shippers and buyers to undertake broader supply chain improvements. “This report makes clear the need to look strategically at the end-to-end supply chain to include all aspects of the product life cycle, from raw materials to product disposal, when approaching the supply chain decarbonization challenge,” said Narendra Mulani, managing director of Accenture’s Supply Chain Management practice, who served as project advisor. “Clearly, the logistics and transport sector can contribute a great deal to the reduction of carbon emissions and obtain strategic business benefits from doing so. However, the greatest strides will be achieved by collaborative end-to-end supply chain optimization that includes shippers and buyers.” According to the report, logistics activities contribute about 5% of the 50,000 mega-tonnes of carbon dioxide emissions generated by all human activity annually. Of the 1,440 mega-tonnes of CO2 abatement potential the major opportunities present, the logistics and transport sector represent 60% of these, the report claimed. So what’s the market, where’s the opportunity, what’s the shakeout? There are five feasible opportunities with the greatest carbon dioxide abatement, or diminishment potential, the report suggested. These include: • Clean vehicle technologies (with 175 mega-tonnes CO2 abatement potential) • Enabling low-carbon sourcing (150-320 mega-tonnes) • De-speeding the supply chain (i.e. easing lead times and delivery stipulations, with an abatement potential of 171 mega-tonnes) • Packaging design initiatives (132 mega-tonnes) • Optimized networks (124 mega-tonnes) While the remaining opportunities address emissions generated by shippers and buyers within their own operations, the report said that organizations in the logistics and transport sector are in a position to influence shippers and buyers to collaborate across the extended supply chain in an effort to achieve the greatest

decarbonization impact. Key opportunities for logistics and transport businesses include: reducing emissions using internal solutions, encouraging external shippers and buyers to change their behaviour, and actively engaging policy makers. In terms of the internal actions the logistics and transport sector can take, the report advocates speeding up the industry-wide adoption of new technologies, fuels and associated processes by implementing these where there is a positive business case. Optimizing networks, through reviewing large closed networks and ensuring efficient hierarchies and nodal structures, is another recommendation. Integration of optimization efforts across multiple networks – for example, integrating one’s own and customers’ networks into one model – is another approach. Mode switches, as they occur within closed networks (postal, parcel, pallet operators), are recommended practices, as are coloading opportunities, which would enable further collaboration between multiple shippers and/or between carriers. “We see carbon abatement remaining relevant in a downturn – and possibly even being more desirable. As much of managing carbon emissions is about reducing energy consumption, supply chain decarbonization often brings with it economic benefits,” said the report. Shippers and buyers should: • Understand and reduce carbon impact of manufacturing through alternative sourcing, plan to allow slower and better optimized transport; • Reduce packaging materials; • Work on product carbon labelling, standards, auditing tools and use; and • Increase shared loading. Policy makers also have a key role to play in decarbonizing supply chains, suggests the WEC/Accenture report, which sees intervention by international regulatory bodies, governments and de facto policy-making as a necessary tool to support the emissions reduction required across the sector. The report states that governments should “ensure that the full cost of carbon is reflected in energy tariffs across all geographies and all modes of transport, and that they work with the logistics and transport sector to develop universal carbon measurement and reporting standards, through the building of open carbon trading systems, and review of tax regimes to remove counter-productive incentives.” mt NOVEMBER/DECEMBER 2009

Profitability

is there a better LTL pricing scheme? The long and winding road to cube- and density-based pricing BY DAN GOODWILL P A R T

n the past issue, we examined the pricing of less-than-truckload freight, a somewhat ambiguous category encompassing shipments weighing typically between 100 and 10,000 lbs. The US is the only country using a freight classificationbased pricing system for LTL shipments. While many recognize the shortcomings of class-based pricing and have weighed the advantages of moving toward a densitybased pricing methodology, real barriers to change remain. This issue, we examine the situation north of the border. Domestic LTL freight in Canada and some cross-border freight has for years been rated using a density-based pricing methodology. What can we learn from the Canadian experience? To answer this question, I spoke with Laura Tizzard of L.T. Traffic Services. This is what she had to say: “Although there was less application of a classification system, there once were commodity-based tariffs in place (in Canada) to cover all products and shipping lanes domestically. The only ‘rate quotes’ that existed were simple agreements as to the amount of discount a customer might qualify for. Carriers were forced to work on a level playing field and the competition between carriers was based more on service and value-added products than on rate structures,” Tizzard explained. “Now, there is no standard tariff being applied. There are only rate quotes specifically named for a shipper with rates negotiated between the shipper and carrier. Many carriers are now attempting to develop their rates based on a ‘cost plus’ structure. For TL carriers, it is a fairly simple process of establishing pick-

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up, handling, line-haul, and delivery costs per load. However, for LTL carriers, the process becomes much more complicated and difficult to measure. Each measure of those cost categories is dependent upon how many different shippers contribute to the load and how many different products are involved. The make-up of every load is different, the structure difficult to predict and dependent on customer delivery deadlines. If carriers had the time and space available to hold freight and plan their loads for greatest profit and efficiency, that would be nice, but the reality is that consignees no longer carry large inventories and shipper products are sent as needed. Carriers have to move the freight when they receive it in order to meet the delivery requirements to satisfy consumer needs.” Canadian LTL carriers now need to measure the space occupied by each shipment in order to distribute the costs throughout the load and measure the profitability of each component. To that end, they are using DBP and CBP price structures. Although some shippers may not see cubing reflected in their invoicing, they are, in fact, paying based on the density of their product. “While the seven items suggested by SMC3 would be ideal and something to strive for, the reality of achieving that standard and consensus among shippers and carriers has not been reflected in the Canadian trucking industry. After deregulation, pricing became a free-for-all largely dependent on what the other guy was offering. Shippers went along with the new pricing because they witnessed the competition

and received lower rates. At the time, shippers felt they were finally getting a deal, but now find it difficult to measure themselves against their competition. They truly have no way of knowing if they are getting the ‘best’ deal or whether their competitor has achieved something they have not,” Tizzard says, adding that perhaps now is the time to bring back a standard that shippers can measure themselves against. However, whether the tariff is based on class, commodity description or density factors is not the real issue. All of those methods simply give the product a category or name. “The real issue is what rates or prices are connected to those product categories. As long as shippers insist on discounts and want a better rate than their competitors, and as long as carriers are willing to comply and give never-ending discounts, then the tariff (whatever it is based on) will at some point become irrelevant,” she cautions. The Long and Winding Road Clearly, the road to cube- and density-based pricing will be long and winding. These are significant hurdles to overcome. While the move to these types of pricing systems is inevitable, it will take time and a major collaborative effort between shippers, carriers and the companies designing these tools to make the move a reality. The other challenge, in light of the highly competitive nature of the US economy and the culture of freight rate discounting, will be to see whether one or more of these tariffs can at least serve as basic LTL rate benchmarking tools over time. mt

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Thereâ&#x20AC;&#x2122;s A Better Way to Prepare for 2010 â&#x20AC;&#x153;By failing to prepare, you are preparing to fail.â&#x20AC;? Benjamin Franklin Growth will be slow, turbulent and uneven in 2010. You can protect yourself, if you have the most up-to-date numbers and expert analysis of pricing trends and emerging opportunities at your fingertips. Inside the Numbers, a report from Motortruck Fleet Executive and its Transportation Media Group, contains everything you need.

The 2010 report will include the latest updates from the Canadian General Freight Index, which provides monthly analysis of rate performance for TL and LTL, domestic and transborder freight. It will also include both sectoral and industry specific breakouts for shipper projected freight volumes.

