Economic uncertainty continues to muddle freight market prospects for Ontario carriers, who, despite stagnant volumes in most lanes, seem to be reasonably optimistic going forward.
The good news, according to the Ontario Trucking Association’s second quarter 2016 business conditions survey for the bellwether sector, is that a majority of carriers (55%) remain optimistic about the trucking industry prospects over the next quarter, although that’s 14 points lower than the previous 4Q15 survey and the lowest since 2Q13. The 18% who said they were pessimistic about market conditions is relatