When I was handed the editorial director’s job of Transportation Media more than 5 years ago, I made two promises to myself, our staff and our readers: First, that the publications in our group (Motortruck Fleet Executive, Truck News, Truck West and Canadian Transportation & Logistics, ) would make every endeavour to reach out to readers in as many innovative ways as possible. And two, that we would evolve into a multi-media company capable of telling a story in the best way for that story to be told. In other words, although the print products would remain our core, we would make every effort to engage our audience in ways that went far beyond that.

That has led us on quite a ride in recent years as we added more and more features to our Web sites (ctl.ca and trucknews.com), published special supplements on key issues, conducted and shared research, spoke at industry events, wrote blogs, produced a weekly Web TV show, put on an annual golf tournament, and organized educational seminars. And from the attention these new ventures have received, it’s clear you believe us to be on the right track.

The next stop on this ride is Twitter. If you are not familiar with this new form of communication, it’s basically technology that allows people to send short (140-characters maximum) updates to anyone who wants to “follow” them.

I have to admit, this new technology left me quite skeptical at first.

To begin with, it suffered from what all these new electronic ventures do: a really stupid name for anyone over the age of 40 (maybe even 30). I mean, how serious does “Twitter” sound to you?

I also wondered why people would want to read short bursts that are the equivalent of a couple of sentences. And to some extent I still think that part is true. If the 140-character update is an update on what someone is having for breakfast, frankly I don’t give a damn and never will. And I doubt any of you would either.

But what if that update was about some breaking news story and provided a link to find out mor
e? What if that 140-character update let you know before anyone else what some important industry person we’ve just interviewed had to say on a key topic? What if it was a heads up that we will be interviewing a key person and that we could pose some of your questions if you send them to us.

It’s a great way to get in the loop and stay in the loop.

As with all new communication tools, I view Twitter as an experiment, but I’m betting you will find it useful. I’ve just started “tweeting” myself (as have Executive editor James Menzies and Managing Editor Adam Ledlow). So far I’ve posted information about a range of topics from what a senior economist had to say about the economic recovery and what Volvo’s president had to say about sustainable transportation to the latest trends on transportation rates and surcharges.

You can find me on twitter.com/LouSmyrlis. I would love to hear from you.

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You know things are bad when our National Professional Truck Driving Championship gets cancelled due to a lack of sponsorship. The popular event was to be held in Abbotsford and Surrey, BC, in September and the organizers were looking forward to a banner event. But, as event chairman Shaun Garvey had to acknowledge, finding sponsors in this economic climate was too tough a task, and there was no other choice but to cancel.

The cancellation, which was announced shortly after we heard that the continent’s largest trucking company was going to ask the US government for a bailout (and since changed its mind) is just the latest in what has been a barrage of bad news since last fall. Is there no light at the end of this tunnel?

Actually, there might be. There are positive signals coming in now from a variety of areas.

Over the past two months Transportation Media in partnership with Dan Goodwill & Associates has hosted two educational seminars for both carriers and shippers. The well-attended seminars included a deep dive into the economic outlook and what I heard on both those occasions, the latter one in particular, was encouraging.

The experts are seeing a change in economic conditions after the sharp downfall of the past 9 months, according to Carlos Gomes, an economist with Scotia Bank. That downfall, by the way, has been the sharpest in the post war era.

Gomes gave several examples that indicate the North American economy has hit rock bottom and is ready to gradually climb its way back up. Automotive carriers may have felt the impact of the recession more than any others. By late 2008 cars were sitting on lots for more than 90 days, when 60 days is the norm. That caused car manufacturers to slash production from 13-14 million annually down to 5-6 million. And that of course had a distinct impact on the number of automotive shipments made available and naturally all the shipments of raw materials and parts that go into making a car. But Gomes said the auto sector has seen the worst of it and is beginning to rebound.

The same can be said of the housing market, traditionally a strong source of business for flatdeck carriers and carriers involved in the transport of housing-related goods. By 2006 housing in the key US market reached dangerous levels in terms of affordability and soon collapsed. That too is changing. The combination of dropping housing prices and low interest rates are making for very affordable housing right now. But it will take some time to clear off the inventory – houses are still sitting on the market for 10 to 11 months instead of the usual 5-6 months.

In another sign the worst of the recession may be behind us, Canadian exporters expressed optimism during Export Development Canada’s semi-annual Trade Confidence Index. Exporter confidence rebounded from the previous index more strongly than at any other time since the post-9/11 period.

And according to the experts at a recent FTR Associates webinar, the current recession is U-shaped - not V-shaped - and we’re now bouncing along the bottom. Key economic indicators have stabilized and FTR Associates expects to see positive GDP growth beginning next quarter and into 2010.

Good news indeed. But it’s not all good news. FTR Associates also pointed out that there won’t be a rapid rise from the ashes. And the modest GDP growth they expect to see in the near future doesn’t translate into a quick improvement in freight conditions. The economy has to be growing around 3% before we can get back to a 1% growth in freight, according to FTR Associates.

Truck manufacturers will have to be just as patient during the recovery, if not more so. North American Class 8 truck sales in 2009 will be 43% lower than in 2008, according to projections from ACT Research, and will only recover about half of that decline in 2010. The Class 8 fleet will end 2010 at the oldest average age on record. The company also projected medium-duty sales will be 26% lower in 2009 than in 08 and will grow 11% in 2010. Demand for trailers will also remain weak, according to the forecaster, thanks to the recession as well as structural issues that have increased average trailer life.

But at least the likelihood of a W-shaped recession – where there is a modest recovery followed by another recession - is receding. Gomes said that as long as the fundamentals continue to improve he doesn’t’ see the likelihood of heading back into recession.

Not exactly the strong light at the end of the tunnel we have been waiting for, but at least it’s not another oncoming train.

WORTH REPEATING

“If you don’t toot your own horn, there will be no music,”
Andrew Miller,
president, ACM Consulting Inc.

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The news recently that the continent’s largest trucking company, YRC Worldwide, was going to seek $1 billion in government bailout money, certainly places the depth of the economic downturn and its impact on transportation in a new perspective. Trucking companies by last fall had lost up to 35% of their value, and many say it’s now up to the 45% drop off in valuations we experienced back in the recession of 1973 to 75, perhaps worse.

Think about it folks: your companies are worth only half of what they used to be.

Such realities bring to mind what our own research group has been quietly and routinely documenting over the past decade. That we really can’t begin to explain what’s driving fleets today, or their current and future expectations of their employees, without focusing on change. We simply can’t get around the fact that the change we are going through in business right now is so fundamental, so all-encompassing, that it is changing almost everything.

Last month I was fortunate enough to be invited to address the annual Canadian Fleet Maintenance Seminar on the subject of change. I told maintenance managers what I believe deep down in my heart: that the only way to survive through changing times is not to think about surviving but to focus on thriving; in other words to embrace change.

I told the maintenance managers in attendance that how well they came to understand the issues and pressures driving their companies and how quickly and well they responded to the challenges brought about by change would play a large role in the future success of their fleets. I encouraged them to show leadership during these difficult times looking for ways to reduce costs, improve efficiencies, enhance safety and compliance.

And that’s a message that I believe is good for all trucking company employees, drivers in particular. I can’t tell you how many times I’ve had executives tell me that some of the best ideas to boost efficiencies or reduce costs come straight from the people working on the front lines day in and day out.

This recession is forcing your companies into difficult decisions, such as cutting programs that have long been cherished by employees, taking a harder stance on pension contributions, cutting staff, expecting everyone to do more with less. It’s easy to be demoralized in such an environment. But throwing in the towel only makes things worse. Instead, step up, take the initiative, look for ways to benefit your company, its clients and yourself. Leadership, particularly during difficult times, should not be restricted to the executive of the company.

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The diesel engine is one of the most efficient energy converters we have available to us today, delivering an overall efficiency of about 35%. Compare that to energy sources such as hydrogen or biogas which deliver only about 17-19% of their energy to the vehicle’s driven wheels and you quickly see the advantages of trucking’s main energy source.

Where diesel fuel runs into considerable problems, however, is with its sizeable contribution to greenhouse gas. Yet, as was eloquently pointed out at a Volvo seminar on climate change policy I recently attended in Boston, that does not have to spell the end of the diesel engine. In fact, one of the major advantages of the diesel engine is that it does not have to use conventional diesel fuel or other fossil-based fuels. Through the introduction of some sophisticated technology and minor modifications the diesel engine we’ve come to rely on can be adapted to run on a wide range of renewable fuels that would give our industry a shiny new image because they emit no excess carbon dioxide in powering a vehicle.

Volvo believes that CO2 neutral transport is not a utopian dream but rather a realistic and achievable goal. In recent years Volvo has sought to examine the viability of 7 different alternative fuel sources – biodiesel, synthetic diesel, dimethylether(DME), methanol/ethanol, biogas, biogas-biodiesel and hydrogen-biogas. It has compared and contrasted the benefits and drawbacks of these seven alternative fuels in a variety of critical areas such as climate impact, energy efficiency, land use efficiency, fuel potential, vehicle adaptation, fuel cost and fuel infrastructure.

It has made for a great deal of ground breaking work from an industry supplier that has clearly chosen to neither deny the threat of global warming and our industry’s contribution to it (as some carriers and media personalities shamefully are doing) nor to ignore it or to simply pay lip service to the need for more sustainable energy alternatives. It has instead opted to roll up its sleeves and work to meet the challenge head on.

Sometimes very large companies with a specific and worthy goal in mind can change an industry, creating a market for new technologies. But the challenge of moving towards more sustainable fuel sources is not a challenge that any one company – even one the size of Volvo with its global connections – can successfully tackle on its own.

To make the switch to alternative fuels also requires a leap of faith from government, the transport industry, and the companies that serve transportation’s energy needs. Yet as Leif Johansson, the CEO of Volvo Group, acknowledged, the headway being made towards the production and distribution of renewable fuels on a major scale has so far proved disappointing. In his own words, there seems to be “lots of very good talk, very little investment.”

I think that’s a tragic reality that runs counter to our entrepreneurial business culture. To borrow from Johansson’s insight once again, when we consider the environment, and what we have to do to maintain it, we often get it wrong. We think it’s going to cost too much when, in fact, environmental initiatives such as seeking alternative fuel sources are about reducing long term costs, improving the sustainability of our practices and reaping the rewards.

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Every year at this time I get to speak to the people in charge of some of the best transportation and logistics service suppliers in Canada. It’s part of our Award Winning Suppliers issue in Canadian Transportation & Logistics and it’s always a learning experience as I get to discuss pressing issues with these leaders.

Much of the discussion this year focused on the economic situation – how it’s affecting suppliers’ ability to offer services, how it will change the industry and the shipper-carrier industry. But there was one issue we haven’t heard much of late that really caught my attention: transborder trade and changes at the border.

Although the border is not making headlines the way it used to a few years ago when long lineups were the norm, the reality is there are some funny things going on. It would be fair to say things are not as they seem. For example, as Robert Murray of MSM Transportation pointed out, the transborder business has been on the decline since about the fourth quarter of 2006. Yet the statistics don’t bear that out. The rising value of energy exports from Western Canada for much of 2007 and 2008 served to mask the consistently declining volumes of exports from the manufacturing sector in Central Canada. While to many politicians an export is an export, the reality for motor carriers, and those based in Central Canada in particular, is that the demise of manufacturing exports is a serious issue that requires addressing.

The other mirage at the border is that more than 7 years after 9/11 and the myriad of security programs that were spawned, it is actually getting easier to cross it. Certainly the extended border delays that frazzled the nerves of transborder truckers for years have eased. But, as the Canadian Trucking Alliance (CTA) pointed out when it recently appeared before the House of Commons Standing Committee on International Trade, this should not be taken as any indication that all is now running smoothly. All it shows is a temporary reprieve caused by the drop in truck traffic crossing the border. The problems that have thickened the border in recent years – inconsistency between US and Canadian regulations, border guard staffing issues and inadequate infrastructure – have not been solved. In fact, CTA argues that despite the drastic drop-off in volumes, border processing times have barely changed at all.

When the North American economy eventually recovers, the problems that plagued motor carriers and their exporter customers will quickly rise to the surface and will do so at a time when we can least afford any obstacles to what may prove to be a fragile recovery for our beleaguered manufacturing sector.

And things could get worse if legislation currently being considered by our own government is adopted. The Canadian Border Services Agency is proposing to turn back trucks if the importer data has not yet been received before the truck arrived at the border. The truck would no longer be moved in-bond to an inland facility for clearance.

What should be done? A huge part of the problem at the border stems from the fact there are too many government agencies involved in setting legislation. As David Bradley, the head of the CTA, points out it can be a challenge just to find out who’s who and to get the different people working together. CTA’s recommendation to create a cabinet committee on the border and/or a specific ministerial or senior bureaucratic position with authority for all aspects of the border is a sound one and deserves consideration.

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After reading my most recent blog on the state of our economy, an industry supplier friend joked that would be a fitting way to describe my rather pessimistic outlook. Others wrote in saying I was overly pessimistic.

Could they be right? Is there good reason to believe we are finally able to see light at the end of the tunnel when it comes to the economic downturn? There’s much at stake for both transportation providers and those purchasing their services if we can. Transportation is a leading indicator of future economic activity. Freight starts to move, and the fortunes of transportation providers start to improve, about six months before the economy does as businesses anticipating improved sales start to rebuild their inventories. And an uptick in freight volumes signals the beginning of the end of excess capacity and depressed transportation rates.

Is this where we are right now? If the current recession in the US, which of course has an incredible impact on Canada since almost 80% of our exports are absorbed by the US market , lasts into April — as it almost surely will — it will go on record as the longest in the postwar era. The 1981-82 and 1973-75 recessions each lasted 16 months.

I certainly didn’t think we were about to see the light at the end of the tunnel when I wrote a blog on the subject just a few weeks ago. I started the month with a pessimistic blog on the North American economy basically stating that any light at the end of the tunnel was basically a mirage. For example, I argued that hopes of a recovery based on the reports of US truck tonnage showing a spike in January were nothing more than wishful thinking. US truck tonnage did spike 3% in January but the month looked so good only because December’s numbers were so awful. Put the spike in perspective, I pointed out, and you see why there’s no reason to be optimistic: compared to the previous January, the month was down 10.8%; and the month’s tonnage was the second lowest since October 2002.

Well, a month later, I’m not about to say I’ve completely changed my mind, but let’s just say I’m willing to be persuaded. What happened? The combination of finding optimism in quarters where I did not expect to find it and an upturn in the economic indices I normally keep tabs on.

Every year at this time I have the privilege of speaking to the leaders of some of the nation’s best managed transportation companies for our annual Award Winning Suppliers special in Canadian Transportation & Logistics. I fully expected pessimistic responses to my probing about current economic conditions and forecasts and I did get some. But I was surprised to find some degree of optimism that things could start to turn around as quickly as the second quarter.

I then started seeing some key indices showing notable improvement. The Baltic Dry Index is an assessment of the price of moving raw materials on cargo ships around the world. It’s an important indicator because raw materials start moving when infrastructure is being built and manufacturers expect to be producing products to meet new demand.

When the world economy is fading, shipping gets cheaper. When growth returns, shipping costs more. I made much of the fact that the Index had sunk to a 22-year low in December in my previous blog. But since then it has shown improvement, which would indicate we may have already hit rock bottom and things will start to pick up from here.

Also the US Economic Cycle Research Institute's Weekly Leading Index -- a composite of daily and weekly data on economic drivers of the business cycle, including corporate profits and housing activity – has enjoyed some stabilization since the start of the year.

And then there’s the big one: consumer spending, which constitutes about 70% of the US economy. Consumer spending rose 0.6% in January, after a 1% decrease in December and a 0.8% drop in November.

So does all this mean we can finally get optimistic about a turnaround? Perhaps. A couple more months of improving indices would be better but, as I mentioned earlier, I’m ready to be convinced.

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A few months ago our managing editor Adam Ledlow wrote a blog about the aftermath from the gruesome killing of 22-year old Tim McLean on a Greyhound bus in Manitoba. Although some time has passed since then, I’m sure the horrid details of that killing -- McLean was stabbed dozens of times by his murderer Vincent Li and then beheaded him in full view of the bus load of horrified people – have ensured that it will long remain in our memory.

As you will recall, long haul trucker Christopher Alguire became an overnight hero when after noticing trouble on the bus, he managed to corral many of the passengers to a safe location and then helped barricade the door to prevent the suspect from escaping. Heroic deeds indeed, I absolutely agree.

However, Alguire couldn’t let it end there. Soon after he was criticizing the RCMP for not shooting and killing the suspect after the fact. In his own words: "I told the cops a few different times to shoot him, because he has no reason in this world to live anymore.” Now that made him even more of a hero in the eyes of many. And when Adam took trucker Alguire to task over his heated words, pointing out police are trained to deal with such situations and a “shoot first and ask questions later” approach is not part of their training and that someone trained as a professional driver, no matter how heroic his initial actions, has no place trying to act as “judge, jury and executioner”, he received a number of vitriolic responses from readers.

“The punishment should fit the crime- a life for a life. Then maybe, just maybe some might think twice before they commit some of the atrocities that we read about everyday,” said one reader. “Shame on you for causing even a sliver of doubt towards the integrity of a hero,” chastised another. Yet another stated: “What this country needs is more Mr. Alguires! Truckers who are eager to lend their tire iron at the first glimpse of carnage.”

Things got worse when I joined the fray with a blog arguing that we should choose our “heroes” more carefully. I reasoned that I if one takes the time to really think about it, rather than speak from emotion, although Alguire’s willingness to help was certainly heroic, his criticism of the RCMP’s action was shameful. And so were the remarks of those who supported his views. I received several phone calls from readers who had a few let’s say “choice” words in response. My remarks showed I was “too left”, too naïve”, “too weak-kneed”, “too quick to defend murderers”, and a few more descriptions best not repeated here. I also received the usual thinly veiled racist comments about the incident (“We should send him back to where he came from and let them finish him off.”)

More than six months have passed since that gruesome event and the killer Vincent Li has since appeared in court and found not criminally responsible because of a severe mental illness. Psychiatrists testified at his trial that he was suffering from schizophrenia and believed the voice of God ordered him to kill Tim McLean because the young man was a source of evil. In other words, Vincent Li is a very sick man. His first words in court were “Please kill me.” A criminal review board will now determine how he will be institutionalized. As long as he remains dangerous due to his illness, he will likely be locked away for the rest of his life. Of course, many thought this was a sham and thought our legal system once again favored the criminals over the victims.

What happened to Tim McLean was both unfortunate and tragic. Neither he nor his family deserved such a horrible fate. But six months removed from the emotion behind the incident, I still think my comments at the time make the most sense.

While I understand that most in that situation, myself included, caught in the emotion of the event, would have wanted to pull the trigger, becoming a society of vigilante justice will not make us safer. We employ professionally trained police officers to handle such situations without emotion that clouds judgement and we should allow them to do their job.

This is not being weak, as many claim it to be. This is not protecting the criminals rather than the victims. This is being reasonable. This is thinking with your head instead of your hormones and tire iron. Would it have been better, as many had suggested back then, to shoot Vincent Li as an act of revenge? (his victim was already dead, killing him would have only stopped the dismemberment of Tim McLean). Would it have been better to shoot first and find out later we had shot someone suffering from a mental illness?

I know many of you will disagree with me, but I’m sticking with my initial stance on this.

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Hopes that there is finally light at the end of the tunnel based on recent reports of US truck tonnage showing a spike in January (it was our top Headline News story on Friday) are, unfortunately, wishful thinking.

US truck tonnage did spike 3% in January but that’s only because December’s numbers were so dismal. Put the spike in perspective and you see why there’s no reason to be optimistic: compared to the previous January, the month was down 10.8%; and the month’s tonnage was the second lowest since October 2002.

As the American Trucking Association’s chief economist Bob Costello pointed out, just because the tonnage figures show the occasional spike is no indication the US economy is on the mend. The reality is that tonnage is still showing significant drops on a year-to-year basis.

We are far, far from a recovery, particularly one led by the resurgence of the US economy.

That’s certainly what FTR Associates, well known for their transportation sector outlooks, believes. It sees economic activity declining sharply in the US with the first quarter economic activity forecast to decline another 4.8% after falling 3.8% in the final quarter of 2008. Loadings are forecast to drop another 10% over the next several months and be off by more than 7% in 2009. That represents more than a doubling of the dropoff forecasted just a couple of months ago.

FTR expects the US economy to continue contracting right through to the third quarter of 2009. To make matters worse, there is also concern about a protracted “down cycle” in which the US economy remains stuck in neutral into 2010.

