Motor Truck Nov/Dec 2010 by Annex Business Media

Motortruck

NOVEMBER/DECEMBER 2010

Fleet Executive

C A N A D A â&#x20AC;&#x2122; S

B U S I N E S S

M A G A Z I N E

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F L E E T

O W N E R S

Rising above the economic turmoil How to make the most out of the volatile recovery. Start with our Decisions 2011 Special Report.

PLUS

Shippers and carriers discuss their strategies for the recovery in our 5th Annual Roundtable

contents November/December 2010

Volume 79, No. 6

Rising above the economic turmoil

COVER STORY

Decisions 2011 . . . . . . . . . . . . .

The recession was brutal and deep. The recovery is bumpy and slow. Rising above it all is the greatest challenge our industry has to face. Prepare your company for the storms and opportunities ahead with our annual Decisions Report.

RISE ABOVE IT ALL Shippers and carriers debate how to get past the thorny issues of today to create a new tomorrow in Part I of our fifth annual Shipper-Carrier Issues Roundtable.

ECONOMIC OUTLOOK Will the forthcoming driver shortage really prove to be the industry’s best friend in the years ahead? A panel of industry experts discuss the issue at the Ontario Trucking Association’s recent convention in Toronto.

HAZY FUTURE Nulogx examines prices and fuel surcharges using its Canadian General Freight Index to predict freight rates for 2011. The results – though still uncertain – are inside.

DEPARTMENTS THE VIEW WITH LOU. . . . . . . . . . . . . . . . . . . . . . . . 6 Transportation and logistics practices may have served Canada well over the past two decades, but we can’t rest on our laurels. It’s now time to work smarter, not harder. MAILBAG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Editorial director Lou Smyrlis gets an earful from readers regarding his recent blog post in support of EOBR legislation. COMPETITION WATCH. . . . . . . . . . . . . . . . . . . . . . 10 Trimac names new president and COO; Rosenau Transport finishes up work on 10,000 sq.-ft. Fort Nelson terminal; Robert Transport places order for 180 natural gas-fuelled Class 8 Peterbilts; Bruce R. Smith emerges from bankruptcy protection; and more. DASHBOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Spot market volumes are slowing, but still strong; Canadian General Freight Index shows freight rates firming up; and US truck tonnage enjoys two months of pleasant surprises this fall. TAKING CARE OF BUSINESS . . . . . . . . . . . . . . . . 12 Grappling with cash flow issues? It may be time to consider invoice discounting (a.k.a. factoring).

FEATURES

COMING CLEAN Medium- and heavy-duty trucks in the US are about to get cleaner and more fuel-efficient thanks to a recently announced set of national standards by the EPA and NHTSA. But what will the impact be for the trucking industry?

TO LEASE OR NOT TO LEASE Full-service leasing can be a strategic tool for your company’s core – or non-core – transportation needs. Find out more about the risks and benefits of truck leasing inside.

MY HR SPACE . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 The trucking industry’s coming labour shortages will not be limited to the driver’s seat. Are you prepared? EQUIPMENT WATCH. . . . . . . . . . . . . . . . . . . . . . . 18 Daimler execs looking forward to much stronger sales in years ahead; Kenworth T700, Paccar MX roll through Ontario as part of nationwide road tour; and Mack celebrates its heritage with opening of new Customer Center. 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 2010 – and what’s expected for 2011. NOVEMBER/DECEMBER 2010

what’s on trucknews.com? Blogs • Contributing editor James Menzies overheard one executive at the recent Ontario Trucking Association convention refer to the driver shortage as a “friend” to the industry. Will this prediction mean bigger payoffs for drivers this time around? • Caravan Logistics’ Kevin Snobel offers his top tips for winter driving, including a mental pre-trip for drivers, as the harshest of seasons descends on Canadian highways. • Palmer Marketing’s Lee Palmer uses a recent performance by a Japanese harmonica player as a business lesson on why leading with your strengths gives the best first impression. • On-road editor Harry Rudolfs shares a couple of first-person accounts from his hitchhiking days.

Web TV: Transportation Matters • KEEP ON THE RIGHT SIDE OF THE LAW: What you need to know about employee agreements. • BULLISH BULLDOG: Mack showcases new customer centre, mDrive transmission during World Sales Conference. • VOLVO GETS STABLE: Volvo Trucks Canada shows off its VEST stability system at a recent trip to a Waterloo research facility. • WORLD’S LARGEST TRUCK CONVOY: Dozens of truckers from across the country hit the highways to raise money for the Special Olympics.

You Said It . . . “If I were to ‘hate’ anyone, it would be the people that make assumptions (usually incorrect) about professional long-haul drivers, the nature of their work, and the lifestyle that necessarily goes with it. Even though I enjoy my work and things I see and hear along the way, I have to say that the loneliness I feel during long layovers, in particular, is hard to bear at times. Its nothing for anyone to get flippant about. I have to think, if we truckers really hated people, we’d just stop trucking. With the flow of consumer goods grinding to a halt, we’d see who gets the last laugh.” – Nigel Simpson responding to Adam Ledlow’s blog:

Truck driving: A great job for people who hate people? 4

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

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Motortruck

Fleet Executive

The View with Lou

is written and published for owners, managers and maintenance supervisors of those companies that operate, sell and service trucks, truck trailers and transit buses. NOVEMBER/DECEMBER 2010

VOL. 79

Transportation practices have served us well, but it’s time to work smarter not just harder

n preparing to host a workshop on logistics technology on behalf of the Ontario-Quebec Continental Gateway recently, I spent some time thinking of what we have come to expect from our transportation system. Canadian cities and resources are so geographically dispersed and we are so dependent on trade that we demand a great deal from transportation and logistics practices in Lou Smyrlis, this country. In fact, many of the MCILT Editor advances in supply chain managelou@transportationmedia.ca ment over the past two decades have a lot to do with improvements in how we manage transportation. Consider Just in Time delivery of freight. From 1992 to 2005, manufacturers were able to reduce inventories as a share of shipments by 15% as a result of employing a JIT strategy. Our transportation system has more kilometres of roads per person than almost any other nation. Investment in new distribution facilities in Canada increased by more than 60% from 2001-2007. The amount of freight carried by for-hire carriers from 1990 to 2003 was up 75%. And yet our transportation infrastructure was able to handle it. Canada ranked 14th on the World Bank’s Logistics Productivity Index of 155 nations, with a total score of 3.87 out of 5. It’s rated ahead of the US and other countries such as France and Australia. Our transportation and logistics practices have served our country well. Yet, we cannot rest on our laurels. Trade and commerce flow like a river. And just like a river, the flow of trade and commerce finds its way around any obstacle. Unfortunately, there are several issues that have grown into obstacles in a variety of fronts over the past 20 years of rapid growth. They may have been muted somewhat by the recession, but they will become obstacles once again when the economy kicks into gear. And we must deal with them. Compared to the US, total supply chain management and logistics costs are 12% higher for Canadian manufacturers, 18% higher for Canadian wholesalers and 30% higher for Canadian retailers. We suffer

distinct agility gaps in all sectors when compared to the US. It’s estimated that urban traffic congestion for Canada’s nine largest urban areas leads to approximately one half billion litres of fuel being wasted annually. This amounts to 1.4 megatonnes of needless GHG emissions every year. Our intermodal system still doesn’t operate as a system, with segments of it remaining trapped in a silo mentality that is cumbersome and costly for shippers and carriers alike. Eight in 10 large companies cite lack of critical supply chain visibility as a top concern. Yet, more than half of Canadian firms have no supply chain management solution in place and no short-term plans to do so. Personally, I believe that we got to where we are, in large part, by working harder. But the next steps we have to take can only be managed by working smarter. And that means investing in the right technologies at the right time and with the right processes and people. Only by leveraging technology can we meet the challenge to reduce costs while simultaneously improving customer service and more rapidly delivering product to market. The supply chain is a puzzle with many pieces. And it is only by leveraging technology that we can hope to be clearly informed about performance metrics and the underlying factors which shape them. Only through the wise use of technology can we hope to impose greater discipline over total transportation spend by breaking down the silos; provide a cost-effective and intelligent approach to dealing with gridlock and maximizing energy; deal with the up to $60B cost of cargo theft in North America; integrate inbound and outbound activities to eliminate empty miles; and address many other pressing issues. I realize, of course, this is easier to say than it is to do. But as I mentioned while addressing the recent Logistics Technology Workshop, I hope we come to the realization that, despite the challenges that lie ahead, when we work together – shippers, carriers, intermediaries, technology providers, academics and government – we can do practically anything. And we can take Canada from 14th place on that Logistics Productivity Index towards the Number One spot. mt

NO. 6

Editorial Director Lou Smyrlis (416) 510-6881 lou@TransportationMedia.ca Managing Editor Adam Ledlow (416) 510-6890 adam@TransportationMedia.ca 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 Mary Garufi 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 by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd., a leading Canadian information company with interests in daily and community newspapers and businessto-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 Canada Periodical Fund (CPF) for our publishing activities. ISSN Number 0027-2108 (print) ISSN Number 1923-3507 (digital)

motortruck Member/Canadian Business Press

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From the desk of editorial director Lou Smyrlis My support for EOBR legislation has hit a raw nerve with professional drivers. Many wrote letters to the editor or commented on my blog on trucknews.com to voice their opinion. Here is a sampling of what was said.

Why not stand up for industry safety record instead? Lou Smyrlis is just a mouthpiece for the OTA and David Bradley who just go along with everything that the (Ontario premier) Dalton McGuinty folks advocate. They have no affiliation or empathy with the truckers and the small and medium companies that make up a large portion of this industry. Instead of going ‘quack quack quack’ like they do right now, they should be standing up for the great safety record that the truckers have achieved here in Ontario. They have no idea about waiting at border crossings, obnoxious shippers, nasty dock personnel and favouritism by dispatchers, etc. Lovely Lou with no dirt under his fingernails would have no idea what it is to experience any of the above problems with his present know-how. Maybe he should take a few days off from his committees and political meetings and see firsthand what these road warriors have to deal with on a daily basis. Jerry Turner

Cheating on HoS promotes poor working conditions I’m a trucker and I agree with most of your opinions, especially about speed limiters and the incoming EOBRs. I am proud to say that my logbook is always 100% legal despite that I am still under the easy-to-cheat paper logbook. Yes, I do less mileage a week than most drivers and sometimes I am late for a delivery, but if so, it’s because it took too 8

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much time to load at the shipper (and) thus it’s not my fault. Every driver should do this; it would put pressure on truck companies and shippers to improve their logistics and reduce delays. I have had enough of those drivers that always complain about change. By not complying to HoS, they don’t realize that they are mostly responsible for the poor working conditions that remain in this industry. Patrice Tremblay