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Decisions 2010 If you’re reading this, you’ve weathered the worst economic storm of the post-War era. But don’t put your umbrella away just yet. The recovery is looking like it will be the slowest and most volatile in recent history. Prepare yourself for the challenges and opportunities ahead with our annual Decisions Report.

PLUS Leading shippers and carriers share their survival and growth strategies in our Fourth Annual Issues Roundtable. sponsored by shaw tracking

DECISIONS 2010

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the

Panelists MODERATOR LOU SMYRLIS Editorial Director BIG Transportation Media

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ALAN KELLY Director, Distribution and Supply Chain Analysis Casco

DAN EINWECHTER CEO, Challenger Motor Freight

DECISIONS 2010 DECISIONS ’09

Weather the storm; prepare for the rainbow Shippers and carriers share their insights on how to survive the downturn and thrive in the recovery

s we were putting together our Decisions 2010 report, we received word from Statistics Canada that the economy is finally officially out of recession after posting 0.4% annualized growth in the third quarter. While this was very welcome news for motor carriers who have been besieged for several years now with a sharp decline in freight volumes and freight rates, it wasn’t all that was hoped for. Canada appears to be lurching out of recession at a crawl rather than with a leap as during past economic slowdowns. And, just as bad, the US, our largest trading partner, is also expected to just crawl out of recession during 2010. Most economists agree recovery next year will be slow, volatile and uneven. Carriers and shippers who survived the downturn of 2009 were able to do so by deploying some drastic departures from past practices. How can they best weather and thrive in the recovery of 2010? Find out as carriers and shippers share their insights in our fourth annual Issues Roundtable. In recent months, in partnership with Dan Goodwill and Associates, we hosted two panels featuring some of the sharpest minds in over-the-road transportation. Watch also for video clips of their comments in special instalments of our award-winning Web TV show Transportation Matters. BIG Transportation Media, through its ownership of both motor carrier and shipper publications, is in the unique position of being able to see issues from “both sides of the fence.” We consider it our mandate to foster dialogue between buyers and providers of transportation services. Our annual Shipper-Carrier Issues Roundtable, which is published in both our carrier and shipper publications, is a step towards that goal. It allows buyers and providers of transportation services across the country to gain a more well-rounded understanding of the issues at hand. This roundtable would not have been possible without the support, once again, of Shaw Tracking and I wish to thank this highly respected industry player for its involvement. I would also like to thank all the shipper and carrier participants who took time out of their hectic schedules to make this educational opportunity a possibility, as well as Dan Goodwill and Associates which played a major role this year in bringing such key industry players together. As with past participants, these individuals were specifically chosen because of the high-esteem with which they are held within the transportation industry and their insightful and honest contributions certainly showed why.

Lou Smyrlis Editorial Director

DOUG HARRISON President Calyx Transportation Group

GINNIE VENSLOVAITIS Manager Transportation Services Unilever Canada

JOE GUIMOND Vice-president Purolator Freight

MIKE OWENS Vice-president Physical Logistics Nestle Canada

november/december 2009

DECISIONS 2010

Decisions Roundtable

MT: Looking at over-the-road transportation, there is some very real pain in the marketplace. Just how bad are things right now? Guimond: I think there is a lot of pain on both sides of the border, with probably a little bit more pain south of the border. But pain is pain and we are certainly experiencing our fair share of that pain in Canada. Harrison: One of the biggest challenges will be the impact of the dollar on Canadian manufacturing (a key customer base for trucking). We’ve also seen big shifts in fuel pricing, so how do you react to that? I think overall you will see further consolidation in the industry, in Canada and in the US. And I think it will be very much like any other industry, the strong will survive while others will either restructure or go out of business. Einwechter: One of my sayings is that volume is vanity and profit is virtue. There are not many virtuous carriers right now. If I talk to American or Canadian carriers, the general theme is freight volumes are down anywhere from 15% to 30%. If you look at new truck sales they are down significantly because of that. I heard earlier of a major shipper doing quarterly checks on its carriers. I wish more shippers would do that to check out the financial viability of the carriers hauling their freight. Make sure you work with the right carriers because there are big challenges and there are failures either occurring or going to occur. Do I like it personally? I don’t like living through it, but as a carrier that is big and substantial, I think it will be good for the long term. It’s nature’s way of culling the herd. But it hurts like hell. MT: As leaders in the industry, you all have implemented, I’m sure, survival strategies to take you through this time. What would you say have been the most effective strategies you have implemented?

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MT: Looking at things from the shipper side, how has the downturn affected supply chain operations?

I wish more shippers would check out the financial viability of the carriers hauling their freight. Do I like it personally? I don’t like living through it, but as a carrier that is big and substantial, I think it will be good for the long term. It’s nature’s way of culling the herd. But it hurts like hell.

Harrison: It’s a multi-pronged approach which includes making sure we are operating effectively, making sure we have the right headcount, are spending capital correctly, and we have the right dialogue with our funders and lenders. The other piece is the fact this presents an opportunity as well. In March, we announced the acquisition of three carriers, we are continuing to make investments in the business, we are top-grading talent and adding new roles. It comes back to financial stability, not only during this period, but in the period that follows, because if you don’t manage through this and be ready for the upside, you will be suffering.

Guimond: The most important strategy, for sure, is to stay close to the customer. Understand what they are going through and understand their needs and the needs of their customers. It’s very easy during these times when freight volumes drop to do your analysis to just assume that the decline in business you are experiencing from a particular client is because of the economy. It’s important to separate the economic decline from customers who may have left you. Another important strategy is to enhance and accent for your customers your value proposition. What are you bringing to the customer to help them get through this difficult time? Understand their business, understand their supply chain and then point out how your value proposition is going to benefit them during this time.

Venslovaitis: We got whacked right from last year when everything with the economy started to go bad. There’s no money to hire new people; when someone leaves they don’t get replaced, so you have fewer people to do more work, especially if you are buying companies and taking on more work. The biggest agenda for the supply chain this year is focusing on reducing inventories. It’s obviously good not to have your money sitting on unnecessary finished goods or raw materials, but the problem is you are also shrinking your capabilities to service your customers and that falls back on transportation. When product does finally come in to the warehouse, you have to be able to react quickly. You may end up sending by road what you would normally send by rail, so your costs are going up as you try to service the customer.

Owens: There is a focus to reduce inventory at Nestle too, but you build inventory according to sales forecasts and they may not be realistic. We are now focused on trying to make our whole network variable. We are looking to go with 3PLs for warehousing, common carriers for freight; in essence, we don’t want to be sitting on bricks and mortar in this market because then your fixed costs become very burdensome. The other thing is potentially looking at decentralized inventories. Kelly: It’s a pretty simple formula: Reduced Demand equals Reduced Production equals Reduced Inventory equals Reduced Freight and Reduced Asset Utilization. How do we work with that? We park trucks and idle railcars. It’s all about planning and good forecasting.