Canadian exporters are also not looking at the US market through rose colored glasses. Sentiment among Canadian exporters has hit a record low. They now see the United States as among the riskiest markets in which to sell goods, according to a semi-annual confidence survey conducted by Export Development Canada.

At the same time, concerns about the domestic economy hit a new high, with 57% of respondents expecting domestic conditions to worsen, a 15% leap in just six months.

Despite all the bankruptcies of the past year, FTR points out that the amount of excess capacity in the market remains troubling. Its latest forecast has capacity utilization staying below 70% through the third quarter of 2009.

There is already a great deal of pressure on rates but motor carriers with 30% of their equipment lying idle will likely be pressured into more rate cuts and perhaps even more questionable business decisions.

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Changes to Ontario’s A/Z licensing requirements, intended to close embarrassing loopholes that were allowing inexperienced drivers to gain their licence after being tested with a pick-up and horse trailer, are having the unintended effect of hurting our industry’s most experienced drivers.

Legislation intended to ensure drivers do not tamper with the speed limiters in their trucks has left Ontario dealers in a quandary about their responsibilities and the Ontario Trucking Association and the Ontario Ministry of Transportation don’t appear to be reading the legislation in the same way.

And we’ve recently heard from environment auditor Scott Vaughn that the federal government has no way to track the environmental benefits of two programs it claimed would contribute to significant reductions in greenhouse gas emissions.

What the heck is going on? Why is our industry being encumbered with what I can only assume is sloppy legislative work that is leading to damaging unintended effects?

You can read all about the changes to Ontario’s A/Z licensing requirements in the Truck News March issue cover story by James Menzies but in a nutshell the Ministry of Transportation now requires drivers to take their road test using a truck with a manual transmission; a fifth wheel coupling; a trailer at least 45-feet long; and air brakes on the tractor and trailer.

That makes a great deal of sense when it comes to ensuring new drivers take a test that properly reflects the working environment many will be facing. But it is frustrating the heck out of senior drivers, who in Ontario must complete a road test every year after the age of 65 to maintain their commercial licence. These are folks with years of experience under their belts. If they’ve moved to an automated transmission for their rig, it was because they believed that to be a smart spec’ing decision for their application; if they’re hauling a trailer shorter than 45-feet in length it’s because the nature of their job demands it. Why force them to have to rent a truck and trailer for the day, every year, in order to take the test?

In the case of Ontario’s speed limiter legislation (also a front page story in this issue), dealers have been left uncertain about whether they’re responsible for limiting the speed of any truck (new or used) to the legislated 105 kmh when the initial delivery is done and what the ramifications would be in the event of an accident.

Meanwhile in Ottawa, the Conservative governments was blasted for pushing through a transit tax credit back in 2006 they claimed would cut emissions by 220,000 tonnes per year but which will in fact amount to about 35,000 tonnes of annual emissions cuts at best (see my blog on trucknews.com).

In all these cases, we are told the matter is “under consideration.” I hope that the politicians and bureaucrats involved ensure that process is a speedy one but also then pause to consider why legislation drafted with the best of intentions so often is having unintended effects. The people being hurt by these measures deserve a quick addressing of their concerns, not frustrating delays and red tape, and an assurance the people we elect to govern us pay a little closer attention to the consequences of the laws they’re enacting.

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As many of you know a few days ago I came back from the joyous celebrating of my son’s 10th birthday to the horrible news that my 16-year-old niece, Megan Cherry, was on the missing persons list, listed as an endangered runaway down in Texas.

Her family, friends, local police and the FBI were searching frantically for her but with absolutely no results. As you can appreciate the whole family was worried sick, all sorts of terrible things going through their mind. This was so out of character for Megan, who was a talented teenager showing a world of promise.

Soon as I heard the sad news, I wrote a blog asking for the transportation industry’s help in looking for Megan.

Well, earlier tonight I received the news we have all been praying for. Megan was found and she is safe.

I want to thank all the transportation professionals who e-mailed me with their support and the many others who offered to help by posting my blog on their Facebook page. Our whole family has been so touched by your kindness in this most difficult of times.

For Megan and her family, the next few weeks will I’m sure involve the important processes of acceptance, forgiveness, reconnecting and emotional growth.

But although this particular chapter in Megan’s story has that happy ending we had all been praying for, I don’t want this story to end here. What happened to Megan and her family has brought the plight of parents whose children have gone missing into much sharper focus for me. It has also reasserted my belief that the transportation industry can have a very positive role to play in helping find missing children.

Over the next few weeks I will be looking into how this Web site and our publications can help raise awareness about missing children and use the “eyes and ears” of our transportation professionals to create more happy endings.

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This is a blog I never thought I would have to write.

I’ve just come back from celebrating my son’s 10th birthday to horrible news; the kind that every parent fears but can easily fool himself into thinking happens only to strangers, to people you only hear about on the news.

But the sad reality is that tragedy has hit my family and I am asking the transportation industry for its help.

Just a little over a week ago my niece, Megan Cherry, was a teenager showing a world of promise for the future. She was a star soccer player with a scholarship waiting for her at Iowa State University. Now she’s on the missing persons list, listed as an endangered runaway.

Her family, friends, local police and the FBI have been searching frantically for her but with absolutely no results.

I know the transportation professionals who read our publications and this blog travel extensively and see a lot of things while on the road. I hope I can lean on your eyes and ears in the search for Megan Cherry.

Megan is a bright teenager but still naïve in many aspects of the world and may have fallen in with the wrong crowd. Her behavior had been troubling of late and the family is very fearful for her safety.

It was on Friday February 6th that something went terribly wrong. At some point after being dropped off at her school, Allen High School in Allen, Texas, that morning, Megan came back home, packed some of her belongings, and took a family car that was parked in the front of her home. She has not been heard from since.

Yet she had just $30 on her that day. So where could she have gone? Why has she remained out of touch despite having a mobile phone? Is she in danger? Those are the kinds of questions torturing her parents and her family right now. Anyone with a child can imagine what they’re going through. It is now 10 days since her disappearance.

Megan’s mobile phone has been switched off since February 6th, a strange occurrence in itself considering how attached she was to her phone. Police questioning of her friends has yielded little.

Tall, good looking and athletic she would stand out in a crowd. She has black hair with a reddish-golden streak in her bangs. She stands 5’ 10” (178 cm) and weighs 165 lbs with an athletic build. Her ears are pierced and she has a scar on her right ankle.

She may be traveling in a silver 2001 Ford Taurus with Texas license plates JNM 715. It has a dent along the passenger door.

Pictures and more information about Megan Cherry can be found at the link included below.

Anyone who sees Megan Cherry or has any information about her whereabouts, please contact:

National Center for Missing & Exploited Children
1-800-843-5678 (1-800-THE-LOST) or the Allen, Texas Police Department at 1-214-509-4322

I thank you all for your understanding and help. The slightest tip could lead to a happy ending of having Megan reunited with her family.

Continue reading "Transportation professionals: I need your help" »

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There’s no way to hide the troubles facing trucking companies these days. The six executives who candidly share their thoughts about how road transport will be reshaped during the economic downturn in this month’s cover story in Motortruck Fleet Executive certainly harbor no illusions about the tough road ahead.

US GDP contracted 3.8% in the fourth quarter of 08, which was the worst since the first quarter of 1982. In 2008 as a whole, the US GDP grew 1.3%, however if you remove the strong build-up of business inventory from the equation, GDP actually shrunk 5.1%. The Canadian economy is not experiencing the deep issues wreaking havoc on businesses south of the border but we all know the Canadian economy can’t long escape US reality.

Truck tonnage in the US plunged 11.1% in December, which is the largest month-to-month decline since April, 1994 when unionized LTL truckers were on strike. In a recent Webinar, Noel Perry, managing director and senior consultant with FTR Consulting Group, said the US trucking industry has actually been experiencing a freight recession for nearly three years. Our own data has shown that freight volumes and freight rates in Canada have been on the decline (from an admittedly sharp increase starting in 2003 and peaking by 2005). Forty three percent of Canadian motor carriers expect their freight volumes to drop below their already less than spectacular volumes in 2008.

FTR Associates maintains a Trucking Conditions Index which measures many variables that impact the health of the trucking industry. It has fallen to “unprecedented negative numbers,” according to Perry. He compares today’s freight conditions in the US to the last big recession in 1982. And downward pressure on rates is certain to continue. As Perry explained, a huge reduction in fuel surcharges during the fourth quarter gave shippers something to declare victory over but traffic managers are under intense pressure to cut costs and he anticipates the “worst price pressure that fleets have felt in our lifetime.” While our own Canadian data doesn’t paint such a gloomy picture, it does also indicate downward pressure on truck rates. While 47% expect no improvement in their rates and 24% expect rate drops, according to our research.

As a result, Perry anticipates the number of US fleet bankruptcies to “continue and accelerate” over the remainder of 2009 and even into 2010.

And all that is ominous for the share pricing of the continent’s prominent trucking providers. In November, during a session on economic realities I chaired for CITT in Winnipeg, David Newman a senior vice president and equity research analyst with National Bank Financial revealed a sobering comparison. By mid October the value of trucking companies had declined by 32.5%, which is pretty well spot on with what happened back during the 1982 recession.

But as bad as this may be, it can get worse. Many economists believe this will be the worst recession the North American has faced since the Great Depression. That could place the economic pain to be felt on par with what happened back in 1973-75, perhaps worse. And during 1973-75, trucking shares fell an average of 45.4%.
Over the past few months many commenting on the troubles in the motor carrier industry, myself included, have spoken of the cleansing to come; that the current difficulties would rid the industry of those operators who never did adopt successful business strategies and relied on low prices rather than superior service to attract clients. But in his comments on the short term future of the trucking industry Ray Haight, executive director of MacKinnon Transport and the executive director of the Truckload Carriers Association, believes differently. He believes that during this recession we will lose some of the worst operators but also some of the best.

I have a lot of respect for Ray, and I’m beginning to think he’s right.

WORTH REPEATING

“There is a connection between the punch line and the bottom line.”
Adrian Gostick and Scott Christopher,
The Levity Effect

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There’s a funny thing about numbers: they often prove a double edged sword.

In the hands of politicians they can be used to confuse issues and add seeming credibility to the most preposterous of ideas. In the hands of an auditor, they can be used to bring a government to account.

That’s exactly what happened in Ottawa this week when the federal environment commissioner released an audit of various government programs put in place to reduce air emissions. Considering transportation’s contribution to greenhouse gas emissions (25% of the total contributions) our industry is certain to come under increased scrutiny in the future so environment auditor Scott Vaughn’s scathing audit of existing programs is something in which transportation professionals and stakeholders should take a keen interest.

In a nutshell, Vaughn’s audit found that the Conservative government has no way to track the environmental benefits of two programs it claimed would contribute to significant reductions in greenhouse gas emissions. Specifically, the Conservatives pushed through a transit tax credit back in 2006 they claimed would cut emissions by 220,000 tonnes per year. Yet Vaughn concludes that in fact this tax credit will in fact lead “lead to negligible reductions” based on the government’s own estimates. From their initial claim of a reduction of 220,000 tonnes each year from 2008 to 2012, the Conservatives had to drastically downgrade their own estimates of average annual reduction to 35,000 tonnes.

Just as bad, the means necessary to properly measure the actual impact of the tax credit have yet to be created.

The environment commissioner’s audit also found “no scientific basis” for the government’s claim that a $1.5 billion climate-change fund for the provinces will result in an 80-megatonne cut in emissions.

How can the government possibly be that far off in their estimates? Can you imagine how safe your job would be if your estimates of future growth or costs or whatever were that far off?

It’s not Vaughn’s job to comment on what he thinks caused such as shameful difference between government estimates and reality. But I’ll take a stab at it. Perhaps accuracy was not a major consideration when the Conservatives began touting the public transit tax credit? Perhaps it was politically expedient for a party that back in 2006 was looking to attract more of the urban vote and recognized spending on transit as a time-proven way to entice urban voters.

But the end result is more government waste and a loss of credibility for the government’s environment plans at a critical time.

Remember, this is the same party that during the debate a couple of years ago over whether Canada should start living up to its Kyoto commitments produced an analysis that claimed that by 2009, over 275,000 Canadians would lose their jobs, electricity bills would jump by 50% after 2010, prices at the pump would shoot up by 60%, and natural gas prices to heat homes would double, if they had to meet their Kyoto Accord targets for reducing greenhouse gas emissions. This is a government used to playing loose with numbers when it wants to.

Lest you think this another stab at the Conservatives (a party for which I readily admit to having worked for on a volunteer basis in the past but which I have come to loathe in recent years) I’m not sure the Liberals would have done much better. The reality is that despite three national emission reduction “plans” – “wishful thinking” would be a more appropriate word considering all the effort that went into them – dating all the way back to Jean Chretien’s Liberal government and Brian Mulroney’s Conservative government, all we’ve done over the past 20 years is watch our GHG emissions climb relentlessly. Overall, we are on track to be about 30% above the Kyoto Protocol target for 2010.

Yes, our booming economy (remember those days?) was part of the reason why for the increase in GHG emssions, but Ottawa’s failure to lead was also a significant contributor to the mess we are in. And leadership and accountability go hand in hand.

As the environment commissioner noted in his report: “Canadians expect the government to tackle environmental degradation. The government needs to know what works, what doesn’t and why.”

His comments are only common sense. An issue as important as the environment should not be politicized. Both the public and the transportation industry stakeholders who will be feeling the pain deserve to know the government knows what it’s doing rather than cooking up numbers for political gain.

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It’s an inescapable reality in our litigious society that a shipper’s reputation can rest in the hands of the carriers he decides to deal with. And so it should. There is an onus on the shipper to ensure he is working with reputable carriers that will not damage freight , client relationships or prove to be a safety hazard.

In Ontario shippers have been relying on the Ontario Ministry of Transportation’s Commercial Vehicle Operator’s Registration (CVOR) program to help them assess the safety practices of the motor carriers they’re considering doing business with. The system uses a formula based on roadside inspection results, collisions, convictions of either the operator or any of the operator’s drivers and audits at the operator’s place of business. On the surface it appears to be a sensible and easily accessible way to gauge if a certain motor carrier can be trusted with a shipper’s goods and reputation.

Or so I thought until recently. How else to explain the serious faults a recent audit has found in the ministry’s CVOR system?

The main goal of the CVOR program is for the ministry to be able to identify and deal with those operators, who for some reason or other, are taking unacceptable risks. In other words, to improve safety on our roads by being able to effectively identify the bad apples in the bunch.

But the audit found that the ministry is getting considerably less than a complete picture of the people operating commercial vehicles in the province.

Operators must register for one CVOR certificate that covers all the vehicles in their business. They also currently register each of their commercial vehicles separately through the province’s Private Issuing Network (PIN) offices, the same offices that register all other Ontario drivers and vehicles. Yet the audit found that – inexplicably – there is no requirement for PIN staff to ensure that owners of commercial vehicles have valid CVOR certificates when they register their vehicles. The audit found 1,600 cases where owners of commercial vehicles had registered their commercial vehicles with the ministry but did not have a CVOR certificate. In fact, there is no ministry process for determining if the owner is actually operating a business and should have a CVOR certificate.

Of course, if a commercial vehicle is involved in an event, such as a collision, conviction or roadside inspection and the operator is found to not have a CVOR record, ministry staff will instruct the operator to register for one. The audit found 20,600 such unregistered operators as of December 2007 yet noted that little follow-up is being done to make sure the operator actually bothers to follow through with the demand to register.

In fact of the 2,900 unregistered operators who had been charged between 2003 and 2007, 775 remained unregistered by the time of the audit. One of them had been charged 6 times yet remarkably had still not registered.

Now a shipper can simply determine not to do business with any motor carrier for which no CVOR record existed. That would be both easy and wise.

But not only is the province very slow to react in chasing down motor carriers breaking the rules, until recently it had no process in place for renewing the CVOR certificates of those carriers that do have them. So it was very difficult for the ministry to know precisely how many operators are in business in the province and how big their businesses are. Considering the CVOR rating takes into account the size of the operator’s fleet, the usefulness of the CVOR information in being able to pin point the higher-risk operators was compromised by the inability to regularly renew the data.

Why this should have been so is another head scratcher. Why did Quebec, Manitoba, Nova Scotia and New Brunswick have such a renewal process in place but not Ontario?

I am concerned that I’m being too hard on Ontario’s Ministry of Transportation because the province has managed to slash by 10% the collision rate for commercial vehicles between 1995 and 2004 despite the fact commercial vehicle traffic over this 10-year period actually increased by 32%. That accomplishment can’t be ignored.

But at the same time I can’t understand how a ministry whose stated objective is to reduce the fatality rate of commercial collisions by 20% by 2010 can have allowed such glaring loopholes that jeopardize safety to exist.

The auditors made several recommendations on this and the many other issues they studied regarding the province’s monitoring and enforcement systems and procedures. The ministry has already started to address the shortcomings of the CVOR system; it should become a priority. The many motor carriers in Ontario who abide by the law, and invest the money necessary in staying legal, deserve no less.

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Bobby was his name and bashing my face was his aim.

I was the awkward immigrant kid, literally less than a year off the boat. Still mangling English with my Greek accent and showing up to school in a buzz cut and Honest Ed’s specials, which was all my family could afford for clothing at the time. I was an easy mark for ridicule for my jive-talkin’, long-haired class mates in their “cool” 1970s-era duds.

He was an athlete and a favourite with the girls. If there was an election, he would easily have been voted one of the most popular kids in the school, and he knew it. And boy did he have the moves. Punch, counterpunch, hook and upper cut – he could perform them in quick succession, weaving in and out like a pro, thanks apparently to some boxing training he’d had and was always keen on showing off during recess.

We were both 11. And clearly headed in different directions during that early stage of our lives.

There was no need on that cold December day in 1974 for Bobby, one of the most popular kids in the school, to pick on me, firmly entrenched as I was at the bottom of the social ladder in our school. I was already licking my wounds from the beating I received from one of his friends just a few days earlier.

But Bobby was a bully, I was easy pickings, and I guess he couldn’t resist the temptation.

In the late afternoon I was informed by his buddies that “3:30 I was dead” – the usual message one received at our school when there was to be a fight after school. I had come to know the drill well. When school was out I would try all four of the possible exits. I would find each of them blocked by some of his buddies. Not able to escape I would be escorted to the back of the school, forced into a circle of jeering kids and the fight would start. It wouldn’t end till I was on the ground, kids all around celebrating my latest humiliation.

And so it went this time around. I was pushed into the circle to find Bobby already dancing around showing off his boxing moves, a big smile on his face. He already knew how this would go.

Except this time, after a year of beatings as the new immigrant kid, something in me finally broke. I stood there amidst all those eager to experience my certain pounding and cried. But these weren’t just tears of fear; they were also tears of pent-up frustration.

Bobby started dancing around me then showing off his fancy boxing moves, still laughing. I didn’t know how to fight so I just started swinging my arms around wildly like windmills, so many tears stinging my eyes I could hardly see Bobby.

Bobby was as incredulous at my ridiculous attempt at defence as the rest of the kids.

He was confident. He was fast.

THWACK. I can still remember the sound as my left fist arching downwards from a weird and wild angle caught him smack on the nose, knocking him to the ground. I remember his eyes wild with pain and disbelief. Blood streaming from his nose he couldn’t get up, the realization of what had just happened quickly hitting him harder than my fist had – he had just been beaten by the class whipping boy in front of all his friends. His status as one of the “cool” kids had just evaporated.

Why am I telling this personal story, so long in my past? Because it’s the best, and obviously most personal way, I can find to describe what’s happened to Stephen Harper of late.

You see Stephen Harper, like Bobby, is a bully. No matter what you think of his political ideology, he’s regularly acted as such. And Stephane Dion has certainly been the whipping boy in Ottawa, leading the Liberals through a disastrous election and now forced to relinquish his leadership of the party.

There was no real reason for Harper to pick a fight with either the Liberals or the NDP by pushing to pull public funding for government parties. In fact, considering the economic situation, there was every reason for Harper to reach out to the opposition parties to forge a bipartisan approach to dealing with the economic crisis, as US president elect Barack Obama has done.

As the Globe & Mail pointed out in a recent editorial both the Liberals and the NDP “busy licking their election wounds, were not out to pick a fight in the new Parliament. Mr. Harper gave them one anyway, turning his government’s economic update into a partisan document aimed less at strengthening Canada’s economic position than at undermining their ability to compete in the next election.”

As the Globe & Mail editorial pointed out: “Mr. Harper is ultimately responsible for this unhappy state of affairs. It is the byproduct of his machinations, and the product of a failure of leadership.”

