Slack capacity may be here today, but gone tomorrow: OTA

TORONTO — Some excess capacity and softening truck rates in a handful of Ontario sectors does not mean buying power has swung back away from trucking, says the head of the Ontario Trucking Association.

A higher Canadian dollar, combined with the continued emergence of China as manufacturer to the world, is having a significant impact on some of the traditional bulwarks of the Ontario economy which in turn is being visited upon the province’s trucking industry, says OTA President Davis Bradley. While tight trucking capacity firmed up rates over the last three years, some carriers have begun to see some dampening pricing in some sectors.

A rebound is around the bend for some
Ontario trucking sectors: Bradley

But, “while it may be hard to see the forest for the trees right now,” says Bradley “the fundamentals that under-pinned the improvement in carrier balance sheets up until the last six months or so, have not changed all that much and certainly do not warrant excessive price discounting or turning the clock back to where we were prior to the last few years.”

Bradley says all major components of operating costs — fuel, labour, and equipment –are going to continue to escalate. “We understand that many shippers are also faced with competitiveness challenges, but in the grand scheme of things freight costs are not the determinative factor in whether a business or a sector will survive,” he says. “Trucking margins are still nowhere near thick enough to absorb the kind of cost increases we are seeing.”

But most importantly, Bradley says, “the driver shortage is only going to deepen; the demographics of the industry ensure that. This is not only going to continue to push up wage rates, but it will inevitably suck up any excess capacity that may temporarily exist.”

Despite a depressed manufacturing sector that’s grappling with a high dollar and flooding Chinese imports, the economy is not falling into recession, Bradley says.

“Clearly, fuel prices and the value of the dollar remain wild cards and it takes time to adjust but the economy is showing perhaps more resiliency than people are aware of or prepared to admit,” he continues. “Businesses are restructuring to compete under the new global realities and there is a huge role for government to help industry to adjust or to at least get out of the way. I am really having difficulty understanding the Bank of Canada’s tight monetary stance when inflation is low and the dollar is above 90 cents US.”

Although the OTA boss can’t speculate on how soon the market rebounds, he cautioned against an over-reaction to current circumstances by both shippers and carriers. “The market can be a fickle, confounding creature at times. Every few years it takes a breather but one thing is sure, it always bounces back and then people will be scrambling to get their freight moved.”