EOBRs for HoS violators is playing with fire Your comment criticizing OOIDA’s opposition to EOBRs needs an answer and I think I am competent to answer. I have been truck driving for 22 years in Germany and all over Europe. For the past five years, I have lived in Canada and I am very happy that I escaped this total electronic control. For example: You are at a loading dock. Loading takes a while and you run out of daily shift time. Don’t move away from the ramp. Don’t drive to the nearby truckstop! It is a violation of HoS. It remains four weeks on your data record. Within this time, every police and DoT officer can see this. Some will ignore it, some will be glad to fine you. Or, you are 15 minutes away from home and you have no driving time left, because you were trapped in a traffic jam. Somebody crashes into your truck, you probably pay the damage out of your own pocket, because of illegal driving (being out of hours). Insurance may refuse payment. It turned out in Europe that these electronics are a huge income for state budgets. Some handle it fairly, some like Austria and the East European states try hard to squeeze every penny out of drivers’ and employers’ pockets. To allow governments to use EOBRs against notorious HoS violators is to play with fire! As soon as electric control has its footstep in the trucking industry’s door, this

door cannot be closed anymore. It will be open more day by day until total control by government is reached. It is a weapon that can easily be turned ’round against us and harm our industry seriously! I cannot understand how an electronic user can believe such devices don’t fail, never break down and cannot be manipulated! Computers always break down, produce errors. In Europe, you can buy devices which fake your records on the black market. What if an EOBR breaks down and the officer accuses you for the breakdown? A lot of cruelties wait for the trucking industry. First, the violators will have to install EOBRs, and sometime the whole industry will have to install them. And then FMCSA will slowly restrict truckers and employers alike. And the very strange fact is that you, as a leading journalist, do not see the danger and promote FMCSAs’ opinion! Werner Stumreiter

MailBag

EOBR, speed limiter opinions out of touch Which communist country are you from? First it was the speed limiters – yes, they slowed those big bad killer trucks down! Of course, we had speed limiters before, but they were too busy drinking coffee and eating doughnuts to be effective. Now you would like to make someone else’s job easier at the driver’s expense. As for someone not being able to afford more “new technology,” where have you been the last couple of years? Times are tough and we are just recovering! I guess in the media, you never felt the pinch! There’s always something to sensationalize! I can’t wait till they want to govern cars, then we’ll hear the outcry. Your opinion seems to be from someone totally out of touch with the field you chose to write about. You would do well in government! Bob Vrooman

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CompetitionWatch

TRIMAC TRANSPORTATION SERVICES has named Edward Malysa its new president and chief operating officer. Malysa has worked for Trimac in various capacities for more than 30 years, the company says, most recently serving as executive vice-president and chief operating officer. Prior to that, he was vice-president and chief financial officer. Malysa replaces Maurice McCaig, who is stepping down as president but remaining on as director and a trustee of Trimac Income Fund. CANADA CARTAGE has announced David Bacon is joining the company as senior vice-president, finance and chief financial officer. Bacon boasts a varied background of more than 20 years business experience with public and private companies, focusing mostly on strategy, corporate finance, governance and financial management. Most recently, he served as chief financial officer of SkyPower Corp., helping build the company from start-up to its place as one of Canada’s largest renewable energy developers, Canada Cartage announced. In its continuing efforts to expand service into the north, ROSENAU TRANSPORT has announced it has recently completed construction of a 10,000 sq.-ft. terminal in Fort Nelson, B.C. The new terminal is located on three acres of paved and fenced yard and will enhance the marshalling of freight destined for the many gas project sites in the area, the company announced. “This shows our commitment to the community and to the Horn River project,” said Rosenau Transport president Carol Rosenau, adding Fort Nelson is serviced overnight from the company’s Calgary, Red Deer and Edmonton terminals. “This is another piece to the puzzle of our expansion into the north.” ROBERT TRANSPORT has placed an order for 180 Class 8 Peterbilt trucks fueled by natural gas. The significant order comes in partnership with Gaz Metro, which will be installing three refuelling sites along the 401 corridor between Quebec City and Mississauga, Ont. The trucks will be powered by Westport HD’s 15-litre GX engine and will run off liquefied natural gas (LNG). “Operating natural gas trucks helps reduce one of our largest input costs and reduces our carbon footprint,” said Claude Robert, president and CEO of Robert Transport. “This is a win-win for both the environment and our company.” BRUCE R. SMITH, a large Ontario-based flatbed and reefer fleet with a storied 60-year history, has emerged from bankruptcy protection thanks to a cash injection from Ron Tepper’s Tepper Holdings Inc. (THI Group). On Oct. 27, the company emerged from Canada’s Companies Creditors’ Arrangement Act (CCAA) protection and management says it is now looking to put the recession behind it. Bruce R. Smith went into bankruptcy protection in the fall of 2009. It has since restructured its business and affairs. BTC LOGISTICS has been purchased by FRASER DIRECT. Both firms analyze companies’ supply chain operations for design and implementation of cost and service improvements. BTC Logistics will continue operating from London, with the addition of the Fraser Direct suite of services. The office will be relocating to the Airport district in the New Year, according to officials, expanding the company’s current freight forwarding department and adding warehouse space. TRANSFORCE subsidiary CANPAR has won a major, three-year contract with the government of Ontario to provide overnight courier services. The contract kicked in Sept. 1 and runs through to 2013 with two extension options, the company announced. Canpar says it will hire 90 new drivers and add new vehicles to its fleet to meet demand. The deal involves about 16,300 shipments per day, with 95% being completed within Ontario. mt

For daily COMPETITION WATCH news go to www.trucknews.com or subscribe to our bi-weekly e-newsletter. 10

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DashBoard TransCore Canadian Spot Market Freight Index 2006-2010

2006

2007 2008 2009 2010

Percent Change Y-O-Y

Jan

204

173

214

140

171

22%

Feb

179

174

217

117

182

56%

Mar

211

228

264

131

249

90%

Apr

200

212

296

142

261

84%

May

275

280

316

164

283

73%

Jun

271

288

307

185

294

59%

Jul

197

219

264

156

238

53%

Aug

210

235

219

160

240

50%

Sep

190

206

203

180

234

30%

Oct

188

238

186

168

211

26%

Nov

182

227

143

157

Dec

159

214

139

168

TransCore Canadian Spot Market Freight Index 2006-2010

Spot market freight volumes slowing, but still strong

TransCore’s Canadian Freight Index showed a 26% increase in year-over-year spot market load levels in October. This October also had the second highest freight volume compared to the same month over the last five years. However, the index also recorded a 23-point dip in spot freight availability compared to September, the third consecutive monthly decline. Load volume levels continue to stay above 200 index points as they have for eight straight months. In September, there was a 30% increase in spot market freight volume compared to September 2009. Like August, September 2010 enjoyed the highest volume of freight availability for the month in comparison to the same month over the last five years. As a result, third quarter loads were up 44% over the third quarter of 2009. The Canadian-based Loadlink freight-matching database constitutes the largest Canadian network of carriers, owner/operators, freight brokers and intermediaries and has been available to Canadian subscribers since its inception in 1990. More than 13 million full loads, LTL (less-than-truckload) shipments and trucks are posted to the Loadlink network annually. As a result of this high volume, TransCore believes its Canadian Freight Index to be representative of the ups and downs in spot market freight movement and provides a historical account of the domestic and cross-border spot market freight movement. The first four columns in Table 1 include monthly index values for years 2006 through 2009. The fifth column indicates index values for current year 2010. The last column indicates the percentage change from 2009 to 2010. For the purpose of establishing a baseline for the index, January 2002 (index value of 100) has been used.

Canadian trucking rates firming up, CGFI shows Results from the Canadian General Freight Index (CGFI), published by Nulogx, indicate another increase in the cost of ground transportation for Canadian shippers in August. Overall freight costs increased by 1.5% in August compared to July, while base rates, which exclude the impact of fuel surcharges assessed by carriers, also increased by 1.7%. Average fuel surcharges remain unchanged after decreases in June and July. August marked the fourth consecutive monthly increase since the index reached a low point in April. “Increases in overall freight costs for Canadian shippers continue to be driven by the domestic truckload sector,” said Doug Payne, president of Nulogx. “While truckload is leading the way, we also now see a strengthening of the LTL and transborder rates.”

Two months of pleasant surprises for US truck tonnage

The American Trucking Association’s advance seasonally adjusted For-Hire Truck Tonnage Index rose 0.8% in October, after rising a revised 1.8% in September. Year-over-year, tonnage hauled climbed a seasonally adjusted 6%, compared to the 5.3% gain in September. October tonnage levels were the highest in three months, even after seasonal changes were accounted for, according to the ATA. “This is a pleasant surprise. It shows the economy has legs, even if it’s not strong yet,” said Bob Costello, ATA’s chief economist. “Perhaps things aren’t as bad as people might have thought.” Costello said the gains registered in the last two months correspond to healthier manufacturing and retail sectors. The ATA had reported a 2.7-point decline in the index in August, its biggest monthly drop in nearly a year-and-a-half. Last month, year-to-date tonnage was up 6.1% compared with the same period in 2009, the ATA said. The numbers reflect recent changes in the retail transport sector. The traditional autumn freight season, where tonnage hauled peaks in October as retailers stock up for the holidays, has spread out over a few months in reaction to consumer spending patterns, according to the ATA. The September gain put the index at 108.7 with 2000 used as the base year. november/december 2010

Taking Care of Business

Grappling with cash flow issues? It may be time to consider factoring or invoice discounting

familiar but difficult scenario unfolds: you are the owner or CFO of a growing company. Sales are up 20% over last year. Success is causing stress. You need a source for some quick capital to keep the company on track. Business is booming, but you are experiencing a cash flow crunch. A cheque expected from your largest customer has not arrived and your payroll is due tomorrow. The phone rings and your call display tells you that your key supplier is phoning you for the third time this week. You know what he wants, so you avoid speaking with him. Your banking facility and your charge cards are maxed out. You might also be at the other end of the spectrum. Your business is on the downside. No matter. You are in the same mess. What do you do? When timing and access to working capital are critical, invoice discounting (also known as factoring) is a practical alternative to traditional methods of financing. Why use invoice discounting? We are living in volatile economic times and traditional lenders are reducing their exposures. A slow motion credit crunch is underway. Banks are tightening their credit standards in the face of problem loans and declining credit quality. Small to medium-size enterprises are most vulnerable to reductions or withdrawal of operating facilities for working capital under this scenario. Invoice discounters provide more funds or availability than traditional lenders, and a regular and predictable cash flow as re12

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quired. Factors often provide advances by working behind the bank as a source of secondary working capital. Factors can improve banking relationships, as clients can remain in covenant and in margin. Invoice discounting facilities are higher because they are linked to sales and not to rigid balance sheet criteria. Decision-makers within factoring companies better understand your company and the variables affecting your normal course of business, including seasonality issues. Factors inherently offer a more favourable assessment of risk. There is reliance upon the quality of the product or service rendered and the credit quality and standing of the customer to repay advances, not the strength of the client’s balance sheet. Quality of accounts receivable is the common denominator, not equity base, liquidity, and cash flow. Customer credit limits are established on a prescreened basis, allowing clients to stay away from potential problem accounts. Factors have a proven history of leveraging assets leading to accelerating sales growth and greater profits, which offset invoice discounting costs. This allows you to promote your business with confidence. Opportunities to do more business are not lost to competitors. Invoice discounting terms and conditions vary, but generally speaking, the following practices apply: • Proposals/term sheets can be issued to potential clients in as little as two days upon receipt of the required information; • Invoice discounting fees vary from 2% to 5% (or more) for each 30 days and are

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of mid-market companies. Mark can be contacted at www.mercantilemergersacquisitions.com.

calculated on the gross sale value; • No minimum term (length of time) contract is required, meaning a client can work on a “spot” or “as needed” basis; and • Customers are aware of the invoice discounter’s involvement and customers agree to send their payments directly to the invoice discounter. So what really is factoring? Factoring involves purchasing businessto-business (commercial) invoices at a discount. Factors “buy” and the client “sells” invoices. Clients are advanced funds on invoices due from creditworthy customers/account debtors, and advances range from 75% to 90%. There are two types of factoring products available – recourse and non-recourse. Whatever the source of capital, the banks have been very difficult on all companies. Wise executives need to consider all of their financing options. mt

