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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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 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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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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