DECISIONS 2010

Decisions Roundtable

MT: When looking to reduce costs on the transportation end of things, what are the key areas you’re taking into consideration? Owens: The rate is important. I want to make sure carriers realize that. But it’s not the only thing. In the CPG industry, we hold ourselves to a 95% on-time standard. At Nestle, we use a lot of intermodal into Western Canada and we had only 66% on-time in the west about a year ago and now we are up to 95%. So we’ve really worked with our carriers in the intermodal market to bring that up. If you are using intermodal or switching to a different mode of transportation, you can generate savings. The other thing we’ve implemented at Nestle is a project we rolled out last June to deal with the increase in fuel pricing. We put a routing table together and we work with our customers to decide, for example, what is the best day of the week to go to Vancouver and align that with equipment availability, which allows us to maximize the cube on a trailer when going into Western Canada. It’s not rocket science and it was very easy to sell to customers when you explain you are doing it to hold pricing for the consumer. We saved good money and were actually able to improve our on-time performance as I mentioned earlier.

da, so there are likely a lot of strategies out there for surviving the downturn. When you look at the industry, what are some of the strategies you see being put in place that are the wrong ones and may be making it difficult for everyone else? Einwechter: The obvious thing that is occurring is rate stupidity. We have been in business for 34 years and when I talk to our new class of driver recruits every week, I tell them that we make decisions every day that hopefully will allow us to stay in business for another 34 years. But it’s extremely tough in a marketplace where a lot of our competitors are making decisions for the next 34 days or even the next 34 hours. They need cash flow, they have truck payments to make. I liken truckers to the Old Wild West. They go into a bar, get in a fight, dust themselves off and go back at it. They can’t do that anymore though, they’re getting older. I see a shift happening. This recession in trucking has been going on since August of 2006 and the stamina is just not there. So we are seeing a lot of prospectuses coming across our desks from carriers that would like to exit with some dignity. There are a lot of really good people in this business, but I am surprised at the number of carriers who have been able to continue to exist in a very challenging environment and there are a whole number about to fail.

Venslovaitis: For us, a lot of our large TL freight has gone to customer pick ups. For almost all of the rest of our non-TL business, we are left with LTL shipments going all across the country to smaller MT: We went through a good three or four years of customers. What we are challenged with is trying I don’t think you are going to see strong financial times. I would have assumed during to pack the most LTL freight into a trailer to get capacity come back. I think we’re those times there would have been some money set the best cube density utilization and use the least coming into a very different world aside by these companies to weather a future storm. amount of trailers that we can. Last year, we in- entering 2010. I think you will We know that we get an economic downturn about vested in some technology that was originally de- see everyone focusing on what every seven years or so. What happened? signed to provide better loading of a trailer, but we investment to make and you will found it can be rolled back into the WMS, allow- continue to see bankruptcies Einwechter: I think that did happen to some ing our warehouse to pick the pallets much more and consolidations. The strong degree, so people are living on borrowed time. effectively to create a much denser cube on each will survive, but the challenge will There is a saying that a bull market disguises intelpallet position so you are getting more on a trailer. be with the small and medium- ligence or lack thereof. I think that’s what hapOnce we got the front end of that process worked sized carriers who will struggle pened; with the dollar at 60 cents, getting paid in out, we went back and said a better way to move because at the end of the day, if US dollars was great, trucks were getting financed western region goods is to do a line-haul and distri- you don’t have cash, you can’t at 110%. bution rate versus an LTL rate. You start playing pay, and margins have always You would actually get the truck financed, get with the numbers and it’s frightening when you been tight in this industry. the money for the GST, pay for the truck a month realize how much it was going to be. It requires later and get the GST refund – not a bad deal. We stepping aside and looking at your volumes, lookwere out of sync and that’s why there was such a ing at your limitations and taking advantage of getting cube density proliferation of new carriers. by the whole unit and then farming out the distribution in Calgary But at the end of the day, we are in a demanding, challenging and Vancouver. environment where we need the technology to monitor the freight; we need to have on-time metrics. I welcome metrics. Tell me that I MT: There are more than 10,000 for-hire trucking companies in Cana- need to perform at a certain level and measure me, or if you can’t

november/december 2009

DECISIONS 2010

Decisions Roundtable

measure me, I’ll do it and report back to you. That is key. That’s where so many carriers now are not going to make the grade, because they don’t have the ability to invest in technology, the desire or the interest. They are spending their kids’ inheritance now.

MT: In the past, whenever we’ve had an economic upsurge, a lot of the capacity additions have come from the smaller and medium-sized companies. Will those players be able to come back this time or is the financing so tight that those players will no longer be able to be players?

MT: The significant drop in freight volumes and excess capacity will continue to place downward pressure on rates. However, it is also causing carriers to shed capacity, which will likely place upward pressure on rates when the recovery hits. What’s the smart way for both carriers and shippers to handle these developments which make for an unstable yo-yo effect on pricing?

Harrison: I don’t think you are going to see capacity come back. I think the pressure from the capital markets and the learning that has gone on will make people much more cautious coming out of this downturn. Volumes now are off 20-25% and you look at some of the forecasts for 2010 for maybe 4-5% growth, you are still not going to see the return to capacity we’ve seen in the past. I think we’re coming into a very different world entering 2010. I think you will see everyone focusing on what investment to make and you will continue to see bankruptcies and consolidations. The strong will survive, but the challenge will be with the small and medium-sized carriers who will struggle because at the end of the day, if you don’t have cash, you can’t pay, and margins have always been tight in this industry.

Venslovaitis: For me, for all the volume that I have and all the various lanes that have to be serviced, we have a small number of carriers that handle all the business. I feel it has taken a long time to develop those relationships and I trust them and I believe they trust me. I’m not taking calls from people who tell me they can haul my freight from Montreal to Toronto for $100 less than I’m paying today because that company may not be around tomorrow. I’m working with my carriers so they can continue to make a profit, because it’s much more important to me that freight is going to continue to move for the next year. I’m not out shopping rates. Owens: Nestle pretty much mirrors that strategy. We’ve signed some two- and three-year contracts with carriers. We’re not about shopping rates, it’s really about performance and getting to the market and getting to our customers on time. There is always someone walking in with a lower rate. MT: By how much would you estimate capacity has decreased in your sector, and is it likely to come back?

I’m really looking to make sure I have viable business partners; it’s not going to do me any good if I have a major carrier go under. If we have someone who is high risk, then it’s a monthly review. It’s a different environment out there. Capital is harder to get, especially for smaller players. We need to be aware of that and minimize the disruption.

Guimond: It’s difficult to place an absolute number on the capacity reduction that has occurred, but certainly there has been significant capacity reduction in all the transportation sectors. Especially with the idling of equipment, laying off of drivers and reduction to the volumes experienced. When the economy does come back, it will be those carriers who have set up processes and procedures to improve their service and improve their relationship with customers that are going to thrive. When the volume does come back, capacity, especially for the LTL industry, is fairly easy to ramp up again with respect to drivers and equipment. There are areas of the country, Western Canada for example, that may experience difficulties as we did before, but overall, the ability of the industry to ramp up capacity is fairly good and somewhat flexible.

motortruck

Einwechter: The trucker is the last frontier of the cowboy and the entrepreneur and I think that’s great. But it will be tougher to do that, and with all the challenges out there, the numbers will definitely go down. In regards to capacity specifically, I’ve spoken to carriers who have taken 15% capacity out of their fleet and we are probably about the same. But when volumes are down 20%, there is still some space to tighten up before seeing the rebound. As far as growth, the big regulators of this industry will now be the financial institutions and the insurance companies. The banks are going to be so much tougher in their criteria to lend money, so you are not going to see easy access to capital. By 2013, when all of this is in the rearview mirror, it will get looser again, but not as liberally as we’ve experienced.