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Save fuel, save money and help the environment. To sign up today, visit fleetsmart.nrcan.gc.ca or call 1-800-387-2000 for further information.

the human edge

Labour Pains The trucking industry’s coming labour shortages will not be limited to the driver’s seat. Are you prepared?

t is difficult to imagine a labour shortage in the midst of economic difficulties, when many trucks are idled by a lack of freight. But hiring requirements echo the peaks and valleys of the economy, and they continue to be influenced by demographic realities like an aging workforce. Make no mistake: the trucking industry can expect more labour shortages to come, and they will not be limited to roles behind the wheel. In the next five years, Canada’s maintenance shops are expected to require 5,200 new truck/transport mechanics, 3,800 truck/transport technicians, and 1,700 parts technicians, according to the Canadian Trucking Human Resources Council’s new Labour Information Highway Demand Data Tools. Inside the fleet offices, there will be a need for 4,100 dispatchers and 1,700 freight claims and safety/loss specialists. They will require the support of 7,200 cargo workers and another 2,900 shunt drivers to prepare freight and equipment alike. The needs even extend to management roles, with the requirement for another 3,800 foremen, supervisors and managers.That does not begin to address the need to replace those who retire or leave the trucking industry for other reasons. These projections are more than a number-crunching exercise. About 65% of the 1,004 carriers who were interviewed for the Canadian Trucking Human Resource Council’s recent Beyond the Wheel research initiative say they already have significant trouble recruiting and retaining dispatchers, mechanics, truck and trailer technicians, supervisors and managers – and that is in the midst of a struggling economy. To compound matters, there are a number of factors that will make it difficult to attract the future employees. Wages paid to those who fill these roles were actually pushed down in recent years, after driver-hungry fleets began to invest a larger share of their revenue into those who work behind the wheel, the research shows. Today’s dispatchers are often paid less than the drivers they dispatch; the industry’s supervisors and managers often make less than their counterparts in other sectors. Potential recruits may also have a hard time identifying a defined career path in the trucking industry, in part because of a lack of formal training programs to guide the way. With the exception of apprenticed trades, there are few examples of training initiatives that will lead to occupations such as dispatchers, safety and loss prevention specialists, cargo workers or dock foremen, researchers found.

To find a HR Essentials workshop in your region contact:

motortruck

Most of the training that does occur tends to happen on the job. Job candidates from outside the trucking industry may face a number of other barriers when they decide to explore careers in trucking. Carriers, for example, often disagree on whether industry experience is needed for roles such as dispatchers, managers and supervisors. “If you haven’t lived it and done it, then the respect isn’t there,” one employer argued during the CTHRC research. “Give me someone who is motivated and willing to learn. I don’t care where they come from because I can teach them about the industry,” another employer countered. They are factors that can lead a potentially valuable job candidate to look elsewhere. Many Canadians even dismiss trucking careers altogether. Those who are not interested in working as a driver often fail to realize the other jobs that exist. Besides that, the trucking industry continues to suffer a poor public image when workers look at career options. The available jobs are often seen as a last resort for young people and high school dropouts. As a result, the quality of the remaining recruits can be lacking. The youngest workers among them are also more likely than ever to look for a job that offers 9 to 5 shifts on weekdays, complete with higher starting wages that they might find in other careers. In the face of that reality, the trucking industry’s recruiters are left to explore internal resources, such as the family members of existing employees, or simply hire people away from other trucking occupations. But there are options to explore, according to the Beyond the Wheel research initiative. Many employers have successfully introduced young people to careers in trucking with the help of co-op placements and summer employment. Recruiting strategies can also be refined with the help of available data, and there are opportunities to pursue underrepresented groups such as women, recent immigrants and Aboriginal candidates. It is simply a matter of planning for the needs to come. For a complete copy of the Beyond the Wheel research results, or to further analyze labour needs in your region, visit www.cthrc.com. mt Funded by the Government of Canada’s Sector Council Program, the Canadian Trucking HR 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

uncil

rces c

inside the numbers

Future staffing needs for four key positions Truck and trailer technicians

Significant challenges recruiting and retaining

CURRENTLY EMPLOYED

ADDITIONAL NUMBER NEEDED BY 2015

14,100

2,000

Mechanics

19,200

2,600

Supervisors/Managers

13,700

1,900

Dispatchers

14,400

2,000

POSITION

68%

Truck mechanics Supervisors/managers

65%

Dispatchers

65% 51%

Freight claim/safety loss 42%

Parts technicians 35%

Cargo workers Shunt drivers

Need for additional training opportunities

69%

Trailer technicians

30%

External

Internal

Trailer technicians

82%

80%

Truck mechanics

83%

74%

Supervisors/managers

70%

82%

Truck mechanics

Freight claim/safety loss

67%

76%

Trailer technicians

Dispatchers

59%

81%

Parts technicians

59%

76%

Dispatchers

Cargo workers

48%

75%

Shunt drivers

44%

68%

Training needed on new types of equipment/parts/software 75% 72% 59% 37%

BEYOND THE WHEEL: The human resource challenges extend to non-driving positions When the industry speaks of human resource issues, the talk is almost always centred around the need for drivers. Yet, trucking is experiencing difficulties recruiting and retaining many other key non-driving occupations as well. In its recent research initiative entitled Beyond the Wheel, the Canadian Trucking Human Resources Council has identified eight key occupations in demand besides truck driver. The current difficulties, when combined with the forecast demand for employees in these occupations in the next three to five years, will become that much more challenging. In a recent survey of more than 1,000 carriers conducted on behalf of the CTHRC, more than 650 respondents indicated they experienced significant difficulties recruiting and retaining dispatchers, mechanics, truck and trailer technicians, supervisors and managers. The main reasons reported for these difficulties included: a lack of labour supply, the industryâ&#x20AC;&#x2122;s inability to pay competitive wages, and strong competition from inside and outside the trucking industry for a small number of employees. The CTHRC believes that by 2015, about 8,500 additional employees will be needed for the four positions for which most challenges are reported. CTHRCâ&#x20AC;&#x2122;s research also found that shortage of training opportunities is an issue. Technology is a particularly sensitive area with approximately three-quarters of carriers who responded indicating their truck and transport mechanics and truck and trailer technicians need training on new types of equipment, parts and/or software.

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 2010

Making

Cleaner

P Cities

The Government of Canada is committed to reducing Canada’s total greenhouse gas emissions by 17 per cent from 2005 levels by 2020.

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Reducing greenhouse gas emissions from new motor vehicles will play an important role in helping achieve that goal. Cars and light trucks account for about 12% of Canada’s total GHG emissions. Transportation is a key element of the government’s environmental agenda.

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The ecoENERGY for Fleets program, offered by Natural Resources Canada introduces fleets to energy-efficient practices that can reduce fuel consumption and emissions. FleetSmart is a component of this program offering free practical advice on how energy-efficient vehicles and business practices can reduce fleet operating costs, improve productivity and increase your competitiveness. Along with the latest developments in fleet and fuel management, FleetSmart will also help ensure fleet vehicle owners and managers are aware of the fuel efficiency benefits of new and developing technologies. No matter what size of business - fuel is one of your highest costs.

industr y f o c u s Frito Lay Canada operates one of Canada’s largest fleets of transport and delivery vehicles. The company has used supply chain optimization, technology and best practices to decrease GHG emissions and improve operational efficiencies by reducing fuel costs. Frito Lay Canada’s sterling supply chain sustainability record is finally getting some respect. The snack-food division of PepsiCo Food Canada recently scored an impressive hat trick, taking home: • Natural Resources Canada’s CIPEC (Canadian Industry Program for Energy Conservation) Leadership Award for Corporate Stewardship; • Green Supply Chain Award from Transport Canada and Supply Chain Logistics Canada, and; • CCME (Canadian Council of Ministers of Environment) Pollution Prevention Award. The company takes a team approach to transportation management. It brings together sales reps, drivers, customers and others to examine the number of kilometres its vehicles need to deliver the right products in the right quantity to the right place at the right cost. Technology helps. Route optimization software matches loads with equipment, loads, drivers and routes. After drafting the initial schedules, planners continue comparing those estimates against actual performance to squeeze out further empty miles. In 2009, Frito-Lay eliminated one million kilometres from their supply chain.

Making Cleaner Cities Advert6-Green.indd 1-2

Frito Lay has also updated tractors and trailers to boost fuel efficiency. For example, introducing auxiliary power units (APUs) to heat cabs when the engine is shut off - saving about 2,000 litres of fuel per vehicle each year. As well, it has introduced various tools and practices to reduce air drag on vehicles. In addition, engine governors are set at 90 km per hour, below the more common standard of 105 km per hour.

e n h a n c e y o u r C o r p o r a t e i mage SmartDriver in the City (for fleets that operate within a 100 km radius of their head office) has been designed to make your fleet more fuelefficient, reduce business costs, protect the environment and provide you with defensive driving techniques. This course has been designed with adult learning in mind and the training session can be adjusted to your time schedule. Materials have been developed to reflect the realities of urban fleets – just like yours! SmartDriver in the City is available for drivers of both light-duty (e.g. cars, pick-up trucks, small vans) and medium-duty (e.g. cube vans, day cabs) vehicles. SmartDriver’s SmartTalks covers a wide range of topics and potential environmental impacts of driver behaviour, including: - Progressive shifting - Components of fuel economy - Preventative maintenance - Gasoline vs diesel vs alternative fuels - Maintaining mental and physical health - Detrimental effects of smog, particulate matter and excessive greenhouse gases - Impacts of driver behaviours (i.e. speeding, idling, starts and stops, traffic cushions) SmartDriver in the City will play an important role for a successful training experience. Equipping your vehicles with technologies for fuel efficiency – without proper driver training could be wasting your time, money and efforts. For more information or to request the SmartDriver in the City Instructor’s Guide visit our website at FleetSmart.nrcan.gc.ca Or write to: Natural Resources Canada Office of Energy Efficiency 885 Meadowlands, 3rd Floor Ottawa, Ontario K1A 0E4 Fax: 613-960-7340

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Le gouvernement du Canada s’engage à réduire les émissions de gaz à effet de serre produites à l’échelle nationale de 17 % par rapport aux niveaux de 2005 d’ici 2020. La réduction des émissions de gaz à effet de serre (GES) attribuables aux véhicules automobiles neufs jouera un rôle clé dans l’atteinte de cet objectif. Au Canada, les automobiles et les camions légers produisent environ 12 % de toutes les émissions de GES, ce qui explique pourquoi le secteur des transports occupe une place importante dans les initiatives environnementales du gouvernement. Géré par Ressources naturelles Canada, le programme écoÉNERGIE pour les parcs de véhicules vise à informer les responsables de parcs de véhicules des pratiques éconergétiques qui permettent de réduire la consommation de carburant et les émissions. Écoflotte, un volet du programme, vous offre gratuitement d’utiles conseils sur l’économie de carburant et la gestion éconergétique qui vous aideront à réduire vos coûts d’exploitation, à améliorer votre productivité et à accroître votre compétitivité. En plus de fournir des renseignements d’actualité à propos de la gestion des parcs de véhicules et du carburant, Écoflotte est un outil qui permet de s’assurer que les propriétaires et les gestionnaires de parcs de véhicules soient à même de découvrir les technologies nouvelles et émergentes qui améliorent le rendement du carburant. Quelle que soit la taille de l’entreprise, le carburant est l’une des plus importantes dépenses.