In my own words, Harper is a bully, who like Bobby back in that schoolyard in 1974, committed the ultimate mistake all bullies make: He picked one fight too many. And so, like Bobby, he should face the consequence of his overreaching and step down to save his government.

As for Stephane Dion leading a new coalition government, I’m afraid he’s no more ready to do that than I was to suddenly become one of the “cool” kids after knocking Bobby to the ground.

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The CBC, American Express and Pacific Newspaper Group are doing it. It’s no surprise that Morgan Stanley, Goldman Sachs and Barclays Capital are doing it too. But so are Viacom, ABC News, Hearst, Enterprise Rent-A-Car and Adidas.

What are all these famous companies, and many others not quite so famous, doing? They’re cancelling their annual company Christmas parties. The Grinch may not have stolen Christmas this year, but he definitely is taking away the Christmas party. (Left unsaid is that other popular company events will also likely get the axe over the course of the coming year.) Cancelled parties or severely scaled-back seasonal events are becoming the norm as companies take stock of the year ahead and decide to cut out any “unnecessary” events as a cost-saving measure.

It’s the responsible thing to do, is it not? Should you not do the same? When you consider all the social events that go on at transportation companies – Christmas parties, staff barbecues, driver recognition nights, sales recognition outings, etc – they do add up to a fair chunk of change over the course of the year.

If you have already cancelled your Christmas party or are planning to do so, you’re certainly in good company. In its survey of 100 companies, outplacement consultant Challenger, Gray & Christmas Inc. found that 23% of companies elected not to host a holiday party this year, compared with only 10% in 2007. New York executive search firm Battalia Winston Amrop found in its survey of 108 firms that 19% will forgo a party this year, the highest percentage in the poll’s 20-year history. And in a separate study of more than 1,200 executives by Towers Perrin, 58% of all organizations polled acknowledge they are somewhat or very likely to scale back this year’s holiday party and other employee events to save money.

The true savings though are dubious. Companies holding the event outside their building don't necessarily save any money when they cancel an event on such short notice. When you cancel within 60 days of the event, you're pretty much on the hook for the venue’s rental.

But that’s not what’s most important here. What is important is the often unappreciated impact of Christmas parties and other corporate social events not only on how employees feel about their company but on how they feel in general.

Let me relate a story I learned from reading Malcolm Gladwell’s newest book, Outliers. Gladwell writes about the residents of Roseto, Pennsylvania. The town was founded more than a century ago by wave after wave of immigrants from the Appenine foothills territory of Italy. No one took much notice of this growing American town built on a rocky hillside in Pennsylvania until the1950s. That’s when a physician and lecturer from the University of Oklahoma named Stewart Wolf accidently discovered while sharing a beer with a local doctor that finding anyone from Roseto under age 65 dying of heart disease was strikingly rare. This was the 1950s remember, years before drugs to lower cholesterol hit the market and any real public awareness about the causes of heart disease.

Wolf decided to investigate. What made the people from Roseto so different? Wolf first thought the Rosetans must have hung on to some dietary practices from their Italian roots that were much healthier than the typical American diet. But he quickly realized that wasn’t true. When their eating habits were analyzed, it was revealed the average Rosetan was certainly not eating as healthy as his relatives back in Italy. The Rosetans were cooking with lard instead of the much healthier olive oil they would have used back in Italy. They had abandoned their native thin-crust pizza of salt, oil, and perhaps some tomatoes, anchovies or onions for bread dough plus sausage, pepperoni, salami, ham and sometimes eggs. Sweets such as biscotti which used to be reserved for Christmas and Easter were being eaten year round. In fact 41% of the typical Rosetan’s calories were coming from fat. Nor were Rosetans avid joggers or into yoga and many smoked and were struggling with obesity.

Were Rosetans the beneficiaries of some really healthy genes? Wolf tracked down relatives of Rosetans who were living in other parts of the US to see if they shared the same remarkable good health. They didn’t.

Perhaps there was something particularly beneficial about living in the foothills of eastern Pennsylvania. That didn’t check out either. The two closest towns, just a few miles away, and also populated with hardworking European immigrants, had death rates from heart disease that were three times that of Roseto.

After pursuing dead end after dead end, Wolf finally realized that the secret of Roseto was Roseto itself. He walked about town and noticed how the Rosetans “visited one another, stopping to chat in Italian on the street, say, or cooking for one another in their backyards…He went to mass and saw the unifying and calming effect of the church. He counted 22 separate civic organizations in a town of just under 2,000 people.”

What the Rosetans had managed to do was create a cohesive, powerful and protective social structure capable of insulating them from the pressures of the modern world. They had, in other words, stumbled on the importance of creating the feeling of “community” as a way to battle through life’s struggles. The effectiveness of this community feeling was evident in Rosetans’ health.

When we really think about it, is that not what Christmas parties and other corporate events really are about? I have to admit I’ve missed more than my share of Christmas parties over the years. But I still understand that the kind of corporate “community” bonds formed at Christmas parties and other such company events not only serve as indication the company appreciates the contributions made by its employees but also create the cohesive glue that helps employees better deal with adversity. I guess it’s just harder to get all stressed out when you feel you’ve got other people pulling with you and for you.

What signal are we sending when we bail out of such events at the first sign of financial trouble?

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Patrick Bohan, manager, business development, Halifax Port Authority, doesn’t mince words when it comes to explaining consolidation in the transportation sector. Good times or bad, Bohan believes the only certainty about the transportation sector is that it will continue to consolidate.

Bohan was one of several experts sharing their deep insights on various threats to supply chain in a session I hosted for CITT earlier this month at its annual conference held in Winnipeg. He believes that no matter what fancy justifications are used – improving shareholder value, capturing synergies, improving economies of scale, geographic diversification or providing more well-rounded service solutions – industry consolidation is really about companies going after a bigger pile of money.

“It’s all about companies getting bigger and nothing that I’ve seen convinces me that anything will change. When times are tough there is motivation to take out the weaker players. When times are good there is even stronger motivation to take out competitors,” Bohan said. “Success is judged the same across all industries. Bigger is better. Bigger is more successful.”

You can see Patrick’s comments, as well as the comments of the other panelists, in this month’s issue of Canadian Transportation & Logistics. However, as I wrote in this blog a few weeks ago, mergers and acquisitions in transportation and logistics sector are slowing down – even if the motive for them is still strong.

A report released by PricewaterhouseCoopers this week reports that total deal value and activity in the global transportation & logistics industry is expected to fall short of 2007 levels. Levels of deal activity and total deal value announced during the first three quarters of 2008 are not likely to surpass last year’s totals, according to Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis – Third Quarter 2008, the report released by PricewaterhouseCoopers LLP.

Deal activity slowed during the third quarter, with only 37 deals (disclosed value of at least $50 million) announced, bringing the total deals through the third quarter of 2008 to 125, which is not on pace to match the 193 deals announced in 2007.

There were a significant number of large deals (disclosed value of at least $1 billion) announced through the third quarter of 2008, with 14 large deals contributing a total deal value of $66 billion, Pricewaterhouse .Coopers reports. However, with only one of the 14 large deals occurring in the third quarter, total deal value declined, reaching only $11 billion in the third quarter.

“Given the current economic and credit environment, deal activity in the fourth quarter will likely not exceed the levels seen in the third quarter and may even decline. Accordingly, deal value in 2008 is not expected to match the levels of the previous two years. In 2007, there were 16 large deals and a total deal value of $81 billion, and in 2006 there were 20 large deals and a total deal value of $161 billion,” the report states.

The report also confirmed a slowdown in deal activity located outside of the U.S. In previous quarters, due to a weakening U.S. economy, the pace of T&L deal activity that did not include U.S. entities was ahead of overall deal activity.

However, when evaluating the third quarter in isolation (with 37 total deals, of which 25 did not include U.S. entities), it is apparent that the decline of the global banking sector and tightening global credit markets have caused a slowdown in deal activity beyond those transactions that involve U.S. parties, the report states.

“Given current economic observations and trends affecting the T&L industry, it is unlikely that the number and total value of deals will match last year’s levels, as M&A activity is likely to slow down in the fourth quarter,” said Kenneth H. Evans Jr., U.S. transportation and logistics sector leader at PricewaterhouseCoopers. “It is now apparent that the faltering credit markets have caused a slowdown in both domestic and international deal activity.”

Consistent with previous quarters, financial investors scaled back on deals involving T&L targets during the first three quarters of 2008, accounting for involvement in only 34 percent of deals, compared with 40 percent of deals in 2007. The tightening economy and decreased availability of liquidity contributed to the continuing trend of well-capitalized strategic investors prevailing in M&A activity in this sector.

In terms of regional distribution, entities in Asia and Oceania (Australia, New Zealand Melanesia, Micronesia and Polynesia) continue to lead all regions in terms of deal targets, accounting for 32%of the 125 deals announced during the first three quarters of 2008. The UK and Eurozone accounted for a fewer number of deals, but claimed 34 percent of the total deal value. Meanwhile, the North America region was only involved in 22 deals (18 percent of total deal targets) in comparison to 55 deals last year, reflecting an overall slowdown in cross-border acquisitions of U.S. entities during the ongoing financial crisis. For every region, barring North America, deal activity announced during the first three quarters of 2008 is on pace to exceed the number of deals announced during 2006.

The BRIC (Brazil, Russia, India, and China) economies continue to attract investors, accounting for 29 deals thus far in 2008, exceeding the number of deals announced in 2006 (25) and on pace to exceed last year’s deals (36) involving targets in these regions. China remains the most active region, in terms of BRIC targets, accounting for 12 deals in the first three quarters, while Brazil and Russia continue to gain foreign investments, acting as target entities for 7 deals and 6 deals respectively.

“Overall, the transportation & logistics industry continues to attract M&A investment amidst increasing turbulence in the global financial markets,” said Klaus-Dieter Ruske, global transportation and logistics sector leader, PricewaterhouseCoopers. “However, cross-border acquisitions for U.S. targets will continue to be weak, given the decreased liquidity of the credit markets and a recent strengthening of the U.S. dollar. We believe this trend will reverse, but it may take a longer period of time than originally expected.”

For more information and to access the full report, visit: www.pwc.com/transport.

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Transportation stakeholders south of the border have long been clamoring for much greater investments in infrastructure. Should the Democrats prevail in bringing a fitting end to 8 years of what many consider the worst presidency in US history with resounding victories in both the Senate and Congress, those investments may very well happen.

Several prominent Democrats, including presidential candidate Barack Obama, have gone on record as supporting a second bailout package which could include investments in infrastructure as an economic stimulant.

Canadian transportation stakeholders who are just as fed up with our own government’s gross negligence of infrastructure often point to the investments made south of the border. Yet the Americans consider their own investments to be way short of the mark.

Investments in infrastructure were at the core of the growth in the US economy from 1950 to 1970. But according to Dr. Peter Ruane, president and CEO of the American Road & Transportation Builders Association, it’s appalling just how much the infrastructure in the US has been neglected in recent decades. I heard Dr. Ruane speak at the recent American Trucking Associations annual conference in New Orleans. He said one quarter of the bridges in the US are either obsolete or structurally deficient while more than 17% of the paving is considered to be of poor to mediocre quality.

Nearly $500 billion would need to be invested just to address the backlog of needed repairs, Dr. Ruane said.

But is spending big on infrastructure realistic considering the financial mess the US is currently mired in with a trillion-dollar deficit? Dr. Ruane counters that the current economic crisis should be seen “as an incentive to do something, not just sit there and do nothing,” emphasizing the stimulative effect infrastructure spending can have on the economy.

He also stressed that the US is falling behind its international competitors when it comes to infrastructure investments. For example, he said, while China will add 53,000 miles of road by 2020 and India 25,000, the US will only add 1,130. And while the emerging markets spend about 6% of their GDP on infrastructure, the US spends just 2%.

Bob Costello, chief economist and vice president of the American Trucking Associations, adds that continued infrastructure deficiencies may lead manufacturers to resort to the costly practice of holding larger amounts of inventory once again because they can’t count on timely deliveries.

Much has been made north of the border of turning to the private sector to fund new infrastructure projects. But Dr. Ruane argues that privatization is not the magic bullet for infrastructure projects but rather only part of the solution.

He characterizes privatization of infrastructure as a “weapon of mass distraction” for politicians who are unwilling to put in the work necessary to find the funds – through raising taxes, charging user fees, etc. – and just decide to hand entire projects over to the private sector.

“We need all the solutions at the table,” Dr. Ruane believes.

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In my last blog I wrote about the growth strategies of large motor carriers being put on hold for some time because the current economic situation is making it harder to secure financing.

The difficulty to secure financing definitely presents a threat to large carriers trying to keep up with the new transportation giants such as FedEx, DHL and UPS entering their market space. The credit crunch, however, could prove fatal to the future of many small motor carriers.

The Canadian trucking industry story remains primarily one written by small carriers. Of the 10,140 for-hire motor carriers in Canada, 6,100 are small carriers earning less than $1 million in annual revenues and, according to our calculations, running fewer than 10 trucks. That means about 60% of the nation’s motor carriers remain small enterprises, most of them family owned. And although they generate less than 6% of total industry revenues, their importance is noted in their willingness to fill the difficult niches their larger competitors prefer to ignore.

But the small motor carrier base in Canada has been under siege for a decade. There used to be more than 8,000 of them so their numbers had dwindled by a full 25% before the current economic crisis. The fuel price spike of the late 90s did in many of those who were caught without a fuel surcharge in place. High insurance, staff, equipment and security costs continued to hammer them this decade as did the return of high fuel pricing.

And now comes the downward spiraling North American economy, the move by several large motor carriers into regional lanes traditionally served by smaller carriers and the credit crunch.

In the first half of 2008, total Canadian trucking bankruptcies already surpassed the total for all of 2007. It’s safe to assume the pace of bankruptcies among small motor carriers will quicken in the months to come. Had the economy not turned south and the credit crunch not been part of our reality many of these may have been considered for acquisition by larger carriers. That may not have been ideal from the point of view of small carriers and the shippers that prefer to use them, but at least it would have saved jobs and capacity.

But with the economy and the credit crunch being the way they are right now, the only answer left to many beleaguered small carriers may be to just close the doors.

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Just a couple of years ago we interviewed leading motor carrier CEOs across Canada about how they saw the industry changing over the next 25 years. To a man, they all agreed on the same thing: They saw the industry becoming much more consolidated than it is now.

There are 10,140 for-hire carriers in Canada. Of those, 6,100 are small carriers running 10 trucks or fewer and earning less than $1 million annually. Large carriers earning more than $25 million in annual revenues number just 97 in Canada and control 26% of the industry’s total revenues.

The leading CEOs we interviewed were actively involved in trying to change this balance. Their plans included both a continued focus on organic growth and acquisitions to ensure they had the size to not just survive but thrive. Their focus on growth was based on two developing market trends. On the one hand they saw Canadian shippers becoming more export minded, moving towards longer and more complicated supply chains, and looking for carriers that could provide them with sophisticated services and one-stop shopping. On the other hand, they saw large players such as UPS, FedEx and DHL moving into traditional LTL markets backed by sophisticated service offerings and awesome technology backbones. It was a typical case of go big or go home.

The time frame for getting to critical size, however, looks like it will be extended for some while, thanks to the current credit crunch. As Walter Spracklin and Jennifer Maeba of RBC Capital Markets pointed out in their recent Compass newsletter, “we anticipate negative organic growth to continue and acquisition activity to remain relatively quiet given the difficulty to secure financing in the credit markets.”

Already many analysts predict it won’t be till 2010 till the North American economy rebounds from its current downward spiral and some are predicting it could two years before the financial markets regain their legs. Question is, how many inroads will UPS, FedEx and DHL have made into traditional trucking customers by that point?

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Considering the current economic climate perhaps it should not have been a surprise, but I must admit to being shocked about Daimler’s announcement today that it’s killing the Sterling brand. As of March, the company will be shutting down its Sterling Truck factory in St. Thomas, Ont. a move which will affect a total of 2,300 workers. Daimler Trucks North America will also reduce its salaried staff by about 1,200 positions, with more than half directly related to the Sterling brand.

Wasn’t it just this summer that Sterling Trucks announced it’s re-entering the sleeper market, with the introduction of a mid-sized integrated sleeper cab, dubbed the NightShift?

Was this a last-minute decision brought on by recent events or something that has been in the works for some time? For North American truckers devoted to the Sterling brand it’s hard to decipher what exactly provoked the decision and Daimler’s official line on the matter is not much help. In fact I’m left with more questions than answers.
Daimler blamed the decision on "continuing depressed demand across the industry and structural changes in the company's core markets." According to Andreas Renschler, the Daimler AG board member responsible for Daimler Trucks, US truck market conditions “have changed dramatically” and the move was necessary “to get Daimler Trucks North America back in fighting shape.” The anticipated pre-buy of heavy-duty trucks expected for 2008 and 2009 in the US is also not likely to happen, at least nowhere to the degree truck OEs were hoping.

We recently wrote about why the pre-buy is going to be a bust in Canada as well. Class 8 truck sales this year (up to August) are tracking about 1,100 units behind last year’s less than stellar figures and are following a decelerating trend. Another way to gauge potential truck sales for next year is to examine how many trucks are due for replacement. Canadian trucks carry heavier weights and travel longer distances so we prefer to employ a 7-year replacement cycle for our projections rather than the 9-year replacement cycle used by analysts in the US. (A truck may go through more than one owner during those 7 years.) Based on the 7-year replacement cycle there are 18,361 trucks up for renewal in 2009, 20,289 in 2010 and 22,490 in 2011. How many of the replacements scheduled for 2010 and 2011 would be pulled into 2009 as part of another pre-buy? During the previous two pre-buys about a third of motor carriers and up to a fifth of owner/operators opted for a pre-buy strategy. However, we felt the low base number of trucks due for replacement in 2009, combined with lingering concerns over the economy would prevent 2009 sales from getting anywhere close to the record set in 2006.

Daimler’s Renschler told the media “we can’t wait…We have to act now.”

So that leads me to think it was the recent downturn and slumping projections for the near future that spelled the end for Sterling.

But in a company release, Daimler also pointed out that Sterling, launched in 1998 after the purchase of the Ford line of trucks, had only managed to achieve one-fourth of the Freightliner nameplate's market penetration in the US despite ongoing improvement initiatives and product launches. Sales of Sterling vehicles in the US fell from 12,955 in the first nine months of 2007 to 9,053 in the first nine months of 2008, according to WardsAuto.com.
Sterling models were also suffering from substantial overlap with offerings in the Freightliner Trucks product line.

That leads me to believe the decision was based on some long-term issues with the Sterling brand. But then why go through with the new product launch this summer? And why allow the overlap of offerings with sister company Freightliner to begin with? Surely over the course of the past decade there was ample time to address such issues?

I also wonder how Daimler felt about Sterling’s performance in the Canadian market place. Sterling had sold 1,446 Class 8 trucks to August of this year, compared to 1,827 the previous year, according to the Canadian Motor Vehicle Association. It enjoyed an 8.8% market share to that point, which is more than a 2 percentage point decline from the 10.4% slice of the market it commanded at the same time a year ago but also an improvement from the 7.5% market share it posted by the end of 2007. Both of the other Daimler brands – Freightliner and Western Star – are also down in market share as of August compared to the same time last year. Freightliner has dipped to 18.6% market share compared to 19.4% the previous year while Western Star’s slice of the market has dropped to 5.1% from 7.7%.

So all the Daimler brands are facing market share challenges while both Western Star and rival Mack have a smaller slice of the Canadian market pie that Sterling did. And an almost 9% share of the Canadian market is nothing to sneeze at. Is the Sterling brand in Canada simply a victim of more pressing troubles in the US?

I do believe that Sterling with its emphasis on vocational markets had won a loyal following in Canada. The next question today’s decision brings to the fore is if that following was won at the expense of the kind of profit margins Daimler found acceptable, particularly during a time of rising parts and materials costs.

Sterling sold 2,496 Class 8 trucks into the Canadian market last year and 2,915 in 2006. Some of the Sterling brand products will now be added to Daimler's Freightliner and Western Star truck lines. Will those moves be sufficient to keep Sterling owners in the Daimler family or will some other OEs reap the benefits of Sterling’s demise?

Just a few more questions that remain unanswered about the decision to axe the Sterling brand.

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As I write this, the North American, Asian, and European stock markets have plunged yet again amid a massive selloff of stocks and escalating fears about not just a North American but a global recession. The Europeans are debating whether they should even bother to open their stockmarkets this week. And I’m just back from the American Trucking Associations annual conference in New Orleans and can honestly say I have never seen the Americans so down about their industry, their economy or their country – even after 9/11 they weren’t this despondent.