MT: With so many carriers facing bleak revenue projections and sinking profit margins this year, the possibility of transportation supplier bankruptcies must weigh on your mind. As purchasers of transportation services, how do you go about minimizing the risk of service disruption? Are you looking at carriers more closely? Kelly: This environment is not the time to go out and try new carriers unless you’re willing to assume the risk of doing that. We are staying with our incumbents, we are staying with the carriers that have helped us through the years and with whom we have built up relationships. And we try to work with them to gain

DECISIONS 2010

Decisions Roundtable

efficiencies from the network. Owens: I’m running a quarterly check with Dun & Bradstreet and anything else we can get our hands on. I’m really looking to make sure I have viable business partners; it’s not going to do me any good if I have a major carrier go under. If we have someone who is high risk, then it’s a monthly review. It’s a different environment out there. Capital is harder to get, especially for smaller players. We need to be aware of that and minimize the disruption. We also try to go with intermodal – if CN or CP go under, we’ve got a bigger problem than trying to get a chocolate bar to Vancouver. MT: Ten years down the road, do we see a much more consolidated industry? How is that good for shippers?

them to pick it up, drive it five kilometres and make the customer happy. In other lanes, for example Toronto to Western Canada, it is about both technology and another level of customer service. We are getting downloads every morning with what’s going on with each shipment. And I don’t want that information coming to the transportation department; I want it going directly to customer service. No matter who the client is, the information gets funneled directly to our customer service representative so they are on top of their customers. MT: What is the most significant way in which the current economic turmoil has changed the shipper-carrier relationship?

Harrison: I think we will see more consolidation. There is no doubt about it. There are carriers that want to be seen as an acquisition target. In terms of a benefit to the shipper, I think there is great benefit. There is economies of scale, the ability to invest in the business, the ability to have greater reach, not only domestically, but globally. It’s stronger companies which create a stronger industry and bring more value back to the customer. It will be a good thing for the industry. Guimond: I definitely see mergers and acquisitions occurring. They are occurring right now and will continue to occur. If the acquisitions are strategic in nature, such that the acquirer is increasing their scope and capabilities, it will be beneficial for shippers when the carrier provides a better and broader product for their customers. MT: Operating efficiently during difficult times is paramount. Are there technologies which you insist carriers must implement in order to be more efficient and be able to report to you in a more efficient manner?

We are all in this together, both the shipper and the carrier, to make the customer successful. I consider logistics like tennis or volleyball: those who serve poorly, lose. We’ll pay for service because at the end of the day, the customer has to be successful.

Kelly: As of late, we are contracting with carriers with GPS technology. We need the visibility to know where the truck is. We do a lot of crossborder shipments and CTPAT requires knowing where the truck is, where it’s going, and if it can be intercepted. We are also looking for truck availability. A lot of our lanes are such that our trucks can do two trips in one day. If a truck is held up somewhere and can’t get to that second load, we need to know that in advance so we can plan accordingly. Venslovaitis: It depends on the lane. In some places, we use small carriers and they don’t need GPS or EDI capability. I just want

Venslovaitis: I don’t know if it has for me, to be honest. We’ve always been pretty open and honest with carriers and tried to give them as much notice as possible about what’s going on with our business – whether it’s shedding volume or buying a new company or expecting spikes or expecting our cube density to change. We are trying not to hide anything because we realize they are going out and investing in equipment and need to make the right financial decisions for themselves. We’ve been lucky that most of our carriers have been willing to come to us about reducing their capacity and asking how that would affect us. We’ve tried to be open and honest in the past and it’s even more important now because they are under the gun financially.

Owens: I think first, with the current economic crisis, one of the things we’ve done is be very transparent as well, recognizing operating capital in particular can be a challenge. I’m on our payables people making sure we are current. If you’re a carrier and the days outstanding are getting longer and longer, talk to your customers. Your logistics contact may not even know it is being dragged out. Going forward, I just see that we are going to be a lot more transparent with a lot more partnerships where it isn’t just the rate. MT: Allan, we’ll give you the final word. If there was one piece of advice you would like to give carriers that want your business, what would that be? Kelly: We are all in this together, both the shipper and the carrier, to make the customer successful. Try not to only understand what the shipper wants, but what his customer wants. I consider logistics like tennis or volleyball: those who serve poorly, lose. We’ll pay for service because at the end of the day, the customer has to be successful. MT

november/december 2009

Weâ&#x20AC;&#x2122;re now on twitter - and weâ&#x20AC;&#x2122;re pretty cocky about it. twitter.com/adamledlow twitter.com/jamesmenzies twitter.com/lousmyrlis

DECISIONS 2010

Economic Outlook

2010: Better than last year, but nothing to get excited about By Lou Smyrlis

ou’ll need patience – and lots of it – to get through the worst recession of the post-World War era, advise the economic experts speaking at the annual Ontario Trucking Association conference. The Canadian economy will just take “baby steps” in 2010, according to Meny Grauman, executive director and senior economist with CIBC World Markets, “to the point where you don’t even feel the recovery is happening.” Although Grauman believes the recession is over and there is little likelihood for a double dip recession, he expects 2010 to be a year of consolidation rather than the solid growth normally experienced after recessions. John Larkin, managing director transportation with Stiefel, Nicolaus & Co., speaking about the US economy, was even less optimistic: “Maybe when the snow melts we’ll see some greenshoots,” he figures. Such muted projections certainly put a damper on the hopes of motor carrier executives attending the conference. As OTA chairperson Julie Tanguay remarked only somewhat tongue-in-cheek, “I can’t believe we paid people to depress us.” An OTA survey of trucking companies conducted during the first three weeks of the fourth quarter found 41% of respondents had an optimistic outlook for the remainder of the quarter. Only 22% said they were pessimistic. This was a major reversal from the situation which prevailed at the beginning of the year where a mere 17% were optimistic and a majority (52%) were pessimistic. Since that time, the share of the optimists had steadily increased while the share of the pessimists has moved in the opposite trajectory. And our own nationwide survey of motor carrier executives completed at the end of November found that 40% of motor carriers believed freight volumes would grow in 2010, compared to just 19% who felt likewise at the same time last year. Only 10% felt freight volumes would decrease, compared to 42% who felt likewise at the same point the previous year. Survey respondents rated their degree of optimism for their company’s growth at 5.6 on a scale of 1 to 10, an increase from the 5.1 rating they provided the previous year. So why were Grauman and Larkin not more upbeat in their projections? Grauman explained that after a year where for the first time

since World War II global GDP growth dipped, the world economy is being rescued from recession by China and the rest of the developing world. But that will set the tenor of the recovery and determine which sectors will improve first, he advised. Unfortunately for Canada, it’s the US market that matters the most, as more than 70% of exports are absorbed by Uncle Sam. And unfortunately for Canadian trucking, it’s primarily finished products that matter most (as opposed to lower-priced raw materials, which are in demand by China and other developing countries, but which generally move across country on rail). Grauman’s expectations for the US economy in 2010 were quite succinct: “A pop and a fizzle.” While he believes recession in the US, as with Canada, is over and third-quarter growth this year is strong thanks to the impact of Washington’s unprecedented economic stimulus, Grauman believes the US will find itself in a “slow crawl” out of the recession overall. A lot has to do with the hit the US consumer has taken, Grauman said, adding that US incomes are continuing to contract, as is consumer credit. “Their incomes are dropping, their access to credit is shrinking. They got burned living off credit and they’re not in a mood to shop,” Grauman said. “The US consumer is very resilient. It is always dangerous to declare the US consumer down and out, but sometimes you can get hit too hard.” It’s important to note the US economy is more reliant on the consumer than Canada’s. About 70% of US GDP is tied to consumer spending, compared to 55-60% for Canada. Larkin’s comments added to Grauman’s tepid expectations for the US economy. Larkin sees the US economy expanding at “an ever-so-slow pace,” being weighed down by the highest jobless rate in decade – about 10% right now. The jobless rate could be as high as 17.5% in the US if people such as those who have given up looking for work are taken into account (people not actively looking for work are not included in official government unemployment rates). “That’s a very scary number.” Larkin said. Looking at other economic indicators, retail spending appears to have “cratered” in the US, but doesn’t seem to be getting worse, according to Larkin. Retail sales have been “bouncing along the bottom” for the last six to eight months. november/december 2009

