Exchange rate having significant impact on exports, trucking

TORONTO — Parity of the Canadian loonie relative to the U.S. dollar is further depressing manufacturing activity in eastern Canada and, in turn, reducing export levels and the demand for cross-border trucking.

That was the overwhelming message delivered at RBC’s recent Annual Transportation Conference by large truckload carriers, railways, logistics firms, and shippers.

Last week, the Canadian dollar reached parity with the U.S. greenback for the first time in 31 years. According to a follow-up report by RBC, about one third of the variability of export levels is explainable by the exchange rate.

Some niche sector carriers are better insulated
from the higher Canadian dollar.

At first glance, one third may not sound like a significant figure, notes RBC, but with a very large number of factors affecting exports levels — taxation differentials, tariff levels, relative consumer spending power, commodity prices — one third of the total variance represents a relatively large portion, if not the most significant factor, affecting exports.

“…in light of the strong appreciation of the Canadian dollar and the reduced export activity following it, we would expect significantly reduced
trucking activity in Canada, which would greatly affect the operational performance of businesses in the trucking and logistics sectors,” states the report, authored by Dmitry Kushnir, CFA.

The firm notes that the impact of reduced exports is somewhat offset by increased Canadian imports of cheaper foreign goods — mainly from Asia — but “given that Canada is a net exporter, the overall impact on the trucking industry is negative.”

Still, the news isn’t all bad — at least for some of the larger niche sector and diversified linehaul carriers.

Despite these challenging industry conditions, five trucking income trusts profiled by RBC were generally still able to post meaningful results
through revenue growth and operational efficiency.

“While the overall impact of the falling U.S. dollar is a negative for the transportation industry in Canada from at least the cross-border traffic volumes standpoint, some transportation trusts have been able to deliver better relative results than others due to competitive advantages, niche markets, and specialized offerings,” explains RBC.

ATS Andlauer, for example, has been able to generate above average results due to its niche focus on pharmaceutical sectors, as well as specialized temperature controlled transportation services. Trimac’s focus on bulk transportation, mainly in the west, has partially protected it from the weaknesses stemming from the manufacturing sector, says RBC.

TransForce, Canada’s largest holder of general trucking assets, is significantly exposed to eastern Canada and cross-border traffic volumes, but has been able to protect margins through cost efficiency initiatives such as scaling down capacity and re-allocating drivers to more profitable segments.

In the customs brokerage-logistics business, however, the double impact of lower exports and the negative currency translation resulted in negative organic revenue growth.