A few days previous I was listening to Stephen Forbes on satellite radio saying “this is the closest to the abyss we’ve come since the Great Depression.” And the worst may be yet to come. According to Mark Vitner, managing director and senior economist with Wachovia Corp and a panelist at ATA’s popular Eyes on the Economy session, all the credit problems in the economy have yet to surface and credit for business will not open up till sometime in 2009. Not only are we already in recession, according to Vitner, but our economic troubles will be deep and long, much like the recessions of 1973-75 and 1981. It took the economy 16 months to show any signs of recovery from those recessions and the toll on unemployment was considerable.

With such dark clouds on the horizon is there anything to feel good about? Actually, there is.

With economies world wide slowing down, consumption of oil is falling like a stone and, as a result, oil prices are dropping. While I was in Orleans the price for crude had dropped below $90; a few days later it was down to $80. Vinter said that if it fell below $70, he didn’t know how far it would fall.

The industry’s calls for massive improvements to the continent’s infrastructure may also finally fall on receptive ears as governments on both sides of the border look for infrastructure projects to stimulate the economy.
And finally, capacity, already tight after a year of bankruptcies in the US, is going to get tighter as the economic malaise spreads to Canada and the tight credit makes it difficult to impossible for new companies to enter the industry. The number of trucks in the TL sector in the US shrank by 2.7% in 2007 and by 1.3% in the first six months of 2008. And these trucks are not just being parked; they are being sold overseas, mainly to Nigeria and Russia. (The latter purchased almost 6,000 trucks from the US in the first half of this year.) So when the North American economy does show the first signs of health, the upward pressure on rates will be substantial.

For the companies and owner/operators resilient enough to weather the next year or so, the recovery will be worth it.

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Maybe it’s the impact of the humidity on my lingering cold or maybe the long-tradition of voodoo practices here is at play, but I’ve just stepped out of the opening luncheon at the American Trucking Associations annual conference in New Orleans and I feel I’ve just stepped into the twilight zone. Or, more precisely, into the bizarro reality of US politics.

The luncheon speaker was Dr. Frank Luntz, a high-profile pollster and political analyst (he had made Time’s list for America’s most promising leaders under 40) and I was looking forward to hearing him sort out the issues in the closing rounds of the 2008 campaign. After all, what happens in the US often has a great impact on what happens in Canada – both economically and politically.

Funny enough, one of the last conversations I had in Canada before heading to the airport was about the likely outcome of the US election. The jist of that conversation was me being reminded that despite the fact the latest polls show the Democrats with a comfortable lead, Canadians (at least those of us who consider ourselves to be in the political mainstream) have a hard time understanding what drives US voters. George Bush did somehow manage to be re-elected.

There were probably over 1,000 people at this luncheon, most of them executives, and I got an instant lesson in just how tribalistic US politics can be. Luntz asked the audience to indicate, by clapping, how they would be voting. I was astonished to see just how little support there was for Barrack Obama in the room.

When Luntz asked them if they would have preferred Hillary Clinton a total of one person dared to clap. And it wasn’t because they disliked women. They actually preferred Sarah Pallin to John McCain.

The fact that the Republican ticket would be favored in a room full of business executives is not surprising. What was shocking, to me anyway, was the strength and depth of the anti-Democrat sentiment. Based on the audience’s reaction it seemed to feel no Democrat could ever have its interests in mind.

Both sides have talked a lot about the need for politicians to set aside their partisan differences and work together. But this admitted outsider didn’t see much room for bipartisanship in that room. In fact, once the speaker saw that he had a predominantly Republican audience, the speech degenerated into basically a call to raise funds for the Republican party. I’ve attended countless speeches at industry events and this has to rank as the most bizarre.

It made me wonder what would happen if the Democratic ticket did win. Unless they also carried the Senate and Congress just how gridlocked would the political system become? And even if they did, could the Democrats work effectively with business interests, or at least with the transport industry that seems to loathe them? And how would a Democrat government in the US work with a Conservative government in Canada? Efficient commerce and transportation require smooth flows between borders, which requires a great deal of cooperation between Ottawa and Washington. Would this be possible when the two governments involved sit on opposite sides of the political spectrum? For example, some of the current initiatives such as the Transportation Worker Identification Card, are not supported by the unions, which have greater sway with the Democrats.

As sobering as I found those questions to be, experiencing first hand the pessimism Americans feel right now for the future was even more sobering. I’ve travelled to the US countless times over the past 20 years; never have I seen them so down. Even after 9/11 they were not like this. To me they seem angry and they’re confused about what’s happening to their economy. Those who believe the market works best when it’s left to work on its own have to face the reality that their deregulated business leaders screwed up so bad they ended up begging to be bailed out. And that their Republican president is responsible for the largest government intervention since the Great Depression.

For most, the events leading to the economic meltdown are so convoluted it is beyond their understanding. And as long as they remain concerned and confused they’re not likely to spend, which is bad news considering two-thirds of the American economy is dependent on the consumer. This could be a long economic downturn indeed.

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Shippers and carriers alike have been spending a great deal of time the last couple of years trying to figure out where diesel prices will go – the way fuel prices have risen who can blame them?

But the comments of Faith Goodman from the Canadian Petroleum Products Institute at last week’s 22nd annual Transportation Innovation and Cost Saving Conference, left me wondering if we’re taking the right approach. Actually, to be honest, her remarks left me wondering if we are just plain wasting our time trying to pinpoint where we think fuel pricing will be in the future.

Let me explain. Goodman was quite blunt with her message: “We are in uncharted territory,” she said. “Never before have we seen such volatility.”

The estimates on the future price of crude ranges from a low of $75 per barrel to a high of $500. When even the experts are so far apart in their predictions, what chance does the average CEO, supply chain manager or carrier have in predicting future fuel costs?

Perhaps it would be wiser to prepare our companies for several different scenarios. How would continued pricing above the current $110 per barrel affect modal choices, for example, could be the starting point. Our own annual Transportation Buying Trends Survey shows that up to 44% of supply chain professionals have made changes to their modal selections as a result of rising costs.

What if the price climbs above $200 or even $250? How would consumers react and how would that change current shopping, and therefore transportation, models?

Having several models to work with I think would be a better approach than futile attempts to pinpoint a price in a market driven by volatility and where the only certainty is uncertainty.

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This week I had the opportunity to participate in the 22nd annual Transportation Innovation and Cost Saving Conference, after once again being handed the interesting task of summing up the day’s proceedings.

The task is what I jokingly refer to as organizer Richard Lande’s masterful plan to get the media there and paying attention to every presentation from start to finish by giving the journalist the job of summing up so that everyone in the audience can tell if he’s been paying attention. I’m always happy to do it though because there is so much good information to sink one’s teeth into. The fact this conference has been going on for more than two decades now and is able to attract hundreds of attendees even during difficult economic times when the first thing companies cut is their training budgets says something about Lande and his team has been able to build here.

The startling news about the collapse of the US economy the previous week, and US president Bush’s plea for a $700 billion bailout the previous night, set an ominous tone for the conference. (As I watched former president Bill Clinton, interviewed on Larry King after Bush’s address, actually agree with a president most Democrats have come to loathe, I wondered just how deep the problems with the US economy really are; how much they’re not telling us). Anyway, it’s obvious there are troubled times ahead.

But managing supply chains during economic adversity is not something new. We did it 10 years ago when the dot com bubble burst and again after 9/11. But if you’re a supply chain professional or a provider of supply chain services, there is one key difference this time around. This time many of the leading CEOs have a good grasp of how important supply chains are to the health of their companies. They’ve come to understand that a well-managed supply chain can not only reduce costs but be a significant factor in growing customer satisfaction, market share and revenues.

The importance of supply chain professionals and providers of supply chain services is no longer the best kept secret in business.

Which means that the spotlight is on and corporate leaders are expecting miracles.

I’ll be writing a few blogs detailing the conference’s highlights but first I want to comment on the speakers Lande put together: an interesting mix of supply chain managers, carriers, 3PLs, lawyers and consultants. A wide mix yet there were two common characteristics among them.

One, the speakers were people who have become experts in dealing with change and, in fact, embraced change. As CN’s Peter Ladouceur said: “Change creates opportunity.”

The speakers were also people who realized that to change things you don’t have to start with huge and expensive projects. Rolling up your sleeves and tackling the low-hanging fruit is a good starting point. Or as Arlene Dalida of Resources Global Professionals, advised: “Don’t be afraid, just get started.”

I can’t think of better advice for our readers looking at the difficult times ahead and wondering how to approach them.

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I used to have a friend who was an actor. The fact he was an actor is not particularly important to what I’m about to tell you about him other than that his acting background may explain his rather “dramatic” behaviour, which is really the point of this blog.

Anyway, he was up from the US visiting at our house one night. It was during the start of the LA race riots following the unpopular verdict on the Rodney King trial back in the 90s. Watching the news footage he became quite upset, understandably so since he now lived in LA. But his next reaction I found hard to understand. After brooding over the newscast for a while he announced he was flying back to LA, going home to pick up his pistols (like many Americans he always had a few on hand at his house) and would patrol the streets looking to mete our some quick justice to any of the looters looking for trouble.

I wasn’t sure I should take him seriously about this sudden call for vigilante justice – was he thinking he would shoot a new television series based on the experience afterwards, starring himself as a modern-day Clint Eastwood?

But he was serious and the next morning he did exactly as he said, flying back home to patrol the still riotous streets armed with his pistols. I’m sure he thought himself as some kind of hero, ready to use his courage and physical talents (he was trained in martial arts and, of course, armed) to hand out quick justice on the street. As it turned out, he was lucky enough not to land himself, or anyone else, in any serious trouble. (I say lucky because trouble was not hard to find in that cauldron of mayhem and, given his training, I had no doubt if he found trouble he was quite capable of dealing with it.)

I’ve long since lost touch with my over dramatic actor friend and had not thought about that incident until coming back from a relaxing vacation to read the reactions to our managing editor Adam Ledlow’s blog about the Greyhound bus killing and long haul trucker Christopher Alguire’s involvement and subsequent criticism of RCMP’s handling of the tragedy.
Alguire clearly thought the RCMP should have shot the killer on site. "I told the cops a few different times to shoot him, because he has no reason in this world to live anymore," he proudly told the press. And several of those reading the blog thought he was bang on: “The punishment should fit the crime- a life for a life, “said one reader. “Shame on you for causing even a sliver of doubt towards the integrity of a hero,” chastised another.
I think, if you care to take the time to really think about it rather than speak from emotion, although Alguire’s willingness to help was heroic, his criticism of the RCMP’s action was shameful. And so are the remarks of those who support his views.

Since when did we become a society of vigilante justice, where we shoot first and ask questions later? I understand that most in that situation, myself included, caught in the emotion of the event, would want to pull the trigger. But that’s why we employ professionally trained police officers to handle such situations. Because they’ve been trained and entrusted with handling such situations without emotion that clouds judgement.

This is not being weak, as I know many will claim it to be. This is not protecting the criminals rather than the victims. This is being reasonable. This is thinking with your head instead of your hormones. This is giving our justice system the opportunity to work as it should.

I could understand taking justice into your own hands if we lived in a country where the legal system was falling apart and the police was completely inept and/or corrupt. Any reasonable person, however, would agree Canada is far from such a reality.

And for those of you who still support the hot heads so ready to take justice into their own hands, have you stopped to question their abilities?.To put it simply, are you sure their aim is good enough to save a victim rather than kill him?

As I would have told my hot-headed actor friend many years ago, vigilante justice may make for excitement in the movies but it does not belong in our society. And perhaps we should choose our heroes more carefully -- it's not like there's a shortage of them among the men and women who drive our economy.

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In my editorial this month I make the argument that while I support Stephen Harper’s election promise to cut the four cent federal excise tax on diesel fuel in half I think it misleading to characterize it, as some industry leaders have done, as the polar opposite of the Liberal plan to introduce a federal carbon tax.

But what I find more disconcerting than trying to link in an overly simplistic fashion (Conservatives want to cut taxes, Liberals want to increase them) two things that are not really related is the background insinuation that a carbon tax specifically is bad for the economy and persistent beliefs in some industry circles that a green economy in general equals a weaker economy.

As I point out in my column this month, I’m not sure if a carbon tax would be good over the long run for our country or not. The Liberals have some important questions to answer first.

• How high. does the levy have to be to truly change behaviour? The tax grab on cigarettes is damn high, yet I still see plenty of folks happily puffing away on their cancer sticks. If it doesn’t change behaviour, it’s just a tax grab.
• What would they do to encourage the US government (it seems both McCain and Obama are willing to do something on greenhouse gas reduction) to adopt similar legislation so our economy is not placed at a competitive disadvantage?
• And how would they ensure such a tax would funnel money into technology aimed at clean energy solutions rather than becoming another bureaucratic boondoggle?

But just because there are important questions the Liberals must answer, doesn’t mean that a carbon tax should be quickly dismissed as bad for transportation and Canada. Nobody likes to pay tax but if we truly care about paying more than just lip service to a sustainable economy, we have to consider the other side the equation.

As with any new technology, green products are expensive to introduce. Can a green economy go mainstream in Canada unless the government puts a price on carbon emissions?

Take for example Toronto-based company EnviroTower, which has patented a process to dramatically cut the amount of electricity and water needed to run the air conditioning systems of office towers. The company was looking for $10 million from investors. It wasn’t a big sum, especially when you consider it had already lured some big corporations such as Heinz. Yet, as owner John Coburn, complained to the media: "The really sad thing is that we have to go outside the country to raise money. That's an indication that in Canada the commodity-side people made good returns in oil and gas, but they don't take the risk with newer technologies. Hopefully, that changes over time."

Perhaps legislation that truly makes it costly to emit carbon into the atmosphere would shake us out of our lethargy and shorten the timeline towards a more sustainable economy.

That’s the debate we need to be having about carbon tax proposals rather than dismissing them because they will cost money.

In my next blog I would like to address the still persistent – and damnably defeatist, frankly – belief that a green economy equals a weaker economy.

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In my presentations to several transportation industry groups this summer I floated the idea that we may actually be just an economic uptick away from another serious capacity crunch in the trucking sector and a return to upward pressure on rates – perhaps as early as the next few months.

Based on the perplexed looks I received from many of the shipper and carrier professionals listening to me I could tell they thought I had finally succeeded in tanning my body as well as my brain during my summer holidays.

How could I be talking about a return to the strong upward pressure on rates we experienced from the third quarter of 2003 up to about the first quarter of 2006, when motor carriers right now are scrambling to stay alive, accepting significantly lower rates in many cases just to maintain cash flow?

Some threw the annual statistics our own Transportation Media Research churns out right back at me: Have I not been pointing out for the past year that shippers see both the TL and LTL market to be in excess capacity? Have I not been saying that the number of shippers paying out rate increases above 4% (exclusive of the fuel surcharge) has been getting smaller and smaller since 2006? Did I not in the past note that when shippers switch from truck to rail the main reason is concern over pricing?

Yes, yes, and yes. (And I must admit I’m impressed by those of you able to retain all these statistics). But there really is a reason to my “madness” and it is tied to the catharsis the motor carrier industry is currently undergoing.
The American Trucking Association reported that there were 935 trucking company failures in the first quarter of 2008, a 142.9% increase over last year. These carriers, operated approximately 42,000 power units representing about 2% of that country’s total capacity. To place that in a Canadian perspective, it’s the equivalent of pretty well wiping out the entire British Columbia trucking industry. Then on May 20, 2008, Jevic Transportation closed its doors, representing the largest failure of an LTL carrier since the departure of Consolidated Freightways in 2003.

Canadian motor carrier bankruptcy figures aren’t as up to date as is the case in the US, but the last time we went through a similar downturn in the late 90s, the trucking industry shed one quarter of its small carriers. Of particular concern should be that government figures show that since 2007 motor carrier revenues have been on a consistent decline while their costs have not been keeping a similar pace. That’s a recipe for financial disaster, particularly for asset-heavy carriers caught with too high debt loads thanks to aggressive acquisition strategies. Al’s Cartage was the biggest name to go under this year and garnered the most attention. It wouldn’t surprise me if a few more familiar names joined the ranks of the departed this year but it’s just as important to keep an eye on lower-profile small carriers exiting the market; their contribution to capacity, although not what it once was, is still important.

After 2005, the tight capacity in the motor carrier sector was loosened to a significant degree by the pre-buy (trucking companies moving up their equipment buying cycle so they could purchase trucks prior to the 2007 deadline for new emissions standards that added up to $10,000 to the price of an engine). They will likely do so again to deal with the next emissions standards deadline of 2010.

But there simply isn’t much time to put a pre-buy strategy in place this time around (the trucks must be purchased in 2009) and, more importantly, there aren’t as many Class 8 trucks up for replacement. If we assume a 7-year average life cycle (many US analysts use a 9-year cycle but we prefer a 7-year cycle to take into account the punishment heavier weights and longer travelling distances inflicts on the Canadian fleet) there are only 18,361 trucks up for renewal in 2009. Even if up to a third of motor carriers were to opt for the pre-buy strategy (as they did during the two previous pre-buys this decade), investing in new iron that would pull 2010 and 2011 purchases into next year, the base number of Class 8 trucks due for replacement is just too low to envision Class 8 truck capacity being increased by 35,000 to 39,000 new rigs as was the case for 2006 and 2007.

In short, there are enough significant factors limiting supply that soon as demand perks up we’ll feel an instant impact on truck transportation pricing.

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In my presentations to several transportation industry groups this summer I floated the idea that we may actually be just an economic uptick away from another serious capacity crunch in the trucking sector and a return to upward pressure on rates – perhaps as early as the next few months.

Based on the perplexed looks I received from many of the shipper and carrier professionals listening to me I could tell they thought I had finally succeeded in tanning my body as well as my brain during my summer holidays.

How could I be talking about a return to the strong upward pressure on rates we experienced from the third quarter of 2003 up to about the first quarter of 2006, when motor carriers right now are scrambling to stay alive, accepting significantly lower rates in many cases just to maintain cash flow?

Some threw the annual statistics our own Transportation Media Research churns out right back at me: Have I not been pointing out for the past year that shippers see both the TL and LTL market to be in excess capacity? Have I not been saying that the number of shippers paying out rate increases above 4% (exclusive of the fuel surcharge) has been getting smaller and smaller since 2006? Did I not in the past note that when shippers switch from truck to rail the main reason is concern over pricing?

Yes, yes, and yes. (And I must admit I’m impressed by those of you able to retain all these statistics). But there really is a reason to my “madness” and it is tied to the catharsis the motor carrier industry is currently undergoing.
The American Trucking Association reported that there were 935 trucking company failures in the first quarter of 2008, a 142.9% increase over last year. These carriers, operated approximately 42,000 power units representing about 2% of that country’s total capacity. To place that in a Canadian perspective, it’s the equivalent of pretty well wiping out the entire British Columbia trucking industry. Then on May 20, 2008, Jevic Transportation closed its doors, representing the largest failure of an LTL carrier since the departure of Consolidated Freightways in 2003.

Canadian motor carrier bankruptcy figures aren’t as up to date as is the case in the US, but the last time we went through a similar downturn in the late 90s, the trucking industry shed one quarter of its small carriers. Of particular concern should be that government figures show that since 2007 motor carrier revenues have been on a consistent decline while their costs have not been keeping a similar pace. That’s a recipe for financial disaster, particularly for asset-heavy carriers caught with too high debt loads thanks to aggressive acquisition strategies. Al’s Cartage was the biggest name to go under this year and garnered the most attention. It wouldn’t surprise me if a few more familiar names joined the ranks of the departed this year but it’s just as important to keep an eye on lower-profile small carriers exiting the market; their contribution to capacity, although not what it once was, is still important.

After 2005, the tight capacity in the motor carrier sector was loosened to a significant degree by the pre-buy (trucking companies moving up their equipment buying cycle so they could purchase trucks prior to the 2007 deadline for new emissions standards that added up to $10,000 to the price of an engine). They will likely do so again to deal with the next emissions standards deadline of 2010.

But there simply isn’t much time to put a pre-buy strategy in place this time around (the trucks must be purchased in 2009) and, more importantly, there aren’t as many Class 8 trucks up for replacement. If we assume a 7-year average life cycle (many US analysts use a 9-year cycle but we prefer a 7-year cycle to take into account the punishment heavier weights and longer travelling distances inflicts on the Canadian fleet) there are only 18,361 trucks up for renewal in 2009. Even if up to a third of motor carriers were to opt for the pre-buy strategy (as they did during the two previous pre-buys this decade), investing in new iron that would pull 2010 and 2011 purchases into next year, the base number of Class 8 trucks due for replacement is just too low to envision Class 8 truck capacity being increased by 35,000 to 39,000 new rigs as was the case for 2006 and 2007.

In short, there are enough significant factors limiting supply that soon as demand perks up we’ll feel an instant impact on truck transportation pricing.

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James and I really do get along – but not when it comes to the issue of speed limiters. If you’ve been following our blogs over the past while you know James doesn’t think they’re such a good idea while I think they are.

Speed limiters are now the law in Ontario and James takes one last shot, writing that the way the law came to be has left him “with a sour taste.” He feels the one-day public hearing was a farce, with practically no advanced notice provided to stakeholders. “It was clear from the get-go that this government was simply going through the motions, with no real intent of making any changes to the proposed legislation,” he writes in his blog and believes the Ontario government got too chummy with the Ontario Trucking Association during the process.

I think we’re making mountains out of mole hills.

Much has been made about the shortness of the public hearings. But let’s put this in perspective. Speed limiters were not an issue that just suddenly surfaced. It has been debated for two and a half years now. Both the Ontario Trucking Association and those opposed to speed limiter legislation, namely OOIDA and OBAC, have had plenty of time to make their opinions known to legislators. Also during this time the trade media have provided extensive coverage of the issue, again providing plenty of opportunity for both sides to present their views. (And I bet if we were to take a count of all the articles written in all the trade media about speed limiters we would find the majority voiced the concerns of those opposed).

Any politician wanting to make an informed decision on how to vote had no shortage of material to read and no shortage of time to make up his or her mind. What would longer public hearings have provided? What evidence would have been presented that had not already been documented over the past two and a half years?

I can’t argue that there should not have been more advanced notice provided about the hearings. But again let’s put this in perspective. Each presenter at the public hearings were asked to speak for just 10 minutes. Now to someone not used to speaking in public that may seem a daunting task, particularly when they’ve been given little advanced notice. But for professional lobbyists, such as OTA, OOIDA and OBAC, being asked to speak for 10 minutes on an issue they’ve known intimately and written extensively for more than two years is not exactly a tough assignment.

And what about the belief that the OTA basically wrote the speed limiter law for the government? For the last time, let’s place things in perspective. Motor carriers, through the OTA, approached the government and asked to be legislated. They actually asked the government to make life tougher for them by giving them one more regulation to follow. So why shouldn’t they have attempted to draft the legislation in a fashion they found to be workable? The OTA certainly made no secret of what it wanted with the legislation and anyone opposed to it had plenty of time to voice their concerns.

Let’s drop the conspiracy theories and stop making mountains out of mole hills. Speed limiters became law in Ontario because when legislators were presented with both sides of the issue over the course of more than two years, they found the pro side made the most sense. It’s as simple as that.

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James and I really do get along – but not when it comes to the issue of speed limiters. If you’ve been following our blogs over the past while you know James doesn’t think they’re such a good idea while I think they are.

Speed limiters are now the law in Ontario and James takes one last shot, writing that the way the law came to be has left him “with a sour taste.” He feels the one-day public hearing was a farce, with practically no advanced notice provided to stakeholders. “It was clear from the get-go that this government was simply going through the motions, with no real intent of making any changes to the proposed legislation,” he writes in his blog and believes the Ontario government got too chummy with the Ontario Trucking Association during the process.

I think we’re making mountains out of mole hills.

Much has been made about the shortness of the public hearings. But let’s put this in perspective. Speed limiters were not an issue that just suddenly surfaced. It has been debated for two and a half years now. Both the Ontario Trucking Association and those opposed to speed limiter legislation, namely OOIDA and OBAC, have had plenty of time to make their opinions known to legislators. Also during this time the trade media have provided extensive coverage of the issue, again providing plenty of opportunity for both sides to present their views. (And I bet if we were to take a count of all the articles written in all the trade media about speed limiters we would find the majority voiced the concerns of those opposed).

Any politician wanting to make an informed decision on how to vote had no shortage of material to read and no shortage of time to make up his or her mind. What would longer public hearings have provided? What evidence would have been presented that had not already been documented over the past two and a half years?

I can’t argue that there should not have been more advanced notice provided about the hearings. But again let’s put this in perspective. Each presenter at the public hearings were asked to speak for just 10 minutes. Now to someone not used to speaking in public that may seem a daunting task, particularly when they’ve been given little advanced notice. But for professional lobbyists, such as OTA, OOIDA and OBAC, being asked to speak for 10 minutes on an issue they’ve known intimately and written extensively for more than two years is not exactly a tough assignment.

And what about the belief that the OTA basically wrote the speed limiter law for the government? For the last time, let’s place things in perspective. Motor carriers, through the OTA, approached the government and asked to be legislated. They actually asked the government to make life tougher for them by giving them one more regulation to follow. So why shouldn’t they have attempted to draft the legislation in a fashion they found to be workable? The OTA certainly made no secret of what it wanted with the legislation and anyone opposed to it had plenty of time to voice their concerns.

Let’s drop the conspiracy theories and stop making mountains out of mole hills. Speed limiters became law in Ontario because when legislators were presented with both sides of the issue over the course of more than two years, they found the pro side made the most sense. It’s as simple as that.

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Since coming out in favor of speed limiters I’ve been overwhelmed by calls and e-mails from drivers and owner/operators with dire warnings about what “could” or “would” happen should such legislation be passed in Ontario. I thought I would respond by looking at what “did” happen. After all, although the debate about speed limiters is a hot one in Canada, it’s old news in other parts of the world. And the experiences in those countries has much to show us, for those willing to keep an open mind anyway.

Australia is the first country I want to consider. Speed limiters have been the law for both trucks and buses there since 1990 and they’re set at 100 km/h.

Those opposed to speed limiters in Ontario say the speed differential between heavy trucks and cars they force will cause accidents. Have the Aussies, after almost 20 years of speed limiters found that to be true? Here’s what Chris Brooks, senior adviser, road safety, Australian Transport Safety Bureau, told us:

“There is no good evidence that a 10 km/h differential between light vehicle and truck speed limits creates a safety problem. If there is any such problem at all, it is small compared to the safety benefits of running trucks at 100 km/h rather than 110 km/h.”

Just as interesting was what Australia’s National Road Transport Commission found when it looked into what motivates drivers to speed. It found that speed choice for truck drivers is largely depended on the prevailing weather, traffic density, police presence and road conditions. While truck drivers are concerned about speed limit differentials between heavy vehicles and the prevailing speeds of other traffic, they consciously trade off speed and risks of prosecution and crashing; regarding fines as a cost of doing business.

In other words, in the real world, the benefits of getting home early or delivering on time too often trump the risks associated with driving too fast.

Speed limiters place everyone on a level playing field and shippers and carriers can’t push drivers to drive too fast to meet a schedule.’

Another concern for the anti-speed limiting lobby is that speed limiting trucks will lead to more overtaking, and hence more serious crashes, as motorists get fed up with being stuck behind lumbering behemoths, particularly on country and regional roads. I find that argument particularly hard to grasp considering the speed limit on country roads is 80 km/h and 90 or 100 km/h on regional roads, both considerably below the proposed speed limiter setting of 105 km/h.

But let’s look at the Australian experience. Have almost two decades of speed limiters (set at 100 km/h) led to carnage in the Outback? Again, we asked Chris Brooks, senior adviser, road safety, Australian Transport Safety Bureau. Here’s what he told us:

“In fact, overtaking-related crashes on rural roads are surprisingly uncommon…It may be that on two-lane roads with a general speed limit of 110 km/h, the presence of speed-limited trucks tends to constrain light vehicle speeds. If so, there may well be a substantial net safety benefit that would be lost if trucks were permitted to travel faster.”

In other words, rather than causing more accidents, speed limited trucks are causing other traffic to slow down and thus reducing the likelihood of accidents.

There are still some in Australia who don’t want speed limiters, of course. But I’ve specifically chosen to use Brooks’ comments because he was not speaking for the Australian Trucking Association, which like the Ontario Trucking Association here, supported speed limiters. He is speaking for the government, which after almost 20 years of speed limiters would be under pressure to change the legislation if there was strong evidence it was leading to more accidents.

The fact there is ongoing support for speed limiters speaks for itself.

In my next blog, I’ll look at the impact of speed limiter legislation in Europe.

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Since coming out in favor of speed limiters I’ve been overwhelmed by calls and e-mails from drivers and owner/operators with dire warnings about what “could” or “would” happen should such legislation be passed in Ontario. I thought I would respond by looking at what “did” happen. After all, although the debate about speed limiters is a hot one in Canada, it’s old news in other parts of the world. And the experiences in those countries has much to show us, for those willing to keep an open mind anyway.

Australia is the first country I want to consider. Speed limiters have been the law for both trucks and buses there since 1990 and they’re set at 100 km/h.

Those opposed to speed limiters in Ontario say the speed differential between heavy trucks and cars they force will cause accidents. Have the Aussies, after almost 20 years of speed limiters found that to be true? Here’s what Chris Brooks, senior adviser, road safety, Australian Transport Safety Bureau, told us:

“There is no good evidence that a 10 km/h differential between light vehicle and truck speed limits creates a safety problem. If there is any such problem at all, it is small compared to the safety benefits of running trucks at 100 km/h rather than 110 km/h.”

Just as interesting was what Australia’s National Road Transport Commission found when it looked into what motivates drivers to speed. It found that speed choice for truck drivers is largely depended on the prevailing weather, traffic density, police presence and road conditions. While truck drivers are concerned about speed limit differentials between heavy vehicles and the prevailing speeds of other traffic, they consciously trade off speed and risks of prosecution and crashing; regarding fines as a cost of doing business.

In other words, in the real world, the benefits of getting home early or delivering on time too often trump the risks associated with driving too fast.

Speed limiters place everyone on a level playing field and shippers and carriers can’t push drivers to drive too fast to meet a schedule.’

Another concern for the anti-speed limiting lobby is that speed limiting trucks will lead to more overtaking, and hence more serious crashes, as motorists get fed up with being stuck behind lumbering behemoths, particularly on country and regional roads. I find that argument particularly hard to grasp considering the speed limit on country roads is 80 km/h and 90 or 100 km/h on regional roads, both considerably below the proposed speed limiter setting of 105 km/h.

But let’s look at the Australian experience. Have almost two decades of speed limiters (set at 100 km/h) led to carnage in the Outback? Again, we asked Chris Brooks, senior adviser, road safety, Australian Transport Safety Bureau. Here’s what he told us:

“In fact, overtaking-related crashes on rural roads are surprisingly uncommon…It may be that on two-lane roads with a general speed limit of 110 km/h, the presence of speed-limited trucks tends to constrain light vehicle speeds. If so, there may well be a substantial net safety benefit that would be lost if trucks were permitted to travel faster.”

In other words, rather than causing more accidents, speed limited trucks are causing other traffic to slow down and thus reducing the likelihood of accidents.

There are still some in Australia who don’t want speed limiters, of course. But I’ve specifically chosen to use Brooks’ comments because he was not speaking for the Australian Trucking Association, which like the Ontario Trucking Association here, supported speed limiters. He is speaking for the government, which after almost 20 years of speed limiters would be under pressure to change the legislation if there was strong evidence it was leading to more accidents.

The fact there is ongoing support for speed limiters speaks for itself.

In my next blog, I’ll look at the impact of speed limiter legislation in Europe.

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Truckers beware! We have learned of a secret plot by nefarious Communists (or perhaps it’s dastardly Nazis) to take over the Ontario Legislature.

The plot, our undercover sources tell us, involves setting up the Ontario transport minister as Supreme Leader and outsourcing the running of the transport ministry to the province’s largest trucking association.

The first course of action by the new Communist leadership would be to mandate speed limiters. This would be the first step towards total domination of everything independent truckers hold dear.

The Communists of course know that installing speed limiters will destroy the Ontario economy. This is exactly what they want to happen because they plan to use the destroyed economy as an excuse to invade neighboring Quebec and Manitoba. The plan also calls on using the fleets of the province’s largest carriers, who were already familiar with speed limiters, to transport war materiel to the front, providing safe transportation and a new way to deal with slumping freight volumes all in one shot. (Commies can be clever, eh?)

Our sources also tell us that secret US operatives have caught wind of the plot and the plan to install speed limiters and are planning to contest it under international law.

However, the US will not be sending its customary international trade diplomats. Instead, the mission will be handled by representatives from OOIDA, due to their professed knowledge and expertise in such matters.

THERE! Isn’t that just what you wanted to hear?

With the exception of a few of my own embellishments, that’s the jist of many of the e-mails and phone calls I’ve been receiving of late about mandating speed limiters.

Come on folks, suggesting that Ontario is about to turn into a Communist society just because legislators are seriously considering mandating speed limiters is a tad over the top, ain’t it?

There are plenty of real issues to debate regarding speed limiters. Let’s not destroy the debate with ludicrous conspiracy theories.

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What has been most disappointing during the past couple of years is seeing the discussion about speed limiters become polarized and degenerate to mudslinging.

How else can I categorize last month’s remarks from Joanne Ritchie, head of the Owner-Operators Business Association of Canada (OBAC), that in considering speed limiter legislation the Ontario Ministry of Transport was “pandering to a handful of carriers who are either too cheap, too lazy or too greedy to compete fairly” and that “rather than pay their drivers a decent rate, invest in training and anti-idle technology, and implement internal safety and compliance regimes, those carriers have bamboozled government into taking these responsibilities off their shoulders.”

Come on Joanne. Aren’t you going overboard with those comments?

We both know which carriers are pushing for this legislation. They include some of the safest operations in the country. In fact one of the most vocal proponents of the legislation was recently voted the safest carrier in North America. Not only have these carriers invested in anti-idling technology, often before it was in vogue to do so, they’ve also spent millions implementing the latest training technologies. How much more do they need to invest, how many more safety awards do they need to win, to convince you that they care about safety, the environment and their drivers?

They’re so lazy they need the government to do their work for them? In many instances these are the same carriers that keep getting named to the list of the 50 Best Managed Companies in Canada year after year. It would seem they’ve figured out how to compete pretty well.

And from the carriers I know, most seem to have figured out how to compete successfully without breaking the rules on speeding or otherwise. They’re most often the ones that demand their drivers adhere to the rules, including hours of service, rather than expecting their drivers to speed and lie in their logbooks to deliver a shipment. Seems to me these are exactly the kind of carriers that if I was a driver or owner/operator that I would want to work for.

It also seems to me that while the issue has become politicized and polarized, these carriers are the only ones that have not lost sight of what’s most important: the reality that trucking is one industry of many competing for image, funding, and favorable legislation. Its perception among government and the public as a good corporate citizen willing to take the lead on issues such as safety and the environment will determine how the industry is treated in the future.

Joanne your intelligence and hard work have been a credit to both OBAC and our publication (your award-winning owner/operator column in Truck News is testament to that) but I think on this occasion you have let emotion run ahead of reason. For the sake of an intelligent debate on the speed-limiter issue and continued productive and respectful relations between owner/operators and carriers I hope you would consider retracting your remarks.

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I would like to spend my next few blogs discussing the risks and opportunities presented by the need to move to more environmentally sustainable supply chains.

But first I want to spend a few moments discussing some of the basics we need to understand about the issue of global warming. Hopefully I can explain it to you in a slightly different way than you may have heard before.

From all we’ve been hearing in the media lately about carbon dioxide levels, you would think there’s tons of carbon dioxide about.

Yet CO2 is actually rare in the atmosphere. Fewer than 4 out of every 10,000 atmospheric molecules are CO2 molecules. But CO2 is the most abundant of the greenhouse gases (others include methane, nitrous oxide, HFC and CFC). And it’s produced every time we burn something and every time something decomposes.

And greenhouse gases are critically important because of their ability to trap heat near our planet’s surface.

If you want a mental picture of greenhouse gases at work, think of trying to sleep on a muggy August night in a Toronto apartment building downtown – without your air conditioner on. Now think of trying to fall asleep in a desert . For those of you who haven’t had the opportunity to do so, I can tell you it can be downright cool.

Yet the only difference between the desert and the muggy night in Toronto is a single greenhouse gas – water vapour – which is capable of retaining two-thirds of the heat trapped by all the greenhouse gases.

To give you an idea of the power greenhouse gases actually have to influence temperature we have to look beyond Earth.

Consider Venus. The atmosphere of Venus is 98% CO2 and its surface temperature is 477C. If CO2 was to reach even 1% of the Earth’s atmosphere – it would bring the surface temperature of our planet to the boiling point

The particular challenge with CO2, of course, is how quickly we are adding to it.

Prior to 1800, there were about 280 parts per million of CO2 in the atmosphere. Today the figure is around 380 parts per million. Scientists figure we can go to about 550 parts per million over the next century before we hit the threshold of dangerous changes. That may seem like a large cushion but if we keep going at our current pace it’s estimated we’re going to hit 680 parts per million by 2100.

In my next blog I’ll look specifically at Canada’s contributions to GHG emissions as well as the contribution by commercial transportation.

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Just received the latest financial statistics on the nation’s motor carriers, and, frankly, they are worrisome.

The trend towards costs growing faster than revenues, which first appeared back in 2006, continues with a vengeance.

Operating revenues for the nation’s top carriers (the 97 Canadian-based trucking companies earning $25 million or more annually) in the third quarter of 2007 were up 5.8% but their operating expenses increased 6.7%, on a year over year basis.

It’s a pattern that’s becoming well worn. Consider the three quarters previous to the latest data:

Second quarter 2007: Revenues down by 1.3%. But expenses down only by 0.5%.
First quarter 2007: Revenues down 2.0%. But expenses down only 1.1%.
Fourth quarter 2006: Revenues up 2.3%.. But expenses up 2.9%.

And lest you see hope in the revenues being up in the third quarter, it’s important to note that average per-carrier revenues actually decreased 0.7% from the third quarter of 2006 to $26.2 million while average per-carrier expenses remained almost unchanged at $24.7 million.

Of course, this nasty business of costs growing faster than revenues has a direct impact on the bottom line. During the capacity crunch that started in late 2003 and ran into the first quarter of 2006 and allowed carriers to post some impressive rate gains, top carriers’ average operating ratio (operating expenses divided by operating revenue) reached an impressive 0.92. But the latest data shows it has climbed back up to 0.95.

Making five cents on the dollar is the borderline many consider as a healthy profit margin for trucking fleets. And that’s slicing it pretty thin when you consider Class 1 railways make upwards of 20 cents on the dollar.

As I’ve noted in previous blogs, this will bring pressure to bear on equipment purchasing strategies, particularly since , if we use 1993 as the base year, power unit costs were already up almost 18% before the impact of the 2007 engines and trailer costs are up 43%. And I don’t need to tell you what’s happened to fuel costs and driver costs over this time.

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When speaking to industry groups this year, I’ve been focusing on what I call the “Four Cs” driving motor carrier fortunes these days.

Those four Cs are:

Consolidation
Complexity
Accountability (okay work with me on that one – it does have two “c”s)
and Cost Control

Over the past few months, I’ve been paying most of my attention to that last C – cost control. And for good reason.

Consider the quarterly financial statistics for Canada’s for-hire carriers earning at least one million in annual revenues:

2nd quarter 2006 Revenues up 5.7%; Expenses up 5.7%
3rd quarter 2007 Revenues up 5.0%; Expenses up 5.5%
4th quarter 2006 Revenues up 2.3%; Expenses up 2.9%

While revenues were healthy right up to the fourth quarter of 2006, expenses were either negating, or worse, reversing any gains made.

Now the results from the first quarter of 2007 are in from Statistics Canada and they show another disturbing trend. While operating expenses were down 4.8% for the first quarter compared to the same period in 2006, operating revenues declined 5.9% for the same period.

On a year-over-year basis, while average operating expenses decreased 5.8% on average operating revenues declined 6.9%.

Most importantly, the drop in revenues is now having an impact on carrier profitability.

The operating ratio for Canada’s for-hire carriers earning at least one million in annual revenues deteriorated to 0.94, according to Statistics Canada records for the first quarter of 2007. Motor carriers, on average, are now almost at the edge of profit levels considered healthy for trucking operators.

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Downward pressure on rates is a top concern for motor carriers as we head deeper into the current freight recession.

The subject certainly came up during our annual shipper-carrier roundtable earlier this month. I thought Peter Di Tecco, president of Armbro Transport, made an insightful observation on the matter.

Di Tecco believes the downward pressure on rates any particular carrier will face has much to do with how that carrier has positioned itself in the market place -- through its equipment, performance and services. And its position in the marketplace will determine which kinds of shippers that carrier will be left to deal with.

A carrier that has emphasized a commitment to quality equipment, operations and service is more likely to attract the attention of shippers that care about such things, Di Tecco explained. I take his words seriously in part because Armbro Transport is a routine winner of our Shippers Choice Award for surpassing the benchmark of excellence for carrier performance set every year by shippers across the country participating in our research.

So is a carrier who has a reputation for quality service likely to get a significant rate increase this year or next? No -- the economic climate and the cost pressure on shippers can't be avoided. But if you are in the right position in the market place you will likely be able to negotiate something that is tolerable. As Di Tecco pointed out "When we negotiate with our customers, we look out for each other because if we are not in business they don’t have the service. And if they are not competitive then we won’t have their business.

Carriers who choose to compete primarily on price are often left to deal with shippers whose only concern is price and that can prove a very cutthroat relationship when capacity is as loose as it is right now.

So what are quality shippers looking for when selecting carriers? I think I have a pretty good idea thanks to research we have been conducting for several years now with the help of CITT and the Canadian Industrial Transportation Association. Our research aims to understand exactly which key performance indicators shippers value most during carrier selection.

While it's true that price is the 3rd most important indicator for LTL selection and 2nd most important for TL selection, on-time performance has always been the top ranking concern, followed closely by the quality of customer service provided.

As the old saying goes, you reap what you sow.

We've got a lot more about the industry issues discussed at the roundtable coming up in our November/December issue of Motortruck Fleet Executive. Look also for highlights of the roundatble, which is sponsored once again by Shaw Tracking, as part of our Web tv show special.

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Boldness is a prerequisite for success, whether in life or in business. And it's the one word that Charles McMillan, a former advisor to prime minister Brian Mulroney and one of the architects of the Free Trade Agreement, believes summarizes what Canada needs to be succeed in a future dominated by global competition.

I listened to what the entertaining Maritimer had to say while waiting my turn to speak at the 21st Annual Transportation Innovation and Cost Savings Conference held earlier this Fall in Toronto. McMillan explained that “incremental thinking” and a “silo mentality” just won’t cut it in a world bent on “going big”.

As I sat there listening, I was also thinking "hey, I couldn’t agree more."

Being a trading nation, transportation -- this may come as a surprise to much of the public and many of our politicians -- plays a huge role in driving our competitiveness. As Kelly Winters, general manager of Alliance Shippers, also pointed out at the conference, transportation and logistics are the “strategic glue that binds all functions in a company together.”

Unfortunately, we don't get to make the rules of the game. Even in a deregulated market, the direction of transportation practices are dictated to a great degree by government legislation. And after almost 20 years of covering transportation issues in Canada, I must admit to being completely fed up with transportation legislation that is rife with the same incremental thinking and silo mentality that McMillan warned against.

The way Ottawa and the provinces allowed our infrastructure to crumble for a good 20 years is testament to that, although to their credit many polticians are finally waking up to their negligence. All the petty provincial disagreements over sizes and weights and load securement legislation are more good examples.

Ottawa’s handling of greenhouse gas reductions, one of the most significant issues Canada and the transportation industry will face, is the latest example of government negligence in the place of leadership.

Global concern about the impact of global warming will make for a carbon-constrained future. The countries, industries and companies that understand and react to that reality best, will prove the most resilient to the changes it will bring. Canada is a definite laggard in this regard:

We currently produce about 14 tonnes of CO2 per capita. In comparison, Sweden produces just 5 tonnes of CO2 per capita while China, often fingered as a major polluter due to its fast industrial growth, actually is responsible for only 2 tonnes of CO2 per capita.

Despite two national emission reduction “plans” – “wishful thinking” would be a more appropriate word considering all the effort that went into them – dating all the way back to Jean Chretien’s Liberal government and Brian Mulroney’s Conservative government, all we’ve done over the past 20 years is watch our GHG emissions climb relentlessly.

Transportation activities by the way generate more than one quarter of Canada’s GHG emissions and have accounted for 28% of the growth in total GHG emissions from 1990 to 2004.

Overall, we are on track to be about 30% above the Kyoto Protocol target for 2010. Yes, our booming economy is part of the reason why, but the other reason why is Ottawa’s failure to lead.

What’s the response of Stephen Harper’s “new” Conservative government? Declare the Kyoto Protocol and its emissions targets dead in the recent Throne Speech.

They have a new plan of course. Aside from the message that sends to the world about Canada’s willingness to stick to global treaties, I wouldn’t have a problem with this approach were it not for the fact that the Conservative “plan” to reduce total GHG emissions 60-70% by 2050, with a 20% reduction by 2020, had already been panned by the government’s own advisory group as badly flawed. The advisory body actually accused the government of “cooking the numbers” for the reductions by overestimating and double counting.

Global corporations already understand that in a carbon-constrained future, low carbon producing countries and companies will outperform high carbon producing countries and countries. But they need a policy environment that encourages innovation and investment in green practices and technology.

Why isn’t the Conservative government in Ottawa showing the leadership needed to deliver such policy?

Where’s the boldness?

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In my last blog I argued that the greatest threat to retreading comes from cheap offshore tires. Our research this year found that 18% of fleet managers and owner/operators are experimenting with the new offshore brands (products such as Double Coin, Triangle, Woosung, Double Diamond and Aeolus). But 71% of fleet managers and 79% of owner/operators that are using offshore tires also said they are not bothering to retread them.

With this blog I wanted to dig a little deeper to see if attitudes towards offshore tires are changing and if there are differences in those changes among fleet managers and owner/operators.

Now, those who have heard me speak about industry research and statistics, know that I am purposely conservative in my observations and prefer to err on the side of caution. I always point out that a change over one year does not make a trend – I would need to see the same pattern repeated over three years or more before I can call it a trend with confidence.

The information I am about to present here falls under that category. I’ve seen interesting changes in the numbers in this year’s research compared to last year’s when we also tackled the offshore tire issue. It’s too early to call these changes a trend; but they certainly bear watching.

The first interesting change I saw in the numbers was in the general perception among owner/operators when it came to the quality of offshore tires. Although owner/operators scored no offshore brand higher than a 2 out of 5 on the quality perception scale, they did give four out of the five major offshore brands included in our survey higher marks for quality than in last year’s survey. Conversely, fleet managers scored each offshore brand lower this year than last year. And no offshore brand was scored higher than a 2 out of 5 among fleet mangers

In keeping with their improved perception of offshore tires, I also found that the percentage of owner/operators using offshore tires almost doubled this year compared to last year’s survey – from 10% last year to 18% this year. In comparison, fleet use has remained steady at around 18%.

I found the same pattern when owner/operators were asked if they would replace their brand name tires with offshore tires. The percentage of owner/operators willing to do so has more than doubled since last year’s survey, climbing from 7% to 18% this year. The fleet managers’ willingness to do likewise actually declined slightly – down to 10% this year from 12% the previous year.

Now, remember that 79% of owner/operators are not retreading the offshore tires they use. When asked if they would be willing to replace their tires with offshore tires instead of retreading their brand name casings, we saw the same trend among owner/operators. The percentage willing to do so almost doubled this year compared to last. While 11% of owner/operators last year were willing to forgo retreading their brand name casings in favor of buying offshore brands, that percentage was up to 20% with this year’s survey. And again, that change was not mirrored on the fleet side where the percentage of fleet managers willing to undertake such a strategy has remained basically the same at around 15%.

If these numbers continue in the same direction over the next couple of years, it will be obvious that the entry of offshore tire brands into the North American market will be through the owner/operator ranks.

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One of the first things I learned when I started writing about the transportation industry almost 20 years ago is that retreading is a damn smart strategy. Back then the main concern was with getting the most out of your tire investment. Added to that today is the environmentally friendly aspect of retreading.

For most of the past two decades the main threat to retreading growth has been persistent ignorance among some in the industry about just how safe and reliable retreading products can be. For some reason some people just wanted to believe that all the “gators” on the road had to do with retreads, even if that wasn’t the case, if you’ll pardon the pun.

Today, the greatest threat to retreading I think comes from cheap offshore tires. As I mentioned in my previous blog on the subject, our latest research, completed this summer, found that use of offshore tires is on the increase. This year we found that 18% of managers said their fleets had experimented with the new offshore brands (I’m talking products such as Double Coin, Triangle, Woosung, Double Diamond and Aeolus). The same percentage of owner/operators said likewise. Both fleets and owner/operators that use offshore tires use them predominantly in the trailer position, which is a popular position for retreaded tires.

Yet 71% of fleet managers and 79% of owner/operators surveyed said they did not bother to retread their offshore tires.

We also asked fleets and owner/operators if they would replace their brand name tires with these offshore brands. I’m not sure yet what to make of the results on the fleet side. The vast majority of respondents, 90%, said no they wouldn’t. But a 10% potential market share for offshore brands this early in their introduction is nothing to sneeze at either. And on the owner/operator side, 18% said they would replace their brand name tires with offshore brands.

We also asked if they would use offshore tires instead of retreading their brand name casings. Fifteen percent of fleets said they would and 20% of owner/operators said likewise.

When asked for the main reason they would make such a choice, price was given as the primary reason by both fleets and owner/operators.

I realize that offshore tires are cheaper to buy but I have to wonder if the fleets and owner/operators that are no longer retreading because they’re using these tires are not being too short sighted in their thinking. Are all the costs and savings of the brand name tires being taken into consideration or is the sticker price the only thing being considered? At the same time, it makes me think that if the offshore brands are able to improve their casings so that they can be more easily retreaded there could be one heck of a battle for market share in the North American truck tire market in years to come.

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For a few years now our research team has been tracking the perceptions and acceptance of the new offshore tires among both fleets and owner/operators.

Our latest research, completed this summer, found that the general perception of the quality of these new tires (we looked at products such as Double Coin, Triangle, Woosung, Double Diamond and Aeolus) remains low. Asked to rate these products on a scale of 1 to 5, fleet managers scored no product above a 1.65 while owner/operators, although a bit more generous, did not give a score above a 1.9. In other words, all these products received failing grades from owner/operators and fleet managers alike.

Yet use of these products is on the increase. This year we found that 18% of managers said their fleets had experimented with the new offshore brands. The same percentage of owner/operators said likewise. Double Coin was the brand used most often by fleets and Aeolus the brand most used by owner/operators. Both fleets and owner/operators predominantly use these brands in the trailer position. But about a quarter of both fleets and owner/operators are using them in the drive position and 16% of owner/operators and 9% of fleets are using them in the particularly challenging steer position.

Perhaps the biggest surprise was how much they’re paying for these tires. Although the vast majority are paying between $200 and $400 for offshore trailer tires, 18% of owner/operators and 4% of fleets actually reported paying above $400.

In my next blog I’m going to look at how use of these tires is affecting retreading practices.

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Statistics Canada’s report this week that manufacturing shipments heated up in July – they rose 2.3% -- should be taken with a distinct grain of salt for two reasons.

First, most of the strength in July came from a return to more normal shipment levels by motor vehicle manufacturers following a sharp decrease in June. Excluding the motor vehicle and parts industries, shipments advanced just 0.4% in July for the fifth gain in the last six months. As I wrote in a blog earlier this month, the increase in auto shipments is more a reflection of the Big Three becoming concerned that they had allowed their inventories to drop too low than indication of promising prospects for the rest of the year.

Second, as noted Export Development Canada economist Steven Poloz warned this week, the spending ability of the US consumer remains in doubt. as the US housing sector remains in trouble.

Since the summer there have been signs that the American consumer – stung by the collapse of the housing market and therefore their equity – is beginning to reconsider his spending.

Poloz points out that auto sales have drifted down to just above 16 million units annually, after spending some three years fluctuating around 17 million. Retail sales growth has dropped into the 3-4% range, whereas a year ago they were closer to 5-6%. Excluding autos, retail sales growth has fallen from the 8-9% range in early 2006 to 4-5% in the last six months. And net job creation has also dropped.

While it’s too early to be certain, if the American consumer does indeed become more cautious in his spending the boost in shipment levels carriers have been anticipating may still be months away.

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Revenues for Canada’s largest motor carriers shrunk in the second quarter, decreasing 1.3% on average. To me that’s further indication that trucking, and transportation in general actually, is now on the wrong side of a growth hump pattern that has been playing itself out the last three years.

Strong shipment levels combined with a strong concern about capacity among shippers helped transportation and warehousing players push through strong rate increases in 2004 and 2005. As a result, transportation and warehousing revenue growth peaked at 8.7% but has been in decline since. It’s the same pattern experienced by the oil and gas extraction sector and the mining sector.

Our annual survey of more than 700 shippers of all sizes across Canada clearly indicates two things: Shippers today face a lot of supply chain challenges. The need to improve supply chain management execution and information and the need to boost customer service rank among the challenges cited by most.

But there’s no question which challenge hits home with most shippers. Almost 8 out of 10 tell us they are challenged by their need to reduce costs.

The research shows that cost control is not only a challenge for most shippers but that it is their most IMPORTANT challenge. Asked to indicate the importance of their top four challenges on a scale of 1 to 5, shippers rated the need to reduce costs a 4.5 – considerably ahead of their other major challenges.

So the downward pressure on rates we’ve seen over the past year could only be expected. The rate levels of 2004 and 2005 did not represent the new normal, much as many industry players hoped that they would. But I believe they did represent a window into future volatility in rates whenever capacity concerns trump shippers' need to keep a lid on transportation costs.

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Anyone feeling optimistic about what the summer’s rise in automotive shipments from the Detroit Three indicated about the future, should be sobered by this week’s news from General Motors about significant layoffs. That development, I believe, is more indicative of the short term future of those automotive clients than the summer’s boost in shipments.

Sales for the Detroit Three are down about 4% so far this year and economists such as Steven Poloz of Export Development Canada believe this picture is likely to persist, given the uncertainties that U.S. consumers face from the housing market. Even with the more successful offshore manufacturers included, auto sales are down about 1.6% this year. (True, Canada’s car sales have been solid, but since they account for only about a tenth of the North American market, they’re not a reliable indicator.)

So how can shipments be up when sales are down? The Detroit Three became concerned during the summer about their inventories of unsold vehicles. As Poloz recently pointed out, inventory levels, ideally around 60 days of sales, fell from 91 days last January to about 51 days in May. So despite still weak sales, the Detroit-Three have been ramping up production, on both sides of the border.

Also all three companies were at the start of contract negotiations with their workers and their concern about strike action created another reason to build up their inventories, thus boosting shipments.

But this mini-boom is only a temporary reprieve. The impact from the bursting of the housing market bubble in the US has still not worked itself out.

It would also be wise to remember the concerns voiced by the major manufacturing representatives in Canada at the close of last year.

“We are in for another challenging year in manufacturing,” was the dour outlook provided by Jason Myers, senior vice president and chief economist with the Canadian Manufacturers and Exporters.

Although manufacturing in Western Canada is booming, Ontario accounts for about half the country’s manufacturing output and it is smarting from the combined pressure of high energy costs and a high Canadian dollar which reduces the attractiveness of our manufactured products on the US market. Over the past decade Ontario’s manufacturing sector has outperformed that of every other western country in terms of growth, according to Myers but the pace has cooled down since 2004.

Mark Nantais, president of the Canadian Vehicle Manufacturers Association, expressed concern the current shift in sourcing from plants in the US, Mexico and overseas will be compounded by inefficient border crossings.

“During production vehicle parts and components and subassemblies can cross the border up to seven times a day due to the integrated nature of the automotive industry. If there isn’t a reliable, predictable border, it gets factored into investment decisions,” Nantais said. “The border has become layered with overlapping and inefficient regulations. It continues to get stickier. We are going in the wrong direction. It’s very clear that if we don’t do something, the next event will have a significant impact on how we move products across the border.”

On a more positive note, motor carriers best able to tap into the growth in Western Canada have much to look forward to. Over the next 10 years there may be as much opportunity serving the western boom as spending 80 years chasing the current volume of business from our trade with China, according to Myers.

And while the Big Three automakers are having their troubles, the offshore manufacturers who have set up production in Canada are booming. Japanese automotive manufacturers, for example, have increased their market share from 24% to 35% since 1999 while the Big Three’s market share has dropped from 71% to 53%, according to David Adams, president of the Association of International Automobile Manufacturers of Canada.

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If you think congestion can make picking up containers at our international ports a real hassle now, wait till July 1, 2012.

That’s when the US wants to have its scan-all legislation in effect. The legislation decrees that as of July 1, 2012 “a container that was loaded on a vessel in a foreign port shall not enter the United States (either directly or via a foreign port) unless the container was scanned by non-intrusive imaging equipment and radiation-detection equipment at a foreign port before it was loaded on a vessel.”

We already have the prospect of worsening congestion in many of the world’s container ports as volumes grow year on year, Vancouver being an excellent case in point. As Nicolette van der Jagt, Secretary General of the European Shippers’ Council commented about the new US initiative: “One can only imagine the huge queues that will form when every container has to run through radiation and image scanners.’

All members of the Global Shippers Forum, have emphatically stated, the approach calling for 100% scanning will result in enormous costs to users, suppliers and ultimately consumers without accomplishing the very objective that the scan-all requirements are seeking to achieve. This view is shared not only by the members of the GSF, but it is the opinion of the US Department of Homeland Security (DHS), Bureau of Customs and Border Protection, all major cargo organizations, shippers, the ocean carriers, the European Commission, and the governments of America’s trading partners including- Canada, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Japan, the Netherlands, Norway, Poland, Portugal, Singapore, Spain, Sweden, and the United Kingdom.

How could the US push through legislation that even its own security agencies won’t buy into?

The impact 9/11 has had on the American psyche can’t be underestimated. The transportation community’s strong belief that security and efficient flow of trade must remain of equal importance is under constant threat by a fearful public that doesn’t bother to think through all the ramifications of over zealous security policy and politicians willing to take advantage of the public’s fears to score points, particularly just before an election. The US Democrats may be guilty of this latest attempt to break the necessary balance between trade and security in their desire to position themselves as tougher in dealing with the terrorist threat than the Republicans for the 2008 election, but they’re just following a well-established pattern set down by the Bush administration.

But the potential impact on trade AND security of such ill-advised legislation also can’t be underestimated.

Personally, I would not object to the US trying to dictate supply chain security if there was good reason to believe they really knew what they were talking about. Avoiding another 9/11 trumps national pride in my books. But this legislation is based on the premise that in five years scanning technology will have advanced to the point that scanning all containers would not slow the flow of commerce to a halt. Currently, there is no scanner that can do the job the new law demands. In other words, the US is hoping that future technology will provide the magic bullet. I hope the money they are sure to invest in developing such technology proves worthwhile but the problem is you can’t legislate technological breakthroughs.

And, as the GSF and others point out, chasing after this single-layer “magic bullet” will divert vital funding and focus away from the current multi-layered approach to security that most experts believe is the most effective. US partisan politics before an election year may very well create more costly and congested global trade and, in the worst case scenario, set the stage for another successful terrorist attack on US soil.

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When I discuss with industry suppliers the cost challenges their owner/operator and fleet customers face, I’m often asked what would be the best way they could help truckers reduce their costs.

Before addressing the ways to help, it might be best to address the one way NOT to help. And that’s through pushing sub-standard off shore parts.

The trickle of cheap offshore knock-offs that started 10 years ago is becoming a torrent. It’s estimated that the big three North American truck lighting manufacturers have lost 15% of their business to offshore knock-offs in the last few years. Our own research has found that 20% of fleets and 10% of owner/operators have purchased cheap offshore tires in the past year. Braking systems and fifth wheel components are also popular targets for knock-off products.

The best operators, like Bill Arthur at LE Walker Transport, already disapprove of distributors who try to push offshore products. He told us he uses four distributors that are committed to offering brand-name parts.

But for fleets and owner/operators running on thin profit margins, it will prove hard not to be enticed by these products when they offer 20% or 30% savings off the regular purchase price for aftermarket parts. They will actually be pushing their suppliers to offer them.

Rather than taking the attitude of "the customer is always right", and moving towards offering such products, I hope suppliers will instead take the time to school fleets and owner/operators on the true LONG TERM costs of cheap offshore knockoffs. Truckers sometimes need to be reminded that while their profit margins may be thin, so is their margin for error.

From the experts we’ve spoken to, these knock-off products may look the same – right down to having the same bubble pack and printing on the box, but they don’t perform the same. Some imported LED lamps for example tested at 50% lower than the minimum intensity. Some have actually been tested at 90% below the minimum requirements.

We’ve heard of knock-off brake valves that look so identical to the established brands that even our own engineers have trouble visually distinguishing the difference between the knock-off part and their own. Yet, a detailed inspection finds wall castings so thin that a rupture could occur in the side of the valve causing the brakes to come on at speed; o-rings made out of lower-quality material that wears out quickly because it can’t handle temperature extremes.

Our own research found that the majority of fleets and owner/operators using offshore tires are not bothering to retread them.

The impact of poor or failed performance extends beyond the knock-off item. A failed knock-off brake valve, for instance, can have a trickle down effect that impacts other components of the brake system. Using a knock-off rebuild kit can void the warranty of the original components.

Ed Roeder of Muir’s Cartage told us he learned to avoid knock-offs because of something as innocuous as a poorly woven rear door strap. The $6 offering broke free just as a driver was using it to support himself – almost sending him into traffic.

Particularly disturbing is when the industry thinks it is buying genuine parts, and in fact it is not. Makers of knock-off parts tend to label them with parts numbers that are the same as on the genuine components. Legally, parts numbers are NOT protected. And even if there is a violation involved with a knock-off, chances are it will go unnoticed. For example, there are about 3,500 manufacturers of trailers, buses and motor homes in Canada. Yet Transport Canada has just seven inspectors.

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In my past two blogs dedicated to understanding the changes driving today’s motor carriers, we examined the increasing importance of accountability and the greater amount of complexity fleets face today. One thing that has NOT changed is the importance of cost control – yet it’s a major driver nonetheless.

Motor carriers are getting hit from both sides. Consider some of the financial performance numbers I go through every quarter.

· Second quarter 2006: Revenues up 5.7%. Expenses also up 5.7%.
· Third quarter 2006: Revenues up 5.0%. Expenses up 5.5%.
· Fourth quarter 2006: Revenue up 2.3%. Expenses up 2.9%.

That’s the performance for the nation’s largest carriers. If we were to look at small and medium-sized carriers, the jumps in revenues and expenses would more pronounced but the trend would be the same. Costs are rising as fast, and some times faster, than revenues.

If we use 1993 as the base year, power unit costs were up almost 18% and that’s before the impact of the 2007 engines. Trailer costs are up 43%. I don’t need to tell you what’s happened to fuel costs and driver costs.

From the end of 2003 to about the beginning of 2006, carriers were able to absorb these rising costs because they were able to do something unheard of since the industry was deregulated more than 20 years ago. Pass through, wide-ranging significant rate increases, and reduce profit leakage through fuel surcharges and other accessorials.

You have to look at a chart to see just how different those years were. Back in 1999 only one quarter of shippers agreed to an increase in their truck freight. By 2004, it was 80%.
And the size of those of those increases. Back in 2004, one half of shippers were accepting rate increases greater than 4%; a year later almost 2/3 of shippers were doing so.

We know the main reason why. Capacity in both TL and LTL got tight enough that shippers for the first time in a long time became significantly concerned there were not enough trucks on the road to move their goods. So they played a lot nicer at the contract bargaining table.

Some predicted a whole new era for trucking. Some believed the balance in the shipper-carrier relationship had reversed for good. I think it’s important to remember one thing about shippers. Despite their focus on accountability. Despite their focus on complexity, they remain vigilant about costs. Year after year our survey of shippers shows that only do the vast majority – 8 in every 10 -- consider cost control one of their top challenges but that it is the challenge to which they attach the highest priority.

They had their hands tied when there was a capacity shortage; they agreed to some substantial rate increases but that didn’t mean they were going to continue to do that. In fact, soon as capacity started to loosen as the North American economy dipped while carriers were adding capacity through the pre-buy, we saw a marked drop in rate increases. This year, 6 in 10 shippers may still be accepting rate increases for their truck movements but only 40% -- compared to more than two thirds two years ago – are paying more than 4%.

I think this situation will change again as the economy picks up and capacity tightens, but to expect large rate increases year after year is far too optimistic. And to really put the issue in perspective, even during the best of times, when carriers had driven the operating ratio down to 0.92 – so carriers were making 8 cents on every dollar spent – look at how that compares with other transportation sectors. Short-line railways make 8 cents on the dollar, regional railways make 15 cents on the dollar, the Class 1 railways make better than 20 cents on the dollar. Only air freight operators have to live with tighter margins.

Trucking may be the lion of the transportation industry. But it’s not exactly growing fat on its kills.

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In my last blog I began examining the three major trends – accountability, complexity and cost -- that I think drive the success and fuel the fears of motor carriers. The first trend we looked at was the increasing amount of accountability expected from shippers. With this blog I want to examine the increasing amount of complexity motor carriers are expected to deal with. It’s hitting them on several fronts. And I think it will force motor carriers to make changes that over the next few decades that will radically change the trucking industry.

From the carriers I speak to on a regular basis, I get the distinct feeling that it is becoming increasingly challenging for them to understand their customers and to keep up with them. Most of the shippers that motor carriers traditionally dealt with, grew up believing in the power of vertical integration. That to reduce the costs associated with finding the right suppliers and negotiating with them and managing deliveries and storing inventory, it was best to integrate those functions into your own operations.

But our new technology has made that kind of business strategy unsustainable. Technology has made it much easier, much less costly to tap and manage supply networks outside North America. To integrate offshore, low-cost countries into a company’s global supply chain, for both sales and production.

Almost a quarter of Canadian firms already identify low-cost country sourcing as strategically important, according to research currently being conducted by Industry Canada. Eight out of every 10 Canadian companies that are moving production off shore say they have to do it in order to reduce costs and stay competitive. Goods at an intermediate stage of production now constitute 46% of Canada’s imports and 43% of exports.

What’s does all this mean to the Canadian motor carrier?

For carriers, it means FOUR things:

First it means a marked change in shipping patterns. The traditional head haul from the industrial heartland in central Canada to the West is being met by boatload after boatload of product coming in to our West Coast ports from Asia. Did you know that since 2002 domestic freight movements have been growing three times faster than the hauls to the US, that used to be our engine of growth? You are seeing Central-Canada based carriers, such as Challenger Motor Freight and Consolidated Fastfrate, setting up operations in the west.

Second, it means that key Canadian or US shipper contacts that motor carriers have being cultivating for decades, are changing. Tomorrow’s freight moves could very easily be routed by some freight forwarder in Asia, that worries about transport in Canada only after he has figured out how to navigate the freight through Asia, across the Pacific, through the port of call and into a warehouse, pic’n’ pak or transload facility.

Canadian carriers will have to identify those new decision makers across the ocean so they can ensure they get to move that freight once it hits our ports. I remember Claude Robert, CEO of Robert Transport, telling us that freight forwarding giants such as Schenker will come to control 50-75% of world wide freight distribution… and our carriers somehow have to get on their radar screen.

That’s why you are seeing a forward-thinker like Ron Tepper of Consolidated FastFrate opening a sales office in Shanghai. That’s why you are seeing him go off to India with a delegation from the Port of Halifax.

Third, it means becoming much more than they are now. This trend already started a decade ago when major shippers like Alcan shifted to core carrier programs, giving all their business to just a few major carriers that had to have both the capacity and the service portfolio to handle the business. The need of shippers to simplify the complexity involved with longer supply chains will drive this even further. In the words of Scott Johnston, head of Yanke Truck Group, motor carriers of the future will have to formulate alliances with other service providers or become more diversified themselves, offering warehousing, transload and pic’n’pak, etc.

That’s why you are seeing carriers like Yanke or Bison offering intermodal services. Why so many carriers are now offering warehousing services. Why Ron Tepper is spending millions building a new cargo distribution and warehouse facility in Dartmouth that can provide not only LTL services but transloading and drayage for international containers.

And finally, it means motor carriers will have to get a lot bigger in order to provide such services.

All of the top CEOs we spoke to a few months ago, believed exactly what Allan Robison, of Reimer Express believes: That the industry will continue to consolidate over the next 25 years until there are just a few major players dominating the majority of the hauls in Canada and niche players that may partner with them.

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I’m often asked by companies selling products into the transportation industry to outline the major trends that are both driving the success and fueling the fears of their motor carrier customers. I put it down to three main trends: Accountability, Complexity and Cost. Over the next few blogs I would like to closely examine all three.

Let’s look at accountability first. To do that, we must take an important step further back in the supply chain and look at the motor carrier customer, the shipper. I think they are starting to see transportation in a new light. Thirty years ago, heck, even 10 years ago, companies focused their attention on product development, marketing, sales. How the product got to market, well, that wasn’t really considered critically important. Within the past 10 years, however, there have been a number of impressive studies that finally proved the existence of transportation’s equivalent of the Holy Grail. That supply chain management has a distinct and quantifiable impact on a company’s financial performance. And, of course, the majority of supply chain management spend, goes to transportation.

For example, one well-publicized study found that the compound average annual growth in stock value of companies considered leaders in how they managed their supply chains was 10 to 30 percentage points higher than those who DIDN’T do a good job managing their supply chains.

A ground-breaking study by a Canadian professor, Dr. Kevin Hendricks who was the University of Western Ontario at the time (he’s now at Wilfrid Laurier and his thoughtful research is always worth a read), looked at things from the opposite end. He studied what happens to public companies when they don’t get their transportation and logistics practices right and can’t get product to market for one reason or another – say their carrier is on strike just as the holiday season rush starts or an important shipment of a new line is stuck in a hopelessly congested intermodal yard for days. What’s the stock market’s reaction? For anyone who thought, well, the stock market probably wouldn’t take notice, the results were eye opening.

Hendricks tracked more than 800 companies announcing supply chain disruptions. He found they suffered, on average, an immediate 7% drop in their stock market value the day of the announcement. Imagine taking seven percent of everything you will earn this year and throwing it out the window.

The stock market did not forgive.

Nor did it forget.

Over a three-year period, those public companies announcing supply chain disruptions suffered an incredible 30-40% valuation loss. Supply chain disruptions proved to be more damaging than announced decreases in capital spending, IT problems, even plant closings.

Now CEOs get to be CEOs because why? Because they’re good at the “S” word. Survival. (How many of you thought I was going to say, sex? -- did you know by the way women have something like 860 different thoughts a day. Men have about the same number, but they happen to all be about the same thing, but I digress.)

Anyhow, it didn’t take long for CEOs at top companies looking at such studies to figure out that transportation was actually important. A recent study found almost three quarters of company executives agreed their CEO now views supply chain management as either “very” or “extremely” important. In fact, for many companies, supply chain risk is now considered the top threat to their main revenue generators.

What that means for motor carriers, is that that they are under the microscope. The margin for error is razor thin. A Canadian study we published in our last issue about the transportation buying habits of shippers in the Windsor- Quebec City Corridor found that just a 1% increase in perceived security risk for a carrier was enough to cause a 3 fold decrease in the likelihood that carrier would be chosen again. Just a 1% increase in shipment damage caused by a carrier was enough to lead to 10 FOLD decrease in the likelihood that carrier would be chosen again.

Our own annual study of more than 2,000 shippers across Canada examines 7 key performance indicators that shippers consider when choosing one carrier over another, across all modes. Every year, we find trucking is held to some of the highest standards among all the modes.

Let me give you one example of what I’m talking about. A few years ago I was out to speak to the logistics team at Home Depot Canada, which is responsible for an inventory greater than 50,000 SKUs sourced from about 2,500 different vendors and totaling over one million shipments per year. But it’s not sheer size of the operation that presents their most daunting challenge. It’s the absolute emphasis on competitive pricing and the distinct seasonality of the business.

When that first warm spring weekend hits and do-it-yourself-minded Canadians start thinking about their gardens and other outdoors projects they head to a Home Depot store. And they expect to find the merchandise they’re looking for on the shelf. If it’s not there, they’ll walk over to the nearest competitor.

The easy solution is to have a robust distribution centre network so Home Depot would have the ability to pre-hold inventory and make last-minute adjustments easier to deal with. But remember Home Depot’s emphasis on a lean operation. They don’t want the costs associated with a distribution empire. The company got to where it is by being able to buy large quantities of merchandise and sell it, in essence, “right off the truck.”

Home Depot has more than 100 stores across Canada, hundreds of suppliers, thousands and thousands of products. Yet up to 90% of merchandise is moved directly from the manufacturer to the individual stores, using just a core group of motor carriers, Toronto’s Muir’s Cartage being the main player among them. And the motor carriers are the ones expected to make this very precise, highly fragile arrangement work. If a Home Depot vendor calls Muir’s today and has ten times the amount of freight it had yesterday because there is a seasonal spike, Muir’s has to have the capability to be able to make that work, in what ever city it’s required.

Do you think their performance is under the microscope?

Do you think they can afford to have trucks sitting in the shop when a seasonal spike hits?

So what does that mean to suppliers serving the Canadian trucking market?

Quite simply, motor carriers can’t meet such high expectations without your help. They need expert help to select the right products for their operation. They need products that work the way they are supposed to. And they need immediate help, not excuses or stone walling, when they don’t.

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What to make of the Harper government’s conviction that meeting our Kyoto commitment would drive the country into recession and leave thousands unemployed and facing soaring gas and energy prices?

According to federal environment minister John Baird, the deep reductions in emissions starting as early as next January required for Canada to start living up to its Kyoto commitments is “not the answer we’re looking for”. The why is clearly obvious, according to Baird: “the numbers just don’t add up.” An analysis that Baird presented to a Senate committee found that by 2009, over 275,000 Canadians would lose their jobs, electricity bills would jump by 50% after 2010, prices at the pump would shoot up by 60%, and natural gas prices to heat homes would double, if the ruling Conservatives had to comply with a Liberal bill passed by the House of Commons requiring the government to meet its Kyoto targets for reducing greenhouse gas emissions.

It would be easy to dismiss Baird’s comments as mere fear mongering. After all his party fought against the accord, voted against its ratification, voted against reaffirming Canada’s commitment, and seems quite comfortable with making Canada the only country to sign the international accord and then abandon it. But, still, I think his concerns, deserve the benefit of the doubt.

After all, what if he’s right? The transportation sector in particular would suffer tremendously because it would be a primary target. Transportation activities generated more than one-quarter of Canada’s greenhouse gas (GHG) emissions in 2004 and accounted for 28% of their growth from 1990 to 2004 (during which time GHG emissions from transportation increased 30%). And trucking is the mode most likely to go under the magnifying glass, largely thanks to its success. From 1990 to 2003, the amount of freight carried by the for-hire trucking industry grew nearly three times faster (75%) than all other modes combined (up a collective 27% over the same period).

So Baird’s concerns do warrant investigation and consideration. But so do the many things left out of Bairds comments.

To begin with, we need to understand what would happen if Canada walked away from Kyoto. The Kyoto Accord is a legally binding treaty and Canada ratified it after a majority vote in Parliament. The target agreed to by Canada is not optional. By deciding to abandon Kyoto, Canada would be violating international law. If Canada doesn’t meet its commitments, or buy credits from other nations to help it get there, other trading nations can impose sanctions on Canadian exports under World Trade Organization rules. What would be the cost to the Canadian economy of that?

To be fair, the government report provides only a partial view of the costs of Kyoto because it did not examine any economic benefits. Why did Baird choose to deliberately ignore the benefits that come from better energy efficiency, lower energy use and jobs related to the benefits of emissions reductions?

The link between less reliance on oil consumption is not as clearcut I think as Baird would have us believe. Consider the example of the US economy. In 2007, total energy expenditures in the US will come to more than a quadrillion dollars, which amounts to about a tenth of the country’s gross domestic product. You would think a sizeable reduction in this activity would have a definite impact on the economy. Yet when we look at period of 1977 to 1985 when oil use fell steeply in the US (by about 17%), the economy actually grew by 27%.

If Kyoto is so disastrous to economic activity, why have so many countries signed on? The accord has been signed by 180 countries, including 38 industrialized countries. I find it hard to believe Canada is the only nation with a ruling government that cares about its economy.

Finally, the government report doesn’t answer what would be the economic costs of not taking action on climate change through Kyoto (although, again to be fair, the Conservatives will be releasing its own plans for GHG reductions). Sir Nicholas Stern, the former chief economist of the World Bank, produced an authoritative review of climate change economics that was released last October. Stern found that unchecked climate change would devastate the world's economy, costing between 5 and 20 per cent of global GDP. In contrast, the cost of solving the climate change problem is just one per cent of the world's GDP. Stern's conclusion was that "Tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth."

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Costs for Canada’s largest carriers are continuing to rise faster than revenues and that should be cause for concern on two fronts.

First, obviously, because cost containment is proving particularly difficult and will remain so because fuel prices remain volatile, equipment costs are on the rise due to the new emission standards for heavy duty truck engines and labor costs are expected to retain their upward momentum.

These costs have been high for several years now but their impact I believe is being felt more, and will continue to do so, because the slack economy and excess capacity in certain lanes – particularly in US-bound traffic – make it increasingly difficult to gain the healthy rate increases carriers had become accustomed to since 2003 and which made rising costs bearable.

Whereas back in 2004 and 2005 more than 80% of shippers reported increases to their freight rates, rate increase penetration was down to 64% in 2006 and only 59% of shippers expect higher truck rates for 2007. (This according to our annual Transportation Buying Trends Survey, conducted by our sister publication Canadian Transportation & Logistics in partnership with the Canadian Industrial Transportation Association and CITT.)

A major concern for the long term has to be the change in trade patterns we’ve experienced since 2002.

As Steven Poloz, chief economist with Export Development Canada, recently pointed out, Canada’s exports of goods and services to emerging markets rose by 8.2% in 2006, which although down from 9.9% in 2005 and 18.4% in 2004, was still a strong showing. But this performance was almost completely offset by the slowdown in trade with our major trade partner and the engine of growth for many fleets over the past decade: the US.

As Poloz points out this marks the continuation of trend we’ve seen since 2002, when the current global expansion took hold. Since then, the share of Canadian merchandise exports going to the US has fallen from 86.8% to 81.9%, while our share of our exports to Europe, Asia, the Middle East, and eastern Europe have been on the rise.

Last year when I led a panel on globalization and the impact on trade and transportation at CITT’s annual conference in Saint John, New Brunswick, I remember Dr. Mary Brooks, professor marketing and transportation, School of Business Administration, Dalhousie University, pointing out to me that although Canada – and motor carriers in particular – have benefited considerably from the North American Free Trade Agreement the pendulum may be swinging the other way.

In 1980 just 63% of Canada’s exports were destined for the US but by 1995 the US share of our exports had climbed to 79% and then to a high of 87% by the year 2000. But the numbers indicate that trading relationship is now in decline, Dr. Brooks pointed out. By 2005, the percentage of Canadian exports absorbed by the US had shrunk back to 84% and of course it declined again last year.

While serving the US market will obviously continue to be key to carrier revenues – it would be foolish to ignore our largest trade partner and the world’s largest economy – it may also be wise to start re-investing in the infrastructure necessary to serve our national economy. In fact domestic – and actually intra-provincial – traffic has been the fastest growing traffic the last few years.

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I’ve been hearing a lot of talk lately from both top ranking transportation ministry bureaucrats and their political bosses that they’re finally ready to start spending the money necessary to give Canada the infrastructure we need for the efficient movement of goods.

That was certainly the main message from the high-level bureaucrats included in a transportation policy session at the Transpo 2007 conference I attended in Toronto. To quote David O’Toole, assistant deputy minister for Ontario’s ministry of transport, both political will and understanding are currently aligning in such a way that there are opportunities to make improvements to our transportation infrastructure “that haven’t been available in maybe 40 years.”

Is this just more talk or real reason to get excited?

Certainly some of the investments being made are worth noting. Manitoba, for example, recently announced an unprecedented investment of $4 billion and the province’s first-ever, multi-year plan to renew its highway system. With this commitment the province has increased investment in its roads and highways by 125% since 1999. In comparison, in the 10 years prior to 1999, investment in its roads and highways increased a little over 4%.
To prove the claim that his own province of Ontario also gets it, O’Toole pointed to the Move Ontario program which is providing $1.2 billion for public transit, municipal roads & bridges; the $1.8 billion to be spent on northern Ontario highways; the $3.4 billion to be spent on southern Ontario highways; and the $800 million being spent with the federal government and other stakeholders on improving border access.

Perhaps of equal import to the money that is starting to be spent, is the approach to transportation policy and infrastructure investment. Kristine Burr, assistant deputy minister, policy, for Transport Canada, explained that Ottawa is taking a “systems approach” which places emphasis on integration of a range of policy and regulatory issues, including taxation, governance, land use planning, and the skills/labour market. One of the better offshoots of this approach is the gateway strategy and last October Ottawa announced $591 million would be pumped into the Asia-Pacific Gateway and Corridor Initiative. And, of course, yesterday the feds announced some very big bucks to help boost Toronto’s subway infrastructure, which will hopefully pull a good chunk of cars off the roads.
The bureaucrats are certainly talking the talk, and their bosses appear to be walking the walk with those investments.

But you’ll have to excuse me if I choose to remain cautious. First there’s the size of hole (pothole?) we’re in, thanks to years of neglect. Much of the nation’s infrastructure was put in place during the 50s, 60s and 70s with little done after that, despite considerable increases in the use of our roadways. Considering the useful life of many physical structures is about 50 years, a significant share of assets is already in need of replacement or quickly approaching that stage. A paper published by TD Economics a couple of years ago examining the infrastructure investment gap (the difference between what is needed to maintain the national infrastructure and what is actually being spent) was estimated at between $50 billion and $125 billion.

There’s also the problem of convincing cabinet to continue spending; that our transportation infrastructure should be a priority in the same way that healthcare and education are. That’s a tough nut to crack and may remain so.
Another significant obstacle towards infrastructure investment is the long-term nature of the process. It’s a lot of money that needs to be spent and the benefits may not be realized for years – certainly not before the next election. That too is a tough nut to crack for a political system that too often falls prey to short-term thinking.
And, of course, there’s the challenge posed by the snail-like pace of the approvals process. The environmental assessment process can take up to a decade to complete, by which time the trade corridor the infrastructure investment was designed to augment may wither away as commercial interests, in frustration, seek alternative routings.

I want to believe but I need to see more evidence we’re on a new path.

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Listening to the federal finance minister’s refusal today to either apologize for or reconsider the government’s plan to curb the growing trend towards income trusts, I’m left wondering what this will mean to the pace of industry consolidation in 2007.

There were 135 US or Canadian transportation-related M&A transactions in 2006, according to market analysts BMO Capital Markets, and trucking income funds were amongst the most aggressive. Almost half (48%) of those transactions took place in the logistics sector (defined as asset-light transportation and warehousing) and a bit more than half (27%) in the TL sector. Mullen Group, Transforce, and Contrans, all income funds, were the most active acquirers in 2006, each with four announced transactions.

I think the new legislation, which places trusts on an even footing with corporate tax rules, will likely clip the wings somewhat of income fund structured players, at least for the short term.

But over the long term I can’t see how the industry trend can be anything but continued consolidation.

In our January/February issue of Motortruck Fleet Executive we asked the CEOs of six leading motor carriers to look 25 years into the future and give us their insights on what the industry will look like 25 years from now. Their thoughts were so insightful, I think it’s easily one of the best features we’ve brought to you over the past decade – definitely worth a read.

All of them spoke of continued consolidation, driven by a variety of factors. John Doucet, CEO of Day & Ross, believes there will be 10-15 carriers that will handle the majority of the trucking business and they will be much larger than they are today. Allan Robison, CEO of Reimer Express Lines, believes that for motor carriers to compete with large sophisticated companies like UPS and FedEx, they will have to become capable of handling freight from anywhere in the world.

That spells more industry consolidation.

As Scott Johnston, CEO of Yanke Group explains, the days when traffic managers controlled the movement of goods from a manufacturing plant in the heartland of either Canada or the United States are coming to an end. Tomorrow’s freight moves will be global as more and more companies move their manufacturing and sourcing offshore. Johnston believes this will force Canadian carriers to first identify the parties that control the movement and routing of the goods, or the ultimate offshore true owner, and establish relationships and provide value-added services to participate in the supply chain. That requires sophisticated strategic thinking and that usually means larger carriers.

Ron Tepper, CEO of Consolidated FastFrate, believes 25 years from now motor carriers will have to either be very good at offering niche, regional services or become large enough to go global, offering a wide menu of services. He’s already looking for a partnership with a steamship line to be used as an ocean linehaul carrier, similar to the long-standing arrangement FastFrate has with CP Rail.

Again, such moves require large sophisticated players.

In fact, I think the real long term impact of the government’s trust legislation will be to provide more opportunities for the traditionally structured players to more aggressively pursue mergers and acquisitions.

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I could call what’s happening with the new hours of service legislation in Canada right now “criminal” if there were not a better description for it: totally and utterly “Canadian”.

As you’ve likely heard Ontario has moved ahead with implementing the new rules as of January 1 as have PEI and Newfoundland. But Nova Scotia and the Yukon can’t move ahead with the new rules till Feb. 1; B.C., Manitoba, New Brunswick and Quebec won’t get to it till March 1; Saskatchewan and the Northwest Territories won’t have them in place till April 1 (April Fool’s Day); but the real joke is in Alberta, where no one is quite sure what will happen.

While we wait for Alberta to make up its mind, two different sets of rules will govern hours of service in the province. Carriers with trucks (even just one truck) that operate outside of their base province will be legislated by the federal rules. Carriers that operate solely within the confines of their base province will be able to run on the old rules, until Alberta decides what it wants to do.

As I said, after 10 years of study, consultation and preparation the fact that all the provinces can’t agree on one date to implement the new legislation – or in the case of Alberta even agree on the legislation -- would border on the “criminal” in my mind if it weren’t so typically “Canadian.” It seems we can’t agree on any national strategy because we have given too much power to provincial leaders more interested in protecting their own fiefdoms than concentrating on what’s best for the country or for businesses across the country. We did the same damn thing with the cargo securement legislation a couple of years ago, allowing provincial quirks to slip into what should be nationally uniform legislation.

Of course, the cry from many in favor of delaying the new hours of service rules is that more study and consultation are necessary. Give me a break! How much study do we need to do? I’ve got studies and reports from Transport Canada on this going back to the mid 90s; I’ve got education material from the Canadian Trucking Alliance from that time as well; and similar studies from the US Department of Transportation going back even further.

The consultative process that ran for years included stakeholder input from industry, labour, government, scientific experts, government and enforcement. Folks, we’ve studied driver fatigue and how to best address it legislatively through hours of service to death.

The reality is there is no perfect legislation because until trucks are driven by robots it will be darn near impossible to legislate people as to when they should feel tired and when they should sleep. But since we can’t have a system where we allow people to drive for as long as they want (or for as long as their bosses or customers demand them to) we need to have legislation that at least attempts to take into consideration the modern-day realities of driving and the human need for rest.

The current legislation is most certainly not perfect. The legislations the Americans put in to place a few years ago is also not perfect. But considering the impossibility of getting perfect legislation on such an issue, having the current legislation enacted in uniform fashion across the country is a hell of a lot better – and I would say safer – than a dog’s breakfast of implementation periods and the subsequent “soft” educational periods. And it is certainly a lot better than asking drivers and carriers to maneuver their way through a minefield of different regulatory quirks in each province.

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I dread the last two weeks of December. That’s when I force myself to my basement office to sift through and clean up the mountain of paper that naturally accumulates when one is involved with 8 to 10 major national transportation studies a year (as I am as head of Transportation Media Research) and responsible for tracking another 30-50 studies conducted by independent research firms.

The task was particularly important this year because, well, two years ago I said I would get to it next year and then when the time came I decided a trip dodging alligators in Florida’s Everglades National Preserve was a better way to spend my time. It was, but now I had three years of cleaning to do, an inescapable fact made all the more evident by the fact so many studies had accumulated they could no longer be fit on the large bookcase in the back and had spilled in piles all over the floor.

After a week spent going through everything, I had enough reports ready for the dumpster that it will require a separate trip to the town dump, which I guess tells you something about the quality of some of the research being conducted on transportation these days. But amidst all the projections that proved far from accurate and the forecasted trends that didn’t quite materialize I found a few old reports I could not throw out. They were gems that, in fact, made the whole exercise worthwhile.

I would like to tell you about a few of them over the next few blog entries.

The first one that I would like to tell you about was conducted a few years ago for the Truckload Carriers Association in conjunction with the Recruiting Resource Center. It caught my attention right away because it looked at driver turnover in a different but very important way. I have tons of studies from recent years examining driver turnover but it’s always from the carrier’s point of view – why drivers leave, the cost to the carrier when they do, and how to retain them. But this study looked at the issue from the driver’s perspective, examining how much it costs the average driver to skip from job to job.

Although it’s US research, and obviously a bit dated, I think the approach and its conclusions are worth considering.

The study gathered information about benefits, policies and recruiting statistics from about 140 carriers of varying sizes and then applied the data to driver turnover losses to create a realistic cost to an average driver over a 30-year period.

The study assumed that the average driver was earning 30.5 cents a mile when starting a new job and moved up to 33 cents per mile after three years with the company. It also assumed that he averaged 9,028 miles per month.

Looking at traditional turnover rates, it assumed the average driver would change jobs 8 times during a 30-year career. What would be the financial impact of that on the driver?

Hang on to your pocketbook. It’s about to get a lot lighter.

The study calculated the average driver would be unemployed four months throughout their career for non-compensated time off associated with job changes. Cost of that: $11,014.16.

It also calculated the average driver would be without medical coverage (or uncovered medical expenses) for 21 months. Cost of that: $3,696.00. Obviously that may be more of an issue in the US than in Canada, thanks to our universal medical coverage, but there are many medical bills such as dental and eye care which we rely heavily on company coverage.

And it calculated the average driver skipping from job to job would lose 84 months of eligibility in pension plans. Cost of that: $115,000, which the study’s authors said was a “very conservative” figure.

Put it all together and the cost of changing jobs 8 times during a 30-year career amounts to $129,710.16. Or, put another way, the cost of a significant downpayment on a house in a major city, almost the entire cost of a house in many smaller towns, or the cost of a brand new rig with most of the bells and whistles you need.

And there were other potential losses too, such as loss of miles and not being considered for dedicated runs or non-driving positions due to lack of seniority; loss of paid vacation time; and loss of insurance for dependents.

Now, I’ve commissioned enough surveys and studies myself to know that often there is an agenda (sometimes hidden, sometimes not) behind most research. And there is clearly an agenda with this study, commissioned by a carrier organization. In the words of the study’s authors it is “hoped that if company drivers knew the financial damages they are causing themselves, they would option to stay at a company longer.”

I’m certainly not suggesting drivers shouldn’t change jobs if there is good reason or need to do so. An extra $5,000 in your pocket over a 30-year career does wipe out the $129,000 loss mentioned above and add some. And if there is a part of your job you absolutely can’t stand, well, no job is worth an ulcer.

What I am suggesting is that switching jobs is a decision that should be given a great deal of consideration because over the long run it can hurt your pocketbook. As the study points out, in a typical driving career, job switching costs the driver in excess of 5 cents on every mile driven.

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Have you been finding it harder of late to find freight, particularly for US bound hauls? Perhaps you're seeing competitors easing off on rate increases, maybe even backing off on some accessorial charges?

Many motor carriers are reporting a lacklustre first quarter with shipment volumes below expectations. South of the border, where the economy is stronger, the American Trucking Associations Tonnage Index decreased 2.5% in February, marking the first monthly decline since last August and the largest monthly decline in a year.

It's not a problem isolated to trucking. CN Rail and CP Rail will be releasing their first quarter results later this month and although analysts are anticipating a strong financial showing, that could have more to do with aggressive pricing tactics than significant volume gains. In fact, volume growth at the big six Class One railroads has slowed considerably since 2004, as respected transportation industry analyst David Newman pointed out in National Bank Financial's Daily Bulletin recently.

Combined, the weakness in rail and truck movements is indicative of volume weakness across the North American freight transportation industry.

Our own Transportation Media Research Buying Trends Survey, conducted in partnership with CITA and CITT late last year and which included freight volume projections from more than 700 shippers across Canada, found shippers in the pulp and paper industry and manufacturers, particularly in central Canada, somewhat pessimistic about their freight volumes in 2006. South of the border inventory corrections at several big-name retailers such as Wal-Mart and Procter & Gamble have been occurring throughout the first quarter. Thom Albrecht, managing director of investment banking firm Stephens Inc., and considered to be one of transportation's most accurate analysts, has even gone as far as suggesting the tight truckload capacity situation could reverse itself in 2006 with capacity additions slightly outstripping demand (by 1% to 2%) for the first time in several years.

So with first quarter shipment volumes falling short of expectations and capacity not as tight as it used to be, motor carriers (perhaps eventually even rail carriers?) are likely being less aggressive with their pricing. And no doubt smart shippers taking note that motor carriers are not exactly bursting at the seams at the moment are moving up their bid packages for the peak season to take advantage of the current weakness.

That's the current reality but I think it will be a short term one - for several reasons.

First, concern that manufacturing shipment volumes in Canada are falling far behind those in the US is exaggerated. The divergence began back in September 2004. According to Jennie Wang's report in the Canadian Economic Observer, from that time till August 2005, the gap between the growth in US and Canadian shipments was 5.2 percentage points with current dollar shipments up 5.5% in the US but only 0.3% in Canada. But, as Wang points out, much of the gap between the growth of shipments in Canada and the United States is due to differences in the prices of manufactured goods as they leave the factory gate. Canadian manufacturers export close to half of all their shipments and often get paid in US greenbacks. Of course, as the exchange rate rose, they received fewer Canadian dollars for their US dollars and so the value of their shipments took a distinct hit. In constant dollars, when the effect of prices is eliminated, the gap between the volume of US and Canadian shipments is practically nil (only 0.3 percentage points).

Second, a good chunk of the capacity growth for motor carriers on both sides of the border is due to concerns about the 2007 engines and their $7,000-$10,000 additional price tags. Many fleets - more than 40% of Canadian for-hire carriers according to our research - are looking to speed up their truck replacement cycle this year so they won't have to buy trucks with the new engines next year. But they are basically cramming two years of growth into one, artificially and temporarily, boosting capacity this year. Truck manufacturers I spoke to last month were expecting a 30% to 35% drop off in truck sales next year. There's also anecdotal evidence that fleets hung on to some of their older vehicles anticipating the strong demand for their services from 2005 would continue into 2006, another capacity boost that will likely disappear by 2007. These reasons have led Albrecht to predict the current slack will be followed by a re-tightening of capacity for 2007.

In other words, you'll have to adjust to the current respite in capacity shortages and upward pressure on rates, but it won't last long.

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Class 8 truck sales hit a record 35,984 units in 2005, easily surpassing the previous record of 30,984 set back in 1999. Can 2006 possibly be better? I've been asked that question a lot lately. To be honest I'm struggling with the answer.

The January numbers certainly point in that direction with the year off to its fastest start on record. There were 2,441 Class 8 trucks sold in Canada this January, according to records from the Canadian Vehicle Manufacturers Association. In comparison, last year's record year started with 2,173 trucks sold. And the five-year average for the month is just 1,548.

But is there enough momentum in the economy and the need for new iron among Canadian fleets and owner/operators to last the entire year?

Continue reading "2006: Another record year for truck sales or cause for concern?" »

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A recent letter from an owner/operator's association criticizing our report on the Ontario Trucking Association's poll showing most Ontarians support speed limiting for trucks has left me wondering why the speed limiter debate has turned so nasty of late.

The owner/operator's association took a swipe at our editorial integrity and I would like to address that first before getting on to the larger issue of the speed limiter debate.

The poll, conducted by IntelliPulse, on behalf of the OTA, found that 71% of respondents were in favor of the speed limiting proposal and that 79% felt that highway safety would be improved if the policy to limit all trucks to 105 kmh were to become law.

The criticism was that our report on the poll, which appeared on trucknews.com, did not include comments from other parties. Of course, I agree that fair journalism requires comment from other parties, particularly on controversial issues. On the surface, if we look at this story in isolation, it would seem we were not doing our job. But that's a picture way out of whack with reality.

The reality is that we have devoted tons of ink in previous months to ensuring that all sides in the speed limiter debate have been clearly heard. The Ontario Trucking Association has run columns in Truck News, obviously in favor of speed limiting. But so has the Private Motor Truck Council, a fleet organization, with its opposition to speed limiting. Our sister publication, Motortruck has spoken with truckers in Australia and Europe who have been using speed limiting for some time. We didn't take the OTA's word that speed limiting works in the countries that are using it; we made our own enquiries.

And we made sure owner/operator associations were given ample opportunity to share the reasons behind their opposition to the policy. OBAC, for example, has written several times about the issue in its monthly column in Truck News. The comments of OBAC and the Owner-Operator Independent Drivers' Association (OOIDA) have also been included in several news stories about speed limiting in recent months. Our February issue included not only a front-page story about the controversial policy, which included ample comments from OBAC and OOIDA, but also page after page of letters to the editor from drivers and owner/operators. Almost all of the letters were against the OTA's position.

We have committed so much ink to this issue that I doubt anyone can point to a competing publication that has a done a better job of presenting all sides of this issue.

The "poll" story that we ran on trucknews.com simply advanced our coverage of the issue. If another organization was to come up with a credible poll that showed a different result, we would be happy to publish that as well. To insinuate we are purposely trying to suppress other points of view on this controversial subject is a great distortion of reality.

What it does leave me wondering is if certain industry stakeholders have become so wrapped up in their positions on this issue that they've lost their sense of perspective

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There appears to be a lot of frustration lately on both sides of the transportation equation. Shippers are grumbling about rising rates and the fairness of fuel surcharges while at the same time remaining concerned about capacity. Carriers of all sizes remain adamant that the only reason today's rates seem so hard to swallow is because shippers feasted for too long on a diet of repressed pricing. But the larger carriers are getting anxious about their smaller competitors' willingness to hold the line on rates and surcharges.

Change has shifted the balance of power in the shipper-carrier relationship in your favor. The challenge for carriers is to not get carried away with that power - even though it's fair to say some shippers have in the past when they held all the cards. The challenge is keeping your growing sophistication about getting proper value for your services in balance with shippers' continuing need to watch costs.

Every year in the fall we conduct a survey of about 700 shippers. We ask them to identify their greatest challenges. Every year they tell us the same thing: Reducing costs is their top concern and it's their top concern by a wide margin.

Meeting the difficult challenge of rates that not only deliver a fair return on your investments but also allow your customers to remain competitive, I believe, must begin with having the courage to accept the real importance of supply chain, the role of shippers and carriers within it, and the resulting consequences.

The stakes are much, much higher than before. Supply chain management is growing up. And so is the awareness among C-Level management of supply chain's power and its ability to affect overall company performance.

There have been a number of impressive studies conducted recently that have been able to show a DIRECT link between supply chain performance and financial performance. I want to briefly tell you about two of them:

A study by Accenture and Stanford University a couple of years ago used data from more than 600 major companies across 24 industries over a six-year period. The study looked at companies considered supply chain "leaders" and at companies considered supply chain "laggards". It calculated financial performance for each company based on its change in stock market value growth during the study period. Here's what it found:

The compound average annual growth in stock value of the supply chain leaders was 10 to 30 percentage points higher than that of the laggards. In short, the study proved supply chain excellence makes a huge difference.

That study focused on what happens when you get supply chain management right. What happens when you get it wrong? What happens when as a result of either your service or your customer's practices, or miscommunication between the two of your or other suppliers something screws up big?

An ongoing study conducted by the University of Western Ontario and the Georgia Institute of Technology tracked how the stock market reacts when companies announce that key product that has to be at a certain place at a certain time-- can't be there, for whatever reason. In years past a reasonable assumption would have been that such a screw up just makes for unhappy customers but in the end there really isn't a huge impact on stock price.

Well, that assumption is dead wrong.

Public companies announcing supply chain disruptions suffered an immediate 7% loss in stock market value. Imagine taking seven per cent of what you will earn this year and just throwing it out the window. Supply chain disruptions were proven to be more damaging than announced decreases in capital spending, IT problems, and plant closings. In fact there is little more damaging to a company's stock performance than a supply chain disruption. The average destruction in shareholder value for each of the 861 disruptions analyzed, ranged from $120 million to $140 million.

Nor was this a hole that was easy to climb out of. Over a three-year period, those companies announcing supply chain disruptions suffered an incredible 30-40% valuation loss.

With such statistical evidence about the importance of supply chain management it's no surprise that a recent survey of senior executives found that almost 80% believed that effective management of their supply chains would have a "large impact" on their companies' ability to achieve strategic objectives in the future. Or that another study found that almost half of CFOs planned to become much more involved in supply chain management issues by 2005. Or that 70% of executives surveyed agreed that their CEO now views supply chain management as either "very" or "extremely" important.

What's all that mean to you?

Simply the fact that for years the transportation and logistics managers your sales people called on were ignored by their own company executives. Now, the same people that used to ignore them are suddenly becoming very interested in everything they do. Transportation and logistics managers - your key customer contacts -- are IN the spotlight.

Question is will your future dealings with them help them shine or tarnish their image?

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