DECISIONS 2010

Economic Outlook

There has been significant progress made in the inventory to sales ratio (which was way out of whack earlier this year due to a steep drop-off in sales), but is still not where it should be, according to Larkin. That’s an indicator critical to transportation, because as long as inventories remain high, there is no need to generate new shipments. “How long will it take to reset inventories to the new normal demand levels? The fact is we don’t really know what the new normal is. There is still a lot of uncertainty. It may be a couple more quarters before all the destocking that’s supposed to take place, does take place,” Larkin said. In the meantime, there is better news for motor carriers who are concentrating on domestic hauls. Grauman expects the Canadian economy to outperform that of the US, although he cautioned it will be “nothing to write home about.” The Canadian economy will be quicker to rebound because the financial hit to Canadian households has not been as se-

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vere as in the US. Household credit is still doing fine, according to Grauman, and the real estate market has come back strong. Also, our jobless rate (about 8.5%) is lower and Canadians are so far able to find new jobs faster once they’re laid off than their US counterparts. Also, much of our federal stimulus will take effect in 2010. A particular concern, however, is that Ontario, wracked by the demise in US demand for its manufactured goods, is evolving towards a worsening economic situation as a high Canadian dollar makes our goods less attractive south of the 49th. Larkin specifically addressed the TL and LTL markets in the US. His comments provide valuable insight for the many Canadian motor carriers with significant volumes generated south of the border, and some parallels can also be gleaned for those operating purely in Canada’s domestic market. Let’s examine his comments about the LTL market first. LTL Trucking rates have dropped so low over the past year that shippers who used to use LTL can now afford to turn to TL services, Larkin said. There continues to be downward pressure on pricing because shippers are convinced there is still too much capacity in the market for the available freight. Small fleets have reduced their capacity by about 15% and large fleets by about 10%, but excess capacity still exists, Larkin agrees. He believes LTL volumes bottomed out in the second quarter of 2009 but will only see “gradual” recovery through 2010 and into 2011. As a result, the drastic declines in pricing won’t improve until the latter part of 2010. “But if banks shut down troubled carriers, then it may bounce back faster. A lot of troubled carriers are being given a reprieve from their lenders and that is making pricing miserable,” Larkin said. He took particular aim at financially troubled YRC Worldwide, which alone accounts for about a fifth of LTL capac-

ity in the US: “The survivability of YRC Worldwide remains the biggest unknown in the LTL industry and potentially the simplest solution to the severe over-capacity problem. This is a company that in our view is not sustainable. They don’t have good service and they have lost a lot of people… If this was happening in the environment of 2002, they would have been bankrupt six months ago.” TL Both small and large fleets are downsizing and they should keep going, according to Larkin, because the market will not likely recover everything that has been lost, making downsizing necessary to be in line with new market realities. He says that may happen anyway as some banks refuse to finance new truck orders for troubled companies looking to replace their old equipment. Pricing continues to be difficult, with shippers expecting 5% to 10% reductions and even looking to reevaluate fuel surcharges and pushing for payables terms to stretch to 60 days from 30. “Even when they’ve been doing business with a carrier for 30 years, those relationships don’t seem to mean anything any more,” Larkin said. Overall, the truck tonnage index in the US continues to contract. Dry van, flatbed and bulk tank loads all declined sharply in September, although refrigerated, which has weathered the economic downturn much better than the rest, showed a meaningful increase. The boost from the $28B worth of highway funding announced by Washington as an economic stimulus has also proved a bust so far. Only $4.8 billion had actually been spent by October, according to Larkin, who classified it as a “drop in the bucket.” Whether north of the border or south of the border, the end result seems the same: the worst is behind us, but by no means will 2010 be a strong year. As Grauman advised: “Good news is still going to take a long time to materialize. Business owners are going to need a recession mentality till 2011.” MT @ARTICLECATEGORY:129;

motortruck

DECISIONS 2010

Freight & Rate Outlook

Carrier Projections for Freight Volumes 2010

Get Inside the Numbers

Decrease 10%

Increase 40%

Stay about the same 50%

Carrier Projections for Rates 2010

Decrease 15%

Increase 26%

Motor carrier executives, although remaining cautious, are feeling much better about their prospects than they were at this point last year. We surveyed motor carrier executives across the country as part of our annual Transportation Buying Trends Survey and found 40% were expecting an increase in freight volumes for 2010. Only 19% expected the same last year. Just as important, only 10% were expecting freight volumes to drop further, compared to 42% who felt likewise last year. The survey also examined carrier projections for rates and capacity additions. In a separate survey, we polled shippers across the country about their expecations to use their road transport in 2010. For much more detailed information, see our Inside the Numbers Annual Report, available soon for download for just $99 on trucknews.com. Carrier Projections for Rate Increases 2010 1-2% range 2.1%-4%

Stay about the same 60%

39%

34%

4.1%-6%

6.1%-8% 8.1%-10% Greater than 10%

10%

11%

of respondents

Shipper Projections for Road Transport Usage in 2010

Purchasing new heavy-duty trucks in 2010

YES 32%

NO 68%

Increase

Decrease

Stay about the same

Not sure

LTL

44%

10%

42%

38%

13%

42%

57%

COURIER 28%

How optimistic are you about your companyâ&#x20AC;&#x2122;s growth for next year? (scale of 1-10)

5.6 SPONSORED BY:

november/december 2009

DECISIONS 2010

Mergers & Acquisitions

survival of the best financed An insider’s view of the mergers and acquisitions activity that will transform trucking By Elian Terner

or the past year, sharply declining volumes and weak pricing have been the dominant factors impacting companies across the trucking and logistics sectors. We now appear to be moving into a more stable period of volume gains – and pricing and margin improvements – and while there is still considerable uncertainty about the next 12 months, it is worth looking back at the past year’s trends to understand what we might expect for 2010. Near Cessation of New Bank Financing Only the strongest companies were able to secure new financing. Banks have focused on reworking existing loans rather than lending new money. As a result, management teams that had already been in a capacity reduction mode last year quickly enacted another round of cuts and cash-saving measures. The financial crisis also greatly reduced the amount of funding available to leasing companies and made their business less attractive. Thus, the number of companies involved in truck leasing has been greatly reduced and those that remain will demand much tighter terms and conditions. Both of these points suggest that smaller carriers will face much more expensive financing terms than they have in the past, which helped to contribute to an oversupply of trucks. This will help to stabilize the industry’s fleet size and ease pricing pressures from the capacity overhang that has existed over the last few years. Few Significant Failures A high level of failures has not materialized for a variety of reasons: First, the price of oil – and thus, the cost of diesel – dropped dramatically over the past year, leading to substantially lower operating costs for carriers, which worked as an offset against diminished pricing and volumes. Second, carriers have adjusted their business models to focus on new markets (e.g. repositioning equipment from long-haul markets into regional markets) with demand or to markets that will be driven by stimulus spending. Third, banks have taken a less aggressive stance with carriers experiencing financial difficulty and have chosen to work with carriers to amend loan agreements and waive covenant restrictions. Thus, troubled carriers have stayed afloat with banks hoping to recover more on the loans outstanding than they would in a bankruptcy process. The number of failures will likely increase as the economy improves, leading to higher energy costs and better resale markets for trucking equipment. Increased failures will help reduce truck ca-

pacity and improve spot pricing. Shippers appear to believe that a number of larger carriers will fail over the next few quarters and are reducing their exposure to troubled carriers. Return of Mergers and Acquisitions Companies are beginning to opportunistically pursue M&A as a result of the credit markets opening up. Acquisition strategies are also being helped by lower valuations at target companies driven by reduced levels of EBITDA and profitability. Several significant transactions have been announced since the summer: • Canada Pension Plan’s and Sterling Partners’ $400 million purchase of Livingston. • TransForce’s $85 million acquisition of ATS Andlauer’s retail division. • MacKinnon Transport’s merger with Walker Group. Going forward, large operators with strong, free cash flow and balance sheets are likely to begin reviewing acquisition opportunities with a specific interest in consolidating traditional end markets and diversifying customer bases. In addition, pension funds are expected to show significant interest in stable, cash-producing firms that have a high degree of integration with customers, newer fleets and low capital expenditures. Public Company Restructuring and Balance Sheet Flexibility With the end of the income tax holiday fast approaching for income trusts, a number of public trucking companies have announced conversions to a corporate structure. Both TransForce (May 2008) and Mullen (May 2009) chose to convert well in advance of 2011 to facilitate positioning for growth. Adopting the corporate structure leads to significant reductions in distributions and provides balance sheet strength. More recently, Contrans Income Fund completed its conversion to a corporate entity, Contrans Group Inc. Only Cargojet and Trimac remain structured as income trusts and can be expected to announce their plans prior to the end of 2010. Recently, a number of publicly traded companies have accessed the equity markets to either provide covenant relief on existing bank financing or to ensure financial flexibility: • Vitran reduced debt with a US$23-million issue and negotiated improved loan covenants and an extended covenant period to December 2010. • TransForce completed a $50-million offering that provided Continued on page 36.

motortruck

OUTLOOK 2010

forecasting ground freight costs for 2010 forecasting ground freight costs DECISIONS 2010

General Freight Index

for 2010

Get ready for a bumpy ride as freight costs to hit bottom and then start to climb

Get ready for a bumpy ride as freight costs to hit bottom and then start to climb By Dr. Alan Saipe, president, Supply Chain Surveys, Inc.

Looking Backward Ground freight costs rode along with the economy in 2008 and 2009. Figure 1 shows the Canadian General Freight Index from July ’08 through to August of this year. In the last six months of 2008, freight costs peaked and began to decline. In the first eight months of 2009, that decline continued – the index has fallen 15.8% from its peak in July ’08, and 10.0% from its value in December ’08. 32 Outlook 2010

Figure 1 –The Canadian General Freight Index 1050.0

Canadian General Freight Index

1000.0

Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009

950.0 900.0 850.0 800.0 750.0

990.6 984.3 968.5 954.3 924.9 926.7 898.5 878.4 865.5 877.2 858.8 850.5 836.0 834.2

Jul 08 Au g0 8 Se p0 8 Oc t0 8 No v0 8 De c0 8 Jan 09 Fe b0 9 Ma r0 9 Ap r0 9 Ma y0 9 Ju n0 9 Ju l0 9 Au g0 9

ulogx, a leading transportation management solutions company, launched the Canadian General Freight Index (CGFI) in September. The index gives us a clear picture of how average Canadian over-the-road freight costs change from month to month. With such a good picture of what has actually happened in the marketplace, it is possible to make a reasoned forecast of where costs are likely to go in the months ahead. We expect that average ground freight costs will be 6.2% higher in 2010 than they were in 2009, and that average fuel surcharges will finish 2010 at 20.6% of base freight costs.

By Dr. Alan Saipe, president, Supply Chain Surveys, Inc.

This index was developed with the assistance of Dr. Alan Saipe, president of Supply Chain Surveys Inc., who reviews it monthly for validity. november/december 2009

33 Outlook 2009 32

OUTLOOK 2010

DECISIONS 2010

General Freight Index Two main factors have brought freight costs down. First, crude oil prices have fallen sharply from their peak in mid2008, which produced a corresponding sharp decline in fuel surcharges. Figure 2 shows fuel surcharges as a percent of base freight costs. Note the smooth decline through March, the level stretch through May, and the start of an uptrend in June. Figure 2 – Fuel Surcharges as a % of Base Freight Costs 30.0

FSC as a % of base Freight Costs

25.0

Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Jun 2009 Jul 2009 Aug 2009

20.0 15.0 10.0 5.0

Jul 08 Au g0 8 Se p0 8 Oc t0 8 No v0 8 De c0 8 Jan 09 Fe b0 9 Ma r0 9 Ap r0 9 Ma y0 9 Ju n0 9 Ju l0 9 Au g0 9

0.0

28.4% 28.3% 25.8% 23.9% 20.5% 16.3% 13.6% 12.1% 11.0% 11.0% 10.8% 11.4% 12.3% 12.7%

Secondly, freight rates have also come down. Figure 3 shows that overall average rates in Canadian dollars grew in the last half of 2008, and have fallen in the first eight months of this year. You can see that domestic rates and cross border rates have behaved differently. Domestic rates came down sooner than cross border rates which didn’t start their decline until the spring of 2009. Note that cross border rates in Canadian dollars are impacted by the Canadian/US exchange rate. Figure 3 – Average Rate Changes Average Rate Changes July ’08 - Dec ’08

Average Rate Changes Dec ’08 - Aug ’09

-4%

-2.9%

-1.2%

-4.7%

13.3%

-22.3%

(In Canadian Dollars)

6.4%

-4.0%

Overall

2.8%

-6.1%

Domestic LTL Domestic TL Cross Border LTL

(In Canadian Dollars)

Cross Border TL

Looking Forward Forecasting is always difficult – and forecasting 2010 freight costs at this time is particularly treacherous for several reasons. • The global economy is still coming out of recession. Although good progress is being reported, no one really knows precisely when the world economy will be firing on all cylinders again. • Significant uncertainty exists about both the future price of crude oil and also the Canadian/US exchange rate – two critical variables that have a large impact on Canadian freight costs. • The Canadian General Freight Index has only been in place for several months, so we are still learning how to make the best use of this new microscope on over-the-road freight costs. Nonetheless, we have developed a forecast for 2010 which we present below. We have based our projections on three scenarios: slower growth, expected growth, and faster growth. Each scenario makes somewhat different assumptions about what lies ahead. See Figure 4 for the detailed assumptions in each scenario. Figure 4 – The Three Scenarios

What will happen to freight costs in 2010 depends on how quickly the economy grows in Canada, the US and around the world. The speed of recovery and the resulting impact on shipping volumes, the US dollar, and oil prices will determine how our domestic freight costs will change. Following are the assumptions that underpin our forecast. SLOWER GROWTH

EXPECTED GROWTH

FASTER GROWTH

Crude oil peaked at above $US140 in July of 2008, fell below $US40 by February of 2009, and traded above $US70 in September and above $US80 at times in October.

• Crude finishes 2009 at $US75/bbl • Finishes 2010 at $US85/bbl

• Crude finishes 2009 at $US80/bbl • Finishes 2010 at $US95/bbl

• Crude finishes 2009 at $US85/bbl • Finishes 2010 at $US105/bbl

The Canadian/US exchange rate. Although extremely hard to predict, most observers anticipate that the Canadian dollar will continue to strengthen against the US dollar.

• One $US buys $CDN1.05 in Dec. 2009 • And $CDN1.00 in Dec. 2010

• One $US buys $CDN1.025 in Dec. 2009 • And $CDN0.975 in Dec. 2010

• One $US buys $CDN1.00 in Dec. 2009 • And $CDN0.95 in Dec. 2010

Domestic freight rates were growing rather quickly coming into the recession. They came down during the recession and are likely to grow more modestly in the months ahead.

• Rates are level to the end of Nov. 2009 • Grow at 3% pa from Dec. 2009

• Rates are level to the end of Oct. 2009 • Grow at 4.5% pa from Oct. 2009

• Rates are level to the end of Sept. 2009 • Grow at 6% pa from Oct. 2009

Cross border freight rates were also growing coming into the recession but took longer to adjust. They are more volatile than domestic rates and may behave somewhat differently.

• LTL rates are level to Dec. 2009, then grow at 4% pa • TL rates fall until Sept. 2009, stay level to Dec., then grow at 3% pa

• Rates are level until Oct. 2009 • LTL rates grow from Nov. 2009 at 5.5% pa, TL at 4.5% pa

• Rates are level until Sept. 2009 • LTL rates grow from Nov. 2009 at 7% pa, TL at 6% pa

motortruck

33 Outlook 2009

Outlook 2010 33

OUTLOOK 2010

DECISIONS 2010

General Freight Index

Looking forward, we expect Canadian ground freight costs to hit bottom in the fall of 2009 and then grow through to the end of 2010. The Canadian General Freight Index which stood at 834.2 at the end of August is expected to close the year at about 883 and then to grow to the 950 range by the end of next year. Figure 5 provides a more detailed look at the results in each of the three scenarios. We expect the actual results to fall somewhere within the bounds of these three scenarios.

THE CANADIAN GENERAL FREIGHT INDEX – What’s it all about?

Figure 5 –2010 General Freight Cost Forecast FSC – year end values

CGFI – year end index values SLOWER

EXPECTED

FASTER

2008

926.7

2008

16.3%

2009

875.3

883.1

892.0

2009

17.2%

17.5%

17.8%

2010

915.8

949.7

985.8

2010

18.9%

20.6%

22.3%

EXPECTED

FASTER

CGFI – yearly average index values SLOWER

EXPECTED

FASTER

SLOWER

FSC – yearly average values

SLOWER

EXPECTED

FASTER

2008

933.7

2008

23.2%

2009

865.0

865.8

867.3

2009

13.5%

2010

896.2

919.8

945.0

2010

18.0%

19.3%

20.6%

CGFI – yearly average

FSC – yearly averages

% Incr – Year over Year

2009/2008 -7.4%

-7.3%

-7.1%

2009/2008

-41.8%

-41.7%

2010/2009 3.6%

6.2%

9.0%

2010/2009 33.6%

43.2%

52.7%

The numbers tell an interesting story. We project Canadian ground freight costs in 2009 will average from 7.1% to 7.4% less than they did in 2008. An economy in recession and lower crude oil costs will have brought freight costs down in 2009 to well below 2008 levels. However, these costs will increase in 2010. Just how much depends on many external factors. We expect that average ground freight costs will be about 6.2% higher in 2010 than they were in 2009. Our projections show that this year-over-year increase may be as low as 3.6% and may be as high as 9.0%, depending upon how quickly the world, US and Canadian economies grow. We have also projected that average fuel surcharges as a percent of base freight costs will finish 2009 between 17.2% and 17.8%, and will increase to between 18.9% and 22.3% by the end MT CT&L of 2010.

he Canadian General Freight Index is published by Nulogx and tracks actual changes in over-the-road freight costs month by month. The index is derived from a database of more than $750 million in annual freight transactions. What is in the index? Domestic and cross border truckload and LTL transactions. The index includes base freight charges, fuel surcharges and other accessorial charges. The index is sensitive to the Canadian/US exchange rate because some of the charges are in US dollars. What is not in the index? The index is restricted to general over-the-road freight. It does not include liquid bulk, dry bulk, forest products or other specialized freight. Note that the index cannot separate contract vs. spot transactions. Trends in the index are more important than any single month’s results. The index is representative of Nulogx customers which may not be the same as the market at large. How closely your over-the-road general freight costs will track the CGFI will depend upon a number of factors – especially how closely your mix of freight matches Nulogx mix. More information is available on the Index’s Web site, www.cgfi.ca, or from Nulogx, www.nulogx.com.

Limitations and Cautions You need to be cautious in the use of these forecasts. Be aware thatthese forecasts are based on a number of assumptions and may not be accurate. Also, there are limitations in our forecasting methodology. For example, the forecast is intended to predict the changes in the Canadian General Freight Index. The forecasts may do a poor job of predicting the CGFI, and in any event your freight costs may not track closely to the CGFI. In the coming months, we intend to report on how well these forecasts work out.

november/december 2009

34 Outlook 2010

35 Outlook 2009 34

in a location and needs to get from, say, 123 Main, Connecticut to In late 2006 or early 2007 PSDC will introduce street routing 456 Renè Lèvesque, Montreal, the dispatcher simply keys in the with the release of ProMiles XF V.13.“We have always had truck two addresses.The system returns the narrative driving directions, routing at higher levels and routing to major streets in Canada and miles between the two points, estimated driving time and the digthe US. But when you get down to side streets, turn by turn, this ital map,” Ashburn explains. “The goal is to provide, not only the is something we haven’t done yet,” Bowie says.“Currently you can estimated miles and driving times from A-B,a common use for paylook up a street address, but when you get to the corner of Yonge DECISIONS 2010 ing a driver or setting a rate, but also to deliver safe, accurate, easyand Lawrence, say, V.12 does not give you routing directions to to-follow commercial routing instructions.” Wanless, two blocks away but the street is visible in our map.” Mergers & Acquisitions Information of interest to commercial drivers is included; e.g., A truck’s current location will be displayed on the map as an avoiding dangerous intersections, low-traffic roads and low weighticon: as the truck moves along, the icon will move along too; the limit bridges. EastStreet tends to avoid oddly-named streets, favour map refresh rate is user-selected. Mergers Acquisitions left turns&and provide routes that are easy to follow. It also has data Like V.12, V.13 will be able to simultaneously project several Continued pageheight 32. and weight restrictions and more than for 53-footfrom trailers, routes; e.g., optimised for truck size, number of stops, material 16,000 toll roads. Its full-color maps clearly show landmarks like being hauled and the shortest route. V.13 will also answer the proceedshospitals, for debtrailroads repayment the near term and flexibility for obligatory is that discretionary consumer not expected to return schools, and in bodies of water. truck routing questionsspending that keepistruckers out of troumaking acquisitions in the to pre-financial levels, which will have a direct impact on In November 2005 thefuture. ProMiles Software Development ble.“We want to getcrisis the truck restrictions, time-of-day restrictions, • Livingston (PSDC) executedreleased a $40-million financing a debt truck trucking volumes. are a number indicators Corporation ProMiles XF V.12asofpart its of heavyroutes throughHowever, cities, onethere way streets, no rightofturn, no left that repayment strategy. are signaling a step truck mileage and routing software which, among other updated turn, etc.,” Bowie says.increase in future demand: • Mullenincluded announced a $125-million offering to ensure liquidity • Inventory-to-sales ratios for retailers have declined, which features, updates to zip and postal codes, the road data- in Although ProMiles XF V.12 cannot currently be used onshould a a difficult environment. signalpilot, significant demand trucking as retailers rebuild inventory. base, road operating restrictions, HAZMAT restrictions, toll road fees, and palm users can e-mailfor trips; e.g., pictures of a map, text, state of these offerings was well-received investors who took or province • Canadian industrial production hasincluding been improving with the theEach interface to ProMiles dispatch partners by such as Maddocks, breakout, to other computers, palm pilots. bets on the economy continuing to recover, freight volumes grow- IVEY indexinto showing Tailwind, FreightLogix, and Axon.V.12 and the Owner/Operator The purchasing company’s managers first venture street expansionary routing will activity ining, andTruckMiles pricing rebounding. (above 50 reading) since a significant in the version routing and mapping program also boasted clude major Canadian andJuly USafter cities; PSDC willdecline add more in second half of 2008. MT MT GPS-compatibility. future builds. @ARTICLECATEGORY:865; Economy Improving Although ProMilesSlowly and TruckMiles reside on the users com@COMPANYINARTICLE:024637996; 024644511; 024664030; Elian Terner is a director in the Investment Banking Group of Scotia Canadian consumer spending, which accounts for approximately puter; i.e., the databases are frozen between updates, there is an Carroll McCormick is an awardCapital (a division of the Scotiabank Group). He regularly advises two-thirds of the economy, has been restrained as consumers have exception for fuel pricing, explains ProMiles Canada president winning writer who has been covering transportation and logistics companies on financing and strategic initiacut back their“When discretionary spending duewe toconsider lower stock portfolios, Mark Bowie. you build a route all the fuel transportation industry issues and elian_terner@scotiacapital.com. a tepidathousing market and employment uncertainty. Thestartreality tives. He can be reached at prices stops along that route, your MPG, fuel capacity and technologies for more than a decade. ing fuel level in your tanks, and suggest the best places to buy fuel. He is based in Quebec. Daily price updates via the Internet keep fuel prices current.”

The Shippers’ Magazine www.ctl.ca Distributed to over 18,000 Shippers across Canada. 36

motortruck

SEPTEMBER/OCTOBER 2006

DECISIONS 2010

EOBRS

on the record Carriers, regulators make the case for EOBRs By James Menzies

f the mandatory use of electronic on-board recorders (EOBRs) is a contentious issue, you wouldn’t know it following a panel discussion on the topic at this year’s Ontario Trucking Association (OTA) convention. The CTA has deemed paper logs “antiquated and ineffective” and feels they “give a sophisticated industry a tarnished image,” explained OTA vice-president Geoff Wood. “It’s time to move on and show who we really are.” Regardless of where the CTA stands on the issue, it seems it’s only a matter of time before the US issues an EOBR mandate. A proposed rule that would make them mandatory for carriers with frequent Hours-of-Service violations is already in the works, and David Kraft, chair of the American Trucking Associations’ Technology and Maintenance Council EOBR Task Force, speculated that a full-blown EOBR mandate will be ushered in as part of a federal highway reauthorization bill by 2012 with enforcement beginning as early as 2015. Here at home, work is also taking place to shape an EOBR regulation. Peter Hurst, chairman of the Canadian Council of Motor Transport Administrators’ EOBR Working Group, said a project is underway that will put forth recommendations to the Council of Deputy Ministers by fall 2010. Hurst said the project will involve extensive stakeholder consultations throughout this year and will ideally create a North America-wide standard. Canadian regulators are also in the process of educating enforcement officers (including police) on how to read and interpret electronic logs. Hurst noted that commercial vehicle inspections in Ontario are down from as many as 140,000 per year in recent years to roughly 100,000. “We’re hopeful we will see a culture shift to modern types of enforcement; that’s more about education and compliance and about industry policing itself rather than us doing it,” Hurst said. “EOBRs fit along those lines very nicely and…work great in terms of reducing the amount of actual enforcement that has to be done.” While talk of a mandate normally gets carriers’ backs up, panelists insisted there are many benefits of EOBRs that will make the up-front costs manageable, and the CTA is hoping the government will provide incentives for carriers that use them voluntarily. One of those benefits is improved compliance, which is especially important in advance of CSA 2010, Kraft pointed out. “If you’re a carrier that’s already doing a pretty good job with compliance, it will improve. If you are compliance-challenged, it will be dramatic,” he said. Kraft said fleets that use EOBRs to track Hours-of-Service realize other benefits as well, and surprisingly increased driving time is among them “Most of the time, it’s because drivers manage their time so much better,” he explained. “The DoT clock is staring at them, so they have constant awareness of how

much time they have left.” When making the transition to electronic logs, Kraft admitted there will be a learning curve for some drivers. “Drivers will continue to make mistakes for the first three to six months, but eventually, in a six- to 12-month window, you’ll be operating smoothly,” he predicted. And by then, he said, initial resistance from drivers will have waned as they too see the benefits of e-logs. “If you don’t have EOBRs, drivers will say, ‘If you put those things in, I quit,’” he admitted. “But every carrier that puts in EOBRs finds out that after the drivers get comfortable with them, they will say, ‘If you take those things away, I quit.’” That’s precisely the experience MacKinnon Transport had when it converted its entire 240-truck fleet to EOBRs in the past year, said company president Evan MacKinnon. The carrier’s “a-ha” moment came when it was audited and seven of eight drivers were charged with HoS falsifications because their paper logs didn’t match the company’s GPS records. MacKinnon said the drivers never exceeded their allowable driving time, but their own records simply didn’t mesh with the GPS data. “We made the decision at that time to match the logs to the satellite system,” MacKinnon recalled. Initially, there was resistance, but only five of 240 drivers (including four owner/operators) quit. However, four of the five later asked to return, MacKinnon pointed out, adding those drivers are now “our greatest salesmen for this.” In addition to completely eliminating HoS falsifications, MacKinnon has reaped other benefits as well. The company takes advantages of the EOBR’s payroll and communication capabilities and “it brings value to us in more ways than just Hours-of-Service.” A sticker on the doors of MacKinnon Transport trucks proudly states ‘‘This vehicle is equipped with electronic logs” and as a result, the company’s trucks are often waved through the scales, further improving productivity. When implementing the electronic tracking of driver logs, MacKinnon said it’s important to communicate the decision to the entire company and explain the reasoning. “Step, don’t leap into it,” he suggested. “We communicated it through our whole building; every department was informed why we were going ahead with it.” Finally, MacKinnon suggested other fleets get on board with EOBRs soon or risk being identified as potential cheaters. “I believe there are going to be many carriers in the next 12 months that go ahead with this technology – it’s cost-saving, it works well and drivers and staff accepted it much better than we thought they would,” MacKinnon said. “If you’re not running them, there’s only one reason and it’s not a very good reason and you’re really going to stand out.” MT november/december 2009

InsidetheNumbers transportation buying trends survey

TL freight shippers

rate trends

2009

Size of Increase rates decreased 40%

rates stayed same 43%

rates increased 18% rates decrease 10%

surcharges

rate increases 2009

% of Respondents

% respondents paying

Fuel

1-2%

32%

2.1-4%

39%

4.1-6%

16%

Detention

6.1-8%

Border Delay

8.1-10%

Border Security

Greater than 10%

Currency

98% 7% 23% 12% 13%

expected

2010

capacity concern rates increase 30%

3.39

rates stay same 61%

5 balanced capacity

excess capacity

10 very tight capacity

LTL freight shippers

rate trends

2009

rates increased 28%

rates stayed same 43%

rates decreased 30% rates decrease 8%

surcharges

rate increases 2009

Size of Increase

% of Respondents

% respondents paying

Fuel

1-2%

27%

2.1-4%

52%

4.1-6%

13%

Detention

6.1-8%

Border Delay

8.1-10%

Border Security

Greater than 10%

Currency

98% 7% 15% 8% 16%

expected

2010

capacity concern rates increase 37%

rates stay same 55%

3.42 0 excess capacity

5 balanced capacity

10 very tight capacity

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