Pleins f e u x s u r l ’ i n d u s t r i e Frito Lay Canada exploite l’un des plus vastes parcs de véhicules de transport et de livraison au Canada. L’entreprise s’est tournée vers l’optimisation de la chaîne d’approvisionnement, la technologie et les pratiques exemplaires dans le but de réduire ses émissions de GES et d’améliorer l’efficacité de ses opérations tout en diminuant les coûts associés au carburant. L’appréciable durabilité de chaîne d’approvisionnement de Frito Lay Canada bénéficie enfin de l’attention qu’elle mérite. La division des friandises de PepsiCo Food Canada a effectivement ajouté les distinctions suivantes à son impressionnant palmarès : • le Prix de leadership du PEEIC (Programme d’économies d’énergie dans l’industrie canadienne) pour la gérance d’entreprise de Ressources naturelles Canada; • le prix Chaîne d’approvisionnement écologique de Transports Canada et de l’Association chaîne d’approvisionnement et logistique Canada; • le prix du Mérite pour la prévention de la pollution du CCME (Conseil canadien des ministres de l’Environnement). L’entreprise utilise une approche collective en matière de gestion des transports. Elle discute avec ses représentants commerciaux, ses conducteurs, ses clients et d’autres intervenants afin d’établir combien de kilomètres ses véhicules doivent parcourir pour livrer la bonne quantité de produits au bon endroit et à un coût avantageux. La technologie est utile. Grâce à un logiciel d’optimisation des itinéraires, les charges sont réparties en fonction de l’équipement, des conducteurs et des itinéraires. Après avoir établi les calendriers de livraison initiaux, les planificateurs continuent de comparer ces estimations au rendement réel sur la route afin d’éliminer encore plus de kilométrage superflu. En 2009, Frito Lay a réussi à retrancher un million de kilomètres des activités de transport de sa chaîne d’approvisionnement.

Frito Lay a aussi modernisé ses camions tracteurs et ses remorques afin d’accroître le rendement du carburant. Par exemple, l’utilisation de groupes électrogènes auxiliaires (GÉA) pour chauffer les cabines lorsque le moteur ne fonctionne pas a permis d’économiser environ 2 000 litres de carburant par véhicule par année. L’entreprise a aussi fait appel à divers outils et pratiques afin de réduire la résistance à l’air de ses véhicules. Enfin, les régulateurs de vitesse des moteurs sont bloqués à 90 km/h, ce qui est en deçà de la norme habituelle de 105 km/h.

s o i g n e z v o t r e i m a g e d e m arque Conducteur averti dans la ville (pour les parcs de véhicules qui sont exploités dans un rayon de 100 km du siège social) a été conçu pour rendre votre parc de véhicules plus éconergétique, réduire les coûts de vos activités et protéger l’environnement tout en vous enseignant des techniques de conduite préventive. Ce cours vise une clientèle adulte et peut être présenté lors d’une séance de formation adaptée à votre horaire. Le matériel pédagogique a été élaboré en tenant compte des réalités des parcs de véhicules urbains tels que le vôtre! Conducteur averti dans la ville est offert aux conducteurs de véhicules légers (p. ex., automobiles, camionnettes, fourgonnettes) et de poids moyen (p. ex., grands fourgons, camions munis d’une cabine de jour). Les ateliers SmartTalks du programme abordent une vaste gamme de sujets ainsi que les incidences possibles des habitudes de conduite sur l’environnement, notamment : - le changement de vitesse progressif; - les composantes de l’économie de carburant; - l’entretien préventif; - l’essence par rapport au diesel, par rapport aux carburants de remplacement; - le maintien de la santé mentale et physique; - les effets négatifs du smog, des matières particulaires et des excès de gaz à effet de serre; - les conséquences liées aux comportements des conducteurs (c.-à-d., les excès de vitesse, la marche au ralenti, les démarrages et les arrêts, et les bosses de décélération). Conducteur averti dans la ville est un outil clé pour assurer le succès de la formation des conducteurs. Même si vous dotez vos véhicules de technologies de rendement énergétique, si vos conducteurs ne suivent pas une formation adéquate, votre temps, vos efforts et votre argent ne seront pas maximisés. Pour en savoir davantage ou pour vous procurer le Guide de l’instructeur Conducteur averti dans la ville, consultez notre site Web à l’adresse ecoflotte.rncan.gc.ca. Vous pouvez également écrire à : Ressources naturelles Canada Office de l’efficacité énergétique 885, promenade Meadowlands, 3e étage Ottawa (Ontario) K1A 0E4 Télécopieur : 613-960-7340

11/24/10 4:28 PM

EquipmentWatch Daimler execs looking forward to much stronger truck sales By Lou Smyrlis

Sales of Class 6 to 8 trucks in the NAFTA region could hit 210,000 this year, according to Daimler Trucks North America’s Martin Daum, compared to sales of 187,000 in dismal 2009. That would make for a 13% increase. Of the 210,000 trucks projected to be sold into the recovering North American economy, 133,000 would be Class 8s. “It’s good compared to last year. It’s lousy compared to everything else. We would not be smiling if we didn’t have 2009 to match against,” Daum told the media during a briefing at the American Trucking Association’s annual conference.

Daimler Truck’s Andreas Renschler placed the figures in greater perspective in his address. Essentially, the NAFTA heavy-duty truck market has a very deep hole to climb out of. It is still 62% below the level of 2006, which was a record sales year. There also remains a great deal of uncertainty in the marketplace about the strength of the recovery and that is likely dampening the growth in sales in 2010. Renschler said he sees business investment increasing gradually with modest inflation and low interest providing some tailwind. “By and large, we don’t expect a doubledip recession, not here in the US and not globally. There is just going to be a slowdown of growth rates ahead,” he said, adding, “I would rather see a slow recovery than an-

other quick recession.” There may finally be good reason to smile in 2011, when the North American economy is expected to finally kick into a more robust recovery. Investment growth and the need to replace an aging fleet should result in more significant growth rates. Daum projects Class 6-8 sales in the NAFTA region of 260,000, a 23% increase from 2010. About 165,000 of the trucks sold would be Class 8s. But Daum cautioned that such an increase in sales for 2011 would require a steep incline right from the first quarter of 2011, which may be difficult if the North American economy is still stuck in a slow growth funk. “I would say 260,000 is an optimistic number. I wouldn’t bet on it,” Daum said, adding the truck maker is prepared to follow

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EquipmentWatch any market swing, whether it be upwards or downwards. By 2012, sales of Class 6-8 vehicles in the NAFTA market are projected to hit 330,000, a 28% increase from the previous year. By 2015, Renschler projected the world truck market to grow by more than 50%. Looking further abroad, the commercial vehicle markets in Europe are still below previous year levels but improving. Meanwhile, Latin America – Brazil in particular – remains red hot. There is also a significant upward trend in Asia, and the Japanese market – even though tax incentives are phasing out – is finally on the way up. “So there is reason for optimism,” Renschler said. “And in the long run, it will most likely stay that way. Global trade volume is rising.

We expect 7% growth this year alone. And more trade means more transport.” Looking inward, Renschler said all Daimler Trucks divisions are on the comeback trail. Sales are up 34% (YTD September) and he expects an ongoing sales increase in the third quarter in comparison to the first half of the year. “We’re renewing much of our product portfolio over the next four years. Coming out of the worst economic crisis in the postWar era, we’re launching the highest product offensive in our history. In the midst of an extremely difficult market and economy, we never took our foot off the gas,” Renschler said. However, Renschler expects the future to include a lot more sales in Asia. Already,

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every second truck more than six tonnes is now sold in China. Daimler is responding with two new brands and five new plants for commercial vehicles in the region. Its first Mercedes-Benz and Fuso trucks made in Russia have just rolled off the assembly line, prototypes of trucks designed for the Indian market are already on the test track, and the Chinese government has approved Daimler’s joint venture with Foton. Renschler said it makes sense to push Daimler’s products on a global scale, adding the company philosophy is “as local as necessary; as global as possible.” “I still think that there will be no one-sizefits-all world truck. But the commonality rate of a heavy-duty truck can be up to 70% right now. That means trucks for Asia, the US or

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EquipmentWatch Europe could share a great amount of their parts in the future,” Renschler said. “And I am convinced that’s also of vital interest to our customers, because every dollar of commonality savings can be invested in R&D.” Looking towards the future, Daimler will also have to do a better job at making inroads with alternative vehicles, according to Daum. Daimler customers already operate about 14,000 alternative-drive vehicles, ranging from fuel cell buses to hybrid trucks. But government help would go a long way towards boosting fleet willingness to invest in such vehicles, Daum said.

Kenworth T700, Paccar MX roll through Ontario By James Menzies

It’s not unusual for a truck maker to introduce a new model to customers via a comprehensive North America-wide road trip. What was unusual, however, about the Canadian leg of the Kenworth T700/Paccar MX Road Tour was that the truck being showcased was a fleet-owned unit, piloted by a company driver. The Kenworth T700 that stopped at about a dozen Canadian Kenworth dealers in recent weeks was decked out in Challenger Motor Freight livery and driven by long-time Challenger driver John Greathead. While it was refreshing to speak to an independent driver about his impressions of the truck and engine, he was no less enthusiastic about the new products than had he been working for Kenworth itself. In fact, he joked that he may have sold a few T700s just in speaking to drivers along the way. “It’s the quietest truck I’ve ever driven,” he told Motortruck Fleet Executive. “As far as torque and engine braking go, it works great.” Greathead was called upon to take the T700 on its inaugural run from Toronto to Richmond, B.C., pulling a load weighing about 30,000 lbs. Greathead said he averaged 8.1 mpg on that journey. 20

motortruck

“It gets consistently excellent fuel mileage,” he said. “I’ve driven just about everything that’s ever been developed for an engine and this thing works just great. It has lots of torque, the engine brake works fine and I’ve never gotten the fuel economy that I’ve gotten with this right out of the box.” Greathead often takes the longest of long hauls that Challenger offers, staying on the road for two to three weeks at a time, so it’s little wonder he appreciated the spacious interior of the T700. “It’s quite large inside,” he said. “You can’t reach the passenger seat from a sitting position. There’s lots of room and lots of storage. Teams, I think, would love this truck.” Unless Challenger has more T700s on order, its teams may have to wait a while. Greathead said he has been promised the new T700 will be his dedicated ride for the foreseeable future. “That was part of the deal,” he said. “I gave up a truck I really liked, so they said I could keep it. Somebody had to drive it, right?” Fleet Executive caught up with Greathead at the Concord stop on the T700/Paccar MX tour at Toronto Kenworth Sept. 24. According to company officials, the truck and engine were well-received everywhere they went. The Canadian tour began at Inland Kenworth in Langley, B.C., where sales manager Ray Cotton said, “More than 100 customers came to our open house and there was a good feeling in the air about both these new products.” In Calgary, GreatWest Kenworth showcased the T700 during a tour date that coincided with the dealer’s 40th anniversary celebrations. “We had close to 300 customers on-hand and we dovetailed the tour with a vendor fair and anniversary celebration luncheon,” said Jeff Storwick, co-president of Great West Kenworth. At Edmonton Kenworth – Northside, about 250 customers came out to see the T700 and Paccar MX.

Mack celebrates heritage with opening of Customer Center

By James Menzies Mack Trucks enthusiasts will have to add an item to their bucket lists: visiting the brand new Mack Customer Center. The centre was opened to dealers, customers, suppliers and media during the company’s World Sales Conference in late October. It’s a 159,000 sq.-ft. facility designed to “enhance the sales and ownership experience of the Mack customer,” said Kevin Flaherty, Mack’s senior vice-president of sales and marketing. The facility sits on 54 scenic acres just a short drive from Macungie, Pa., where all Mack trucks are presently built. It houses a museum and heritage centre (which opened to the public Nov. 1) and an aptly named Bulldog Café lounge. The complex is also home to a product showroom, an 18,000 sq.-ft. modification centre, a two-lane oval test track as well as steep grades, an off-road course and a skid pad so customers can put Mack trucks through their paces. “The Mack Customer Centre is an important new tool for the company,” said Mike Reardon, Mack’s vice-president of marketing. “It gives us a powerful way to immerse customers from North America and around the world in the products, history and culture of the Mack brand.” In an interview with Fleet Executive, Mack CEO Denny Slagle commented on the timing of the opening: “We’ve been planning this for about two years as part of our broad restructuring plan,” Slagle said. “We mapped out what had to be done and when, and the centre point of that timing was the development and introduction of our US10 engines. We thought that if we did it last year, we could only talk about the promise of the US10 engine and we thought it would be good to wait one more year. We correctly guessed we’d be entering an upmarket rather than still dealing with the recession and we would have a few months’ experience behind our US10 product.”

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what will be the impact of the proposed fuel efficiency standards? By Lou Smyrlis

eavy- and medium-duty trucks in the US are about to get cleaner and more fuel-efficient. The first national standards to reduce greenhouse gas (GHG) emissions and improve fuel efficiency of the workhorses on US highways were announced in October by the US Environmental Protection Agency (EPA) and the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA). EPA and NHTSA are proposing new standards for three categories of heavy trucks: combination tractors, heavy-duty pickups and vans, and vocational vehicles. The categories were established to address specific challenges for manufacturers in each area. For combination tractors, the agencies are proposing engine and vehicle standards that begin in the 2014 model year and achieve up to a 20% reduction in CO2 emissions and fuel consumption by the 2018 model year. For vocational vehicles, the agencies are proposing engine and vehicle standards starting in the 2014 model year that would achieve up to a 10% reduction in fuel consumption and CO2 emissions by the 2018 model year. The Obama government already has set new rules for cars and light trucks requiring 35.5 mpg by 2016 and proposed as high as 62 mpg by 2025.

The national program, announced jointly by EPA Administrator Lisa P. Jackson and Transportation Secretary Ray LaHood, is projected to reduce GHG emissions by nearly 250 million metric tonnes and save 500 million barrels of oil over the lives of the vehicles produced within the program’s first five years. Calling it a “win-win-win” for the environment, businesses and the American consumer, LaHood said through the new fuel efficiency standards, “We will not only reduce transportation’s environmental impact, we’ll reduce the cost of transporting freight.” Jackson said the proposed regulations provide a steady improvement in fuel efficiency aimed at quick payoffs. “In addition to cutting greenhouse gas pollution, greater fuel economy will shrink fuel costs for small businesses that depend on pickups and heavy-duty vehicles, shipping companies and cities and towns with fleets of these vehicles. Those savings can be invested in new jobs at home, rather than heading overseas and increasing our dependence on foreign oil,” she said. Overall, NHTSA and EPA estimate that the heavy-duty national program would provide $41 billion in net benefits over the lifetime of model year 2014 to 2018 vehicles. With the potential for significant fuel efficiency gains, ranging from 7%-20%,

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drivers and operators could expect to net significant savings over the long term, the agencies say. For example, it is estimated an operator of a semi-truck could pay for the technology upgrades in under a year, and save as much as $74,000 over the truck’s useful life. Vehicles with lower annual miles would typically experience longer payback periods, up to four or five years, but would still reap cost-savings. EPA and NHTSA are providing a 60day comment period that begins when the proposal is published in the Federal Register. The rules, with whatever changes are made following this comment period, are expected to be final next summer. Initial industry reaction was mainly positive. The following is a statement from the American Truck Dealers: “Dealers support improving fuel economy for medium- and heavy-duty trucks,” said Kyle Treadway, chairman of the American Truck Dealers (ATD) and owner of Kenworth Sales Company in Salt Lake City, Utah. “To its credit, the administration clearly is attempting to tailor its mandates to specific vehicle subclasses and to each manufacturer’s unique production. Compliance flexibility will be essential to the national truck fuel efficiency program’s success and its ability to prevent an unworkable patchwork of State-byState mandates.” Truck and engine manufacturers did not

GreentoGold appear fazed by the new requirements. “For some time now, Cummins has advocated for consistent and responsible regulations that recognize the needs of business, offer clear direction and provide incentives to companies that create innovative technologies as well as jobs in this country,” said Cummins engine business president Rich Freeland. “Such regulations also add real value to our customers, as better fuel economy lowers their operating costs while significantly benefitting the environment. We look forward to working with the EPA, DOT and other stakeholders in developing the final rule.” But while manufacturers felt the fuel efficiency targets were attainable, there was some concern about the reporting burden this may place on OEMs. In a meeting with media, Navistar chairman, president and CEO Dan Ustian said, “What we worry about is not that it can’t be done; it can be met easily. We worry about the measuring device and the work to prove it will be a burden to all companies. We don’t think it’s a big deal except for maybe keeping track of it all.” Ustian said OEMs may work together to ensure Washington doesn’t make the program too onerous on manufacturers. During the joint EPA/NHTSA press conference, Jackson stressed that the government is concerned only with setting a consistent and national standard. How truck manufacturers choose to meet that standard – whether through improved engine technology, tire design, aerodynamics or a combination of these and other advancements – will be up to them. “As we give one consistent national standard, truck manufacturers will rise to find the next level of improvement. We don’t want to pick a winner in terms of technology,” Jackson said.

Treadway, however, was concerned the fuel economy proposal would add thousands of dollars to the cost per truck. “These first-ever truck rules will govern how new medium- and heavy-duty trucks are built for sale. If technologically feasible and economically practical, they should result in vehicles that commercial fleets, owner/operators and small businesses will want to buy, at prices they can afford. If not, truck dealers, their employees and the economy in general will suffer without environmental and national security benefits being achieved,” Treadway said. “We are concerned that this could price some buyers out of the market.” When asked during the press conference whether incentives would be put in place to boost the adoption of more fuel-efficient technologies, a senior government official appeared non-committal, focusing instead on the money to be saved through quick payback for the investments made. The American Trucking Associations, meanwhile, recently adopted a new policy stating that “carbon emission reduction achieved through national truck fuel economy standards are preferable to government actions that increase fuel prices in an effort to discourage petroleum-based diesel fuel consumption or mandate the use of alternative fuels.” And Jed Mandel, president of the Engine Manufacturers Association, said in a statement: “Because improved efficiency also results in lower greenhouse gas emissions, engine and truck manufacturers’ efforts to improve fuel efficiency for our customers align well with the overall goals of the regulation proposed today.” Allen Schaeffer, executive director of the non-profit Diesel Technology Forum, seized on the announcement as indication

there is a future for clean diesel power as the proposal does not include mention of alternative fuels. “This proposal clearly envisions clean diesel power as the centrepiece of freight transportation in the clean energy economy of tomorrow,” Schaeffer said. “For all parties, the challenge of increasing fuel efficiency while maintaining or improving environmental (?), safety and productivity of commercial vehicles is as important as it is complex. It is fitting that a key solution for solving this challenge lies in the diesel engine.” More than 95% of all heavy-duty trucks are diesel-powered as are a majority of medium-duty trucks. Jackson characterized the proposed standards as a “transition to greater energy efficiency and lower carbon emissions,” once again emphasizing the government wants to leave it to the industry to decide which technologies or fuels are best to use to meet the new standards. The proposed rules also don’t address trailers, which could further improve fuel efficiency. EPA’s Jackson said the decision was made to steer away from trailers in the initial rulemaking because the two government agencies involved had very little experience regulating trailers and the manufacturers involved had little experience dealing with fuel efficiency design issues. She added that although the proposed rules focus on “what is currently possible,” trailer design and its contribution to fuel efficiency is something that could be considered in the future. To help Canadian truckers understand how the proposed rules will affect them, the Canadian Trucking Alliance published a preliminary summary of the US Notice of Proposed Rulemaking. You can find it on its Web site at www. cantruck.ca. mt

NOVEMBER/DECEMBER 2010

Profitability

To lease or not to lease… Full-service leasing can be a strategic tool for your company’s core – or non-core – transportation needs BY JULIA KUZELJEVICH

raditional truck ownership has long brought with it the perception of better control in terms of running company assets. But in many situations, there can be some inherent risks associated with owning trucks. Some of these risks include the value of the equipment at trade-in time, unpredictable maintenance costs over the equipment life, obsolete or stranded assets due to improper replacement cycles, and increased costs caused by hiring, training and tooling technicians to keep up with ever-changing truck technology, said Olen Hunter, director of sales for PacLease. Full-service truck leasing can provide the consistency of a set monthly payments based on a combination of lease truck services. “Truck leasing can be a crucial strategy in accomplishing your company’s transportation needs, particularly if you want to take advantage of emerging technology, which is rapidly advancing in trucks in shorter and shorter cycles,” said Hunter.

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But there are a few questions you should ask yourself before making the decision on whether to buy or lease. If you’re considering a move from ownership to full-service leasing, first, determine the best use of your company’s capital, and whether transportation is your core competency. Next, consider whether off-balance-sheet accounting through full-service commercial truck leasing would help your financial picture and line of credit with your bank. Could you risk the resale value of trucks by owning, or would the guaranteed residual value of fleet leasing offer a better deal? What is the cost of your time for managing fleet maintenance operations? Can you purchase high-quality truck parts and supplies at a low cost? Is driver turnover something that might improve through a full-service lease? To determine whether a lease is your better option, look at the lease rate, the variable cost (mileage rate), if it’s a full-service lease, the length of the lease, the net present value calculation of the lease payments over the equipment’s lifetime, and the residual responsibility – is it yours or does it belong to the lessor? Once you have gathered the data, Hunter says you can perform a net present value calculation on the lease payment, the finance cost and the maintenance cost over the equipment’s lifetime. It’s also important to look at the net after-tax cash flows under ownership and leasing. This will give you the true picture of how depreciation impacts ownership and leasing cash flows. Alan Stewart, vice-president of Eastern Canada Region for Penske Truck Leasing, said the recent economic downturn in the transportation industry saw fleet owners and managers “bear down and look at every aspect of their business, look at every cost, such as ownership versus leasing,” he said. “The time that management spends on fleet maintenance, record-keeping, and administrative functions is important to consider about truck ownership. Leasing is more and more popular because it’s an alternative form of financing, with capital being limited. Full-service leasing allows them to free up some capital from that standpoint,” he said.

Profitability During economic downturns, market share for leasing companies traditionally improves, often as a result of some insecurity clients may be feeling about longterm ownership. “Many companies turn to leasing during uncertain times such as these to help them mitigate risk. Truck prices are not going down, and even with these increasing costs, leasing helps companies reduce overall transportation costs with the newest, fuel-efficient technology. Customers also have the ability to utilize rental vehicles as needed on a shortterm basis. As the market returns, we find most customers turning in the rental equipment for full-service leases,” said Chris Maccio, director of sales for PacLease Eastern US, Canada and Europe. Full-service leasing allows companies to focus on their core businesses by outsourcing the maintenance and much of the administrative work associated with managing a fleet. Quebec-based Transport Jacques Auger runs 80 units in the petroleum-hauling business. They own their own trucks in Quebec City (since they have a maintenance facility) and lease some 30 tractors from PacLease in several locations. President Jacques Auger said that the company opted for full-service leasing “to find a cost-effective way to control our operating/maintenance fees outside our Levis office headquarters. We needed to find the package that would give us the right terms of payments versus the number of kilometres needed yearly along with the costs for maintenance on each tractor,” he said. The company likes a full-service lease so they don’t have to worry about maintenance, downtime, or substitute vehicles. They run Kenworth T800s and they’ve been working well, Auger says. The company is very safetyoriented and has a roll stability option on its leased trucks. “The main advantage is the maintenance cost which is a fixed price and therefore gives us a more stable way to budget. Another advantage with the full-service leasing package is the replacement option. When one of

the tractors is being serviced or repaired (at the garage), there are no interruptions in our deliveries,” said Auger.

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Profitability Another thing that has changed people’s mindsets, noted Stewart, is the new emissions requirements coming into force on the new engines, which will increase the cost of a tractor by some $8,000 to $10,000 per unit. This led to an uptick in long-term leases ahead of the new engine requirements, he said. “A lot of people are worried about the residual worth and cost of maintaining the trucks. We’d take the guesswork out in terms of their maintenance costs, etc. Our maintenance department has run prototypes a year ahead to test longevity and we’ve rated our costs to anticipate this. We’ve been forced to rerate our cost model going forward in anticipation of those changes,” said Stewart of the new engines. The sheer complexity and variety of new technologies, changing regulations and reporting requirements in the transportation industry is a major factor in the popularity of full-service leasing options, noted Maccio. “Full-service truck leasing has become

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more popular as companies seek to simplify their operations and manage growth. Many customers today are taking advantage of additional services to help better manage their fleets, including paperless fuel tax reporting, insurance, and onboard telematics. Especially in a down economy, leasing provides an offbalance-sheet source of financing that helps companies keep bank credit lines open. With full-service leasing, customers should expect a transportation solution focused on improving their business operation. It’s not just a financial transaction, but a consultative relationship where the leasing company can customize the vehicle and services to the customer,” said Maccio. The average leasing customer has also become more educated. “Companies want trucks and services customized for their business. Instead of a onesize-fits-all approach, new vehicles need to help improve their efficiencies. They want more of a partnership to help them understand new technology, government regulations and ideas to improve operations. For example, recently, we were able to work with a customer to spec’ trucks that will reduce fuel consumption and meet environmental regulations. As a result of this process, they were also able to deliver the same amount of product with fewer trucks,” said Maccio. Since PacLease is directly affiliated with Kenworth and Peterbilt trucks, customers can consult with engineers on the spec’ing process. “If a customer wants better fuel efficiency, we may look at truck components from a drag perspective. If they want greater payload capacity, we may look at reducing weight. More and more companies are concerned about clean-air legislation and want help developing strategies for green operations and sustainability. As new technology comes available, leasing is a great way to meet compliance and take advantage of new fuel-saving technology without the necessary investments to maintain it. This trend requires that we become experts in the

technology as well as new rules and regulations surrounding environmental legislation,” he said. While Stewart has not seen a real change in long-term leasing requirements, more flexible leases are available to certain customers. “Our standard full-service lease with maintenance has been available for over 40 years. From a due diligence standpoint, our credit requirements have changed in terms of being a bit more stringent. The one thing that has changed a bit is that used truck values have plummeted, so we’ve done a lot more used equipment leasing, because we can’t dispose of the vehicles as well. These can go a little bit shorter term because they’ve been partially amortized already. It’s become a little more prevalent and there are some customers preferring two or three versus five- or six-year terms,” he said. Used equipment leasing seems to be on the increase, as evidenced by the recent creation of the Web site www.nationaleaseusedtrucks.com. Nationalease, a North American fullservice truck leasing organization, created the site in April, offering detailed information on hundreds of trucks, tractors and trailers available for sale. Visitors can enter a product category and see the full list of available equipment, plus have it filtered according to year, make, model, stock number, and other details, to create a comparison chart to show similarities and differences among vehicles under consideration. “Every customer we go to today is certainly looking at more of their costs. They’re getting more in tune with where their money is going and a more educated buyer for us is generally an advantage,” said Stewart. “What customers are really looking for now is price competitiveness. In today’s economy, generally, people are getting the best price. It’s a fairly competitive environment, it’s, ‘Come to me with your best value-added proposition, your best price,’” he added. mt

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DECISIONS 2011

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the

Panelists MODERATOR LOU SMYRLIS, Editorial Director, BIG Transportation Media

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CHRIS RAYNOR, Branch Manager, C.H. Robinson Worldwide

RAY KRIZMAN, NA Logistics Manager, Vicwest Income Fund

MICHELLE ARSENEAU, President and Managing Partner, GX Transport

DECISIONS 2011

Rise above it all Shippers and carriers debate how to get past the thorny issues of today to create a new tomorrow

e can’t say we weren’t warned. Most economists forecasted a slow and volatile recovery through 2010 and that’s exactly what we’re getting now that the initial economic boom of the first quarter has fizzled. The result is even more stress on an industry that has been battered more than most. Nerves appear as frayed as profit margins. But if trucking is anything, it is resilient. How are leading carrier executives and their customers preparing for the turnaround in 2011? How will their actions make the industry different? Find out as shippers and carriers debate the pressing issues, challenges and opportunities for the year ahead. Our roundtable participants had a great deal to say, so once again we will share their insights with you over the course of the next two issues. In Part I of our Issues Roundtable, our panelists look ahead to next year and discuss how trucking and shipper-carrier relationships will be transformed. Watch also for video clips of their comments in special installments of our award-winning Web TV show Transportation Matters, available on www.trucknews.com and www.ctl.ca. 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 transportation equation. 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 an important 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 support. I would also like to thank all the roundtable participants who took time out of their hectic schedules to make this roundtable a possibility. 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

ERIC WARREN, Key Account Manager, Hercules Freight

SERGE GAGNON, President, XTL Transport

MARK SEYMOUR, President, Kriska Group of Companies

NORM SNEYD, VP, Business Development, Bison Transport

november/december 2010

DECISIONS 2011

Decisions Roundtable

MT: Thank you all for joining us for our annual Shipper-Carrier Issues Roundtable. The first question I would like to ask is probably among the most difficult that will need to be answered today because it requires looking ahead into the economy for next year, which I know at the moment is a cloudy perspective at best. When you look towards 2011, from either a shipper or carrier perspective, what do you see? Seymour: I think we will continue to see slow and modest recovery. At least I’m hopeful that is the case. The threat of a double dip recession I’m hoping will not prove to be the case. Sneyd: The back end of this year has not been as strong as we had hoped. The economy has not come back the way we were hoping it would come back. I’m concerned that the first quarter of 2011 and maybe even the first half will bring a pretty tough economy here in Canada. Things have to get better in the US and we are not seeing that. In fact, the US is going to suffer some more in the first quarter, I believe. Until that gets kick started, we are going to have a tough time here. So I’m not optimistic the first three to six months are going to be strong in 2011. Gagnon: When you look at the reports from retailers over the last three or four months, there is no growth in retail. Every major retailer has come up with flat numbers and I don’t see the upswing in the last quarter of the year. We are busy, but if everyone was to count how many trucks are not in use right now, we are not busy.

year and we are seeing forecasts that are quite flat for 2011 compared to 2010. We were hoping there would be an increase, but I don’t think that’s going to happen. It’s going to stay level and we will continue to build on that. If there is any increase, it will be moderate at best. MT: Well, they say to every cloud there is a silver lining. Let’s see if we can find that. When you look ahead to 2011, is there anything you are excited about? Arseneau: I could be excited about when the fog will actually clear, but I don’t know if that is going to happen in the first or second quarter of 2011. Consumer confidence is not really where it needs to be in order to start to see a climb in the economy. I would like to believe that will happen later in 2011, but I think it’s still going to be a tough year.

I’m not sure we have learned our lesson yet, because every day, you hear things happening in the market with bids and you really question if people have really learned.

Warren: I agree with everything that has been said about the economy. It’s funny because what we are experiencing as an LTL carrier, shipmentwise, is that our levels with existing customers whom we have held for the past several years are back to 2007-2008 levels. Right now, we are experiencing growth because of new business gained over the last few years and the stabilization of our base. We are very excited about 2011-2012. As an LTL carrier, we are moving in the right direction, although we are a little concerned about the driver shortage coming up again towards the end of 2011 and 2012. It’s something we are keeping an eye on.

Raynor: I’m getting excited about seeing supply chain improvements. We are seeing companies place a real focus on their supply chains, and not just the transportation portion. Companies got a shock and had to look at what they are doing internally, not just what they are paying for freight. I don’t think rates can go much lower, so they are looking at other improvements, such as increased – Serge Gagnon use of technology and keeping inventories low. MT: Let’s hear from the folks who are actually reThey are looking at these things and reporting up to sponsible for generating some of the movement in the economy. Ray, your company services some of the traditional sectors the C-Level, as opposed to keeping it in the back as just an expense. in the economy. How do things look from your end? Sneyd: Capacity is tough right now, so you have a smaller fleet that is keeping busy. But if you had a normal-size fleet like you had years ago, you would be in trouble. We really need a lot of momentum in the back end of this year to carry through to next year and we just don’t have that.

Krizman: We service the steel market, producing building products and we are into agriculture as well with grain bins. We are seeing basically the same story. Budgets are coming out this time of

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MT: Chris, you spoke of rates not being able to fall any lower and certainly we have seen some very difficult times the last two years. As a result, have we witnessed significant and long-lasting structural

DECISIONS 2011

Decisions Roundtable

change to Canada’s trucking industry? Will the survivors think differently and strategize differently than in the past? Sneyd: Smart carriers have taken advantage of the crisis and we’ve learned and adjusted to the different rates and volumes. We’ve done some right-sizing to deal with the situation at hand and, more importantly, to understand if two or three years going forward we are hit with the same situation, we are going to be in a better position because of the changes we are making now to deal with any other downturns in the business. If you haven’t managed your business to the crisis, then I think you’ve made a mistake. As things get better, we will be a little more cautious in the way we make changes. I’m not suggesting you always look in the rearview mirror, but you have to understand where you’ve been and what you have gone through.

have about 15% less truck capacity now in TL and we are still short of drivers. That’s the next thing we have to find solutions for. And there is no issue at the border. Before the recession, we were talking about all the time we were spending at the border. We haven’t heard one driver complaint about that of late. MT: Things have also been difficult on the shipper side. Shippers have gone through severe cuts to their transportation budgets, and have had to reevaluate the price vs. quality consideration. Have we witnessed a long-term change to transportation strategies from the shipper point of view as well?

MT: Eric, the overcapacity situation has either caused or exacerbated a lot of the difficulties, particularly on the LTL side. Do you see some different strategies coming out of this from LTL carriers? Warren: Definitely. I think a lot of carriers learned that you can’t be everything to everybody. They diversified to a point where they were in areas of business that maybe they were not experts in, but there was some business to be had and they were looking for revenue. I think it has taught a lot of carriers to look inward and see what their core business really is. Someone needs to have an eye on keeping sales and operations on track headed toward the right path and not too far away from that path. MT: Serge, you have been in this business a long time. We’ve heard people before say, “We’ve learned,” and, “It won’t happen again.” Has the industry learned its lessons this time or are we not really seeing structural change?

I think a lot of carriers learned that you can’t be everything to everybody. They diversified to a point where they were in areas of business that maybe they were not experts in.

Krizman: Most definitely; change is inevitable. The relationship we have between shippers and carriers has to change and improve. I have been in the logistics business 30 years myself, and when I started, there was that relationship. I had mentors, whom I loved because of that. The honour that was there seems to be missing today. What’s changing? I think shippers are looking at carriers and probably rooting changes. I think there is an amazing amount of product that moves west to east and we are looking, wherever possible, to source product from a more local place, looking for shorter lanes. This will actually help trucking. We are going to look at our lead times and look at our inventory costs and make that judgement call. I think a lot of companies have made the move from intermodal to box car for the savings you get from that. MT: There has been a growing trend towards outsourcing of supply chain functions to improve expertise and gain efficiencies. Do you see this trend continuing?

Raynor: I think shippers are reluctant to bring on headcount. We have seen a lot of companies which don’t want to take on the expense, don’t want to take on the technology. They understand it’s not a – Eric Warren core competency for them and that’s why they want to outsource. If they can have a 3PL they can Gagnon: I’m not sure we have learned our lesson yet, because every day, you hear things happening in the mar- work in collaboration with and it has the resources and the people ket with bids and you really question if people have really learned. and the technology, it makes sense. But depending on what market you are in, things can be different. If you are in the retail business, you haven’t been hurt much. But if you are in any kind of manufacturing, be it pulp and paper or MT: If outsourcing is going to remain a growing trend, what impact automotive or home building, you have suffered a lot. We all will that have on the shipper-carrier relationship?

november/december 2010

DECISIONS 2011

Decisions Roundtable

Seymour: At the end of the day, a solid partnership will be based on trust and respect. As long as a carrier and a 3PL have a mutual trust and respect for each other, I don’t think it really matters if the relationship is there or if it exists directly with the customer. The situation, as it exists right now, is that there has been so much effort put toward reducing costs and playing games around driving costs out of the system through aggressive bids and tenders and gamesmanship to take advantage of the situation that it has somewhat fractured or challenged that trust and respect scenario. I have every reason to believe that it can work and will work, and to Chris’s point, I think it makes great sense for a company to outsource needs they realize are not core competencies. But it needs to be a relationship that is not commoditized, but is sincere and collaborative. The reality is there have been some short-term delays put upon our industry that are going to have to be dealt with, and it’s important for us as carriers to make our customers and 3PLs realize how we need to deal with these things aggressively or we are going to put the movement of product to market at risk. It would be a sad day when that happens and hopefully we can deal with that before it does. MT: Michelle, do you agree the shipper-carrier relationship has been somewhat comprised the last couple of years due to the focus on cost reduction? What can we do to improve that relationship in the years ahead? Arseneau: I would say the relationship definitely has been compromised. There have been shippers who have taken advantage of the situation in our industry. What can be done to improve the relationship? Definitely improved communication between shippers and carriers on a regular basis. Shippers aligned with the proper carriers can do more with them; they can see what can be done to grow the relationship. There are carriers who can do a little bit more and by working together and strategizing together on long-term goals and making sure that they are aligned, they can do more.

Sneyd: When you run a trucking company, there are a lot of components that you have to consider when you are setting pricing. To Serge’s point, you end up in a certain spot and you’ve got a good paying load that puts you in that spot and you might be a little more flexible in your pricing to get you out of that spot. That is going to happen. But are we our own worst enemy? Absolutely. Our industry, over the years, has demonstrated that sometimes we take careful aim to shoot ourselves in the foot. Have we learned as a result of this last bout of difficulty we have gone through? I would hope so. What is going to add a different dimension to this is that there is not going to be the capacity going forward. You can put all the trucks on the road that you want, but if there is nobody behind the wheel, it doesn’t do any good. It’s the biggest problem this industry has and I don’t know how we are going to overcome it. But we have to do something to get capacity back in check with what volumes are going to be. Customers going to 3PLs has Most definitely, been happening for years. We have all lost customchange is inevitable. ers to 3PLs and then you have to make the decision The relationship we whether to follow the freight. At the end of the day, have between shippers it doesn’t matter whom the shipper entrusts the and carriers has to freight to; if there is no driver to pull the freight, it’s change and improve… not going to happen. The honour that was there seems to be missing today. – Ray Krizman

MT: We’ve talked a lot about this emphasis on cost and how it has impacted relationships. Is it fair to say though that when carriers look in the mirror, they are seeing who is really causing the problem? We have a lot of carriers who in order to stay alive and make that payroll for one more week are dropping their rates to get business.

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Gagnon: It’s all based on strategy. For example, Western carriers come to Ontario or Quebec and then want to go to the US and back to the West. The Ontario or Quebec carriers going to the US want to come back to Ontario or Quebec. If the rates from the US to Western Canada are paying, let’s say, $3 per mile, they will compromise the rates from Ontario to the US, because they are getting paid good revenue from the US to Western Canada, but they are hurting the segment of the industry that is running from Ontario to the US.

MT: One of the criticisms that has been made of the industry is that it has not invested to a sufficient degree in the kind of technology that produces the analytics necessary to ensure things are run efficiently and priced appropriately. Is that a fair assessment?

Warren: The technology exists, but there is constant change we have to deal with and the ability to get all the information and use it to make a decision that is not based on old information is challenging. You have to be able to expand and contract very quickly – by month, by week, by day of the week. It’s like a balloon. Friday

DECISIONS 2011

Decisions Roundtable

may be a big day for pick-ups, Monday is not; there are certain months out of the year that are bigger than others. In our case, as an LTL carrier, we are looking for top freight, base freight, some dense freight, some bulkier freight, this freight inbound, that freight outbound – it’s a constant change for us. It’s never just an easy line where you can study the data and say this is where we need to go. Gagnon: We do have the technology, but one thing we face in the bidding process is shippers wanting to go with the cheapest carrier from north to south and then choosing the cheapest carrier from south to north. You can have all the technology, but you cannot beat that. Seymour: That’s not working together. That’s clear evidence of making decisions not based on efficiencies or logical opportunities to move freight seamlessly or effortlessly. It’s those sorts of discussions that need to be made face-to-face, not through some tender on a PDF file that simply crunches best price. That’s what has stressed the trust in our business. I’m not blaming shippers for what has gone on; it has been a mutual disrespect for the whole supply chain throughout the industry. We need to sit down and figure out the best way, not necessarily the lowest price. The price that it takes to get it done will shake out, and if people trust one another, the market will make sure no one is making too much money along the way. Warren: What I do see a lot of times with shippers trying to get the lowest possible price is ending up with 10 carriers showing up in the yard all at once and the shipper only has five doors and then there are detention and all sorts of other ancillary charges and the total rate is not quite what they thought they had achieved. I’m sure everyone at this table has situations where the driver shows up for a 1 p.m. appointment and can’t leave till 5 p.m. or 6 p.m.

Gagnon: Our surveys show that, for drivers, it’s not what we pay them that they are dissatisfied about; it’s everything that is happening to the job that they have to perform. Seymour: One of the things that drivers want that is a big issue for us is predictability in their life. The shipper has the ability to bring predictability to the movement of freight and that translates tenfold to the driver and is the sort of thing we need to work on to bring some stability into our labour force. Shippers can align themselves with a service provider they can count on because of this. MT: From what I’ve been hearing lately, shippers are not feeling as pinched economically as they were a year or two ago and are aware that capacity will become an issue and so are beginning to focus more once again on their relationships with carriers. Ray, is that what’s happening or is there still a lot of focus on cost reduction? Krizman: I think we are still caught in the shortterm mode, but there are advantages in looking ahead. It’s kind of a guessing game though with the economy and what it’s going to do. It’s a tough thing to do to look ahead. You are playing a gambling game. Contracts are getting shorter all the time.

Those decisions being made today are going to haunt people down the road. At the end of the day, you are going to have so much capacity and you are going to direct it to the customer who has a relationship with you that allows you to work with them.

MT: For a 3PL relationship to work well, obviously, you have to do things right by the shipper, but you also have to keep your carrier partners whole. From your point of view, do you see things changing with more of a focus on long-term relationships or is it like Ray is saying that the focus for shippers remains on the cost side of things?

Raynor: I think shippers are focused on improving their supply chains. There are a lot of smaller companies having trouble doing that because they don’t want to invest in technologies so they don’t have the visibility they need. A lot of customers themselves are driven by their own customers and being predictable is a challenge for them because – Norm Sneyd Sneyd: Those decisions being made today are purchasing may put a back order in and they may going to haunt people down the road. At the end of the day, you not have a clue about it. They may send you from Toronto to are going to have so much capacity and you are going to direct it Chicago, but a whole different department may have put an to the customer who has a relationship with you that allows you order in from Chicago to Toronto and didn’t communicate that. to work with them. What has been described is not working with What’s exciting is that we are starting to see purchasing and transa carrier: it’s a decision made on a short-term situation, that’s not portation getting together and starting to collaborate and finding those efficiencies. mt going to work going forward.

november/december 2010

DECISIONS 2011

Economic Outlook

The driver shortage is the industry’s best friend? By Lou Smyrlis

he driver shortage, which is expected to get much worse in the years ahead, could prove a vital aid in helping trucking companies improve their profitability and find a way to pay their drivers better, according to Rick Gaetz, head of Vitran. “As crass as it may sound, the driver shortage is your friend,” Gaetz told OTA members gathered for the Lessons of the Recession session at the association’s 84th annual convention, held in Toronto in November. “Somehow, in 2005, things got so good we became consumed with increasing the driver pool, which has one single effect: to drive down price.” Gaetz led a panel of industry experts which included: Jeff Bryan, president of Jeff Bryan Transport; Greg Rumble, president and COO of Contrans Group; Rolly Uloth, president of Rosedale Group; Rosalyn Wilson, author of the Annual State of Logistics Report; and John Tittel, head of Hot Freight International and past chair of the National Transportation Brokers Association. There were 143,000 drivers lost during the recession in the US as carriers downsized or went out of business. The new CSA legislation may remove another 10-15% of the current driver force, according to Wilson. As a result, by 2012, the US market could be in need of 400,000 drivers. In Canada, research conducted on behalf of the Canadian Trucking Human Resources Council during the previous economic expansion found that almost half the carriers surveyed had to idle trucks because of the shortage of personnel, while 42% noted the shortage affected their ability to move freight. Bryan concurred with Gaetz’s remarks, adding: “This driver shortage is going to present an excellent opportunity to grow our business organically with great customers and great rates.” And so did transportation specialist Walter Spracklin from Royal Bank of Canada, who spoke right after the Lessons of the Recession session. “Don’t fix the driver shortage problem. It will allow you to fix your rates,” Spracklin told trucking executives. What should also aid trucking companies is that a great deal of capacity has been removed from the marketplace. There have been 3,000 trucking company failures in the US since 2009 with 1,085 of them since the start of this year, according to Wilson. The American Trucking Associations estimates there has been a 12.5% loss of capacity as a result. In Canada, the bankruptcies have not been as pronounced. There were 513 trucking company bankruptcies in 2008, and 352 in 2009, according to data provided by Statistics Canada. (In comparison, bankruptcies were higher back at the turn of the decade when fuel prices skyrocketed and many carriers were caught without fuel surcharges in place.) “Looking ahead, as capacity tightens, it will enable carriers to gain 34

motortruck

some pricing control by mid-2011, which will herald very significant rate hikes,” Wilson said. “If you are a shipper, you want to guarantee capacity. Right now (service) reliability is one of the biggest issues we face.” But Gaetz reminded the audience how far trucking’s fortunes have fallen during a freight recession that started back in 2006 – and did not lift till this year – and how long it may take to get things back to where they used to be. “We have a long, long way to go before we get prices to where they have to be,” Gaetz said. Not that the audience needed much reminding. Wilson, who spoke first, said logistics costs as a share of US GDP dropped to 7.7% in 2009, which was the lowest over the past 30 years. This was caused by rapid declines in shipments combined with cutthroat rate pricing. “Make no mistake about it: our goal is to provide a product that is what shippers need or better, while providing for acceptable reinvestment and growth…Public companies are fed up with their returns. This recession has probably been the most difficult since the Great Depression. It has been a long four years. There are a lot of tired people. It can’t take four years to recover,” Gaetz said, adding that Vitran has already started to raise rates for its US service. Spracklin said his own company research shows that almost two out of three shippers are expecting rate increases in the 1-6% range. Only about a quarter of shippers surveyed felt likewise the previous year. Wilson, however, cautioned she does not see the economy perking up much till the midpoint of 2011 and even then she thought the recovery would be bumpy and slow. It may be 2012 till truck freight rates show significant recovery. That fit in with Rumble’s outlook. “I think it’s going to be slow progress. As the opportunities (to raise rates) present themselves, we have to take them,” he said, adding there are pockets already in the US economy where higher rates will stick. Rumble and several others also cautioned against entering into any long-term contracts, because the market is about to change and carriers should not be tying themselves down under the wrong circumstances. Another trucking executive warned that long-term shipper contracts are dangerous because they may assign too many liabilities to carriers with very little increase in rates. Another carrier pointed out that long-term shipper deals that commit carriers to high service and capacity levels often don’t include freight volume guarantees. Wilson disagreed with the opposition to long-term contracts,

DECISIONS 2011

Economic Outlook being in favour of a more collaborative relationship with shippers. “I think you have a good chance of getting where you want to be,” she told carriers. “If you are relying on tight capacity and the driver shortage to get rates up, you are running risks.” But Rumble said there needs to be a compromise between longterm contracts that favour shippers and short-term deals that provide carriers with the most flexibility. “I’m not against long-term contracts,” he clarified. “It’s the timing of it and if they are willing to put some guarantees in place in terms of freight volumes and price increases.” Uloth said it’s more an issue of growing with the right customers. “We try to search out the better shipper. I’m not interested in just sales volumes,” Uloth said. And Tittel, who acknowledged his company saw “some crazy rate requests” during the recession from its shipper clients, added that carriers have to be extra careful with whom they do business, whether it be a shipper or an intermediary. The panel also discussed the impact of current debt levels, utilization of assets, and whether carriers have stretched themselves too thin in trying to secure new business during the downturn. Rumble, whose company started out the downturn as an income trust, spoke about the importance of having available cash flow during the recession. He moved quickly to restructure his company’s debt load so that a sizeable amount of debt did not kick over into liabilities during the height of the recession. Instead, it will come due in a few years when the economy should be stronger. He said that had he waited to act, the company’s rates would probably have had to be 2-3% higher in the midst of a recession with cutthroat pricing. “In a recession, you better understand the covenants you have in place. They can move very, very quickly and you can’t stop it. No matter what, control your destiny. Manage your covenants. Start early,” Rumble advised. Bryan’s contribution to surviving the recession was being creative when it came to better utilizing existing company assets. His company ended up renting unused space at its new terminal to another carrier. “It’s not something we would have thought of before,” Bryan acknowledged. Bryan also moved dispatch operations from the US to Canada to reduce costs – and moved early to remove excess capacity from the fleet. “If you are not going to use it, you don’t need it. So get rid of it. We got a fairly good dollar for it and it helped with cash flow,” he said. Uloth, however, pointed to the benefit of staying the course during a recession, which is the path that Rosedale Group took, spending $8 million towards equipment renewal and expanding in Vancouver and Winnipeg with new facilities as well as beefing up its Montreal operation. “We did this because we knew the recession would not last forever and we wanted to be ready. We also invested heavily in people. We didn’t lay anybody off and we continued to train our people. We gave our drivers an adjustment of 3% this March,” Uloth said. Spracklin said the publically traded companies he tracks did

an “excellent” job of weathering the economic storm, despite the hardships. “Smart players turned away from bad business. A lot of these companies were quick in cutting costs and reducing capacity,” Spracklin said. And there is a real silver lining to this cloud. Wilson said that for those who have survived the recession and who can manage through the slow and turbulent road to recovery, the future is really bright. “For those who have emerged much weaker, you have to find a mt way to differentiate yourselves,” she added.

Outlook for 2011:

A story of patience and no straight line to prosperity By Lou Smyrlis

Can the global economy stay in drive? That’s the question that’s concerning most as we head into 2011 with an economy showing considerably less oomph than it did at the start of the year, and what Dawn Desjardins, assistant chief economist with Royal Bank of Canada, addressed at the recent Ontario Trucking Association annual convention. Although the economy has been in recovery for a full year now, Desjardins acknowledged in some industries (trucking would certainly be among them) it may not feel that way. “We have a lot of room to go to get to pre-recession levels and it’s not going to be a straight line to prosperity,” she warned. The need to start regrowing inventories, which had been significantly reduced during the recession, drove much of the growth of the final quarter of 2009 and first quarter of 2010, but inventory growth has since slowed considerably, Desjardins said, adding, “We don’t see it continuing at an aggressive pace.” The sluggish American economy has much to do with the muted economic outlook. Americans lost 25% of their wealth from 2007 and only about a third has been recovered to date. As a result, consumer spending in the US, although finally on an upward trajectory after two years of declines, is only expected to grow by 2% this year and next. Historically, consumer spending increases at double this pace. Home sales in the US are also considerably below peak levels since unemployment remains high and fiscal tax rebate programs have expired. The sector is expected to provide only modest support for growth in the US, Desjardins said, but at least it won’t act as a drag. The situation is not as dire this side of the border. Canadian consumer spending accelerated this year and will account for about half the economic growth in 2010. The recession did take way about 400,000 jobs, but they were quickly recovered, Desjardins said. She expects the unemployment rate to drop from the current 7.9% down to7% by 2012. The trade sector, thanks to our high dollar, however, is acting as a weight on future growth and the rising debt levels among Canadian families also bears watching. Canadian housing is in decline following the strong activity shown in 2009, when interest rates became particularly attractive, but Desjardins said, “We are not in the camp that Canada’s housing market is headed the way of the US.” And there are good reasons for hope for the US too, Desjardins said. “We are seeing the work week being extended. Overtime has peaked and there is a rise in temporary hiring. We are sowing the seeds of future growth,” she said. What will drive this growth? Business spending for one, if the corporate sector on both sides of the border can overcome its nervousness, a healthy banking system (at least in Canada), and a very accommodating policy in terms of interest rates, which Desjardins believes will remain low for another year. International trade volumes have also not shown a slowdown yet and the Global Purchasing Managers Index remains in growth mode. RBC’s forecast for GDP growth for 2011 is in the 3% range. “It’s a ‘glass half full’ scenario,” Desjardins said. “This is a story of patience and being accepting of the fact we are not going back to very strong growth any time soon.” mt

DECISIONS 2011

Freight & Rate Outlook

Looking ahead at freight rates By Dr. Alan Saipe Supply Chain Surveys Inc.

ow much will truck transportation rates increase in 2011? In this note, we will review the situation and make our prediction. As of this writing, we believe that rates will increase next year. However, several factors combine to make the crystal ball a little hazy, so the extent of the increase is still uncertain.

Figure 1 â&#x20AC;&#x201C; How Rates Have Behaved (Jan 2008 - May 2010)

How Prices Have Changed Over The Business Cycle The Canadian General Freight Index, published by Nulogx, gives us a good look at how general truck transportation rates have changed during the business cycle. Average freight rates were rising quite quickly in the first half of 2008 at nearly 15% a year. Even though the economy slowed for the next four quarters, average freight rates continued to grow for three quarters until April 2009. However, they grew much more slowly, at nearly 4% per year. From April 2009 through the first quarter of this year, average rates came down and stayed down. They fell 7% in the year, right back to early 2008 levels. Since April of this year, average rates have been growing, and appear to be growing reasonably quickly as the economic recovery continues. The old saw that you can drown in three inches of water does apply to truck rates. Nulogx data reveals that Canadian/US cross-border truckload and LTL rates have been more volatile than Canadian domestic rates. They were slower to respond to the falling economy, fell farther, and have been more sluggish to bounce back. 36

motortruck

Figure 2 â&#x20AC;&#x201C; What Determines Fuel Surcharge (Jan 2008 - May 2010)

DECISIONS 2011

Freight & Rate Outlook

How Fuel Surcharges Have Changed Over The Business Cycle Although rates drive freight costs, the other key factor is fuel surcharges. Throughout 2008 and into the first quarter of 2009, average fuel surcharges followed in lock step as the price of crude oil first peaked in June 2008 and then declined sharply to its bottom in February of 2009. But then something interesting happened. Although the cost of crude has returned to the $US75$US85 per barrel range, average fuel surcharges have not bounced back as much. Shippers have had the benefit as fuel surcharges have been slower to adjust upwards.

Going Forward What does all this mean for rates and surcharges next year? Carriers clearly want rates to increase – and the evidence is that the increase began in the second quarter of this year. But the economic recovery is still very sluggish, and this is bound to hold back the increase in transportation rates. As of this writing, the third quarter GDP results are not yet out – and there is still the possibility of at least one quarter of negative growth in 2010. Even if we don’t double dip, most observers agree that growth will continue to be slow well into 2011. There is also uncertainty about where the cost of crude will go, and therefore fuel surcharges. So far, the weak global recovery has kept both the demand for oil and its price relatively contained. Until the global economy is firing on all cylinders, we won’t really know where oil prices are going. If the recovery continues much as it has, we believe that general truck freight rates will grow at an average annual rate of from 3% to 5% in 2011. If the economy weakens a little, look to the low side. We expect average fuel surcharge as a percent of base freight costs to stay in the 13% to 16% range, as long as crude oil costs do not rise sharply. mt november/december 2010

InsidetheNumbers transportation buying trends survey

RATE TRENDS

TL freight shippers

rates increased 33%

rates decreased 16%

2010

rates stayed same 51%

rates decrease 6%

RATE INCREASES 2010 Size of Increase % of Respondents

SURCHARGES % RESPONDENTS PAYING Fuel

98%

1-2%

27%

2.1-4%

34%

Currency

4.1-6%

20%

Detention

6.1-8%

8.1-10%

Border Delay

15%

Greater than 10%

Border Security

16%

9% 30%

EXPECTED 2011

CAPACITY CONCERN rates stay same 46%

rates increase 48%

4.73 0 excess capacity

5 balanced capacity

10 very tight capacity

RATE TRENDS rates decreased 14%

LTL freight shippers

rates increased 39%

2010

rates stayed same 47%

rates decrease 4%

RATE INCREASES 2010 Size of Increase % of Respondents

SURCHARGES % RESPONDENTS PAYING Fuel

1-2%

29%

2.1-4%

40%

Currency

4.1-6%

19%

Detention

6.1-8%

8.1-10%

Border Delay

Greater than 10%

Border Security

98% 11% 23% 12% 18%

EXPECTED 2011

CAPACITY CONCERN rates increase 52%

rates stay same 43%

3.90 0 excess capacity

5 balanced capacity

10 very tight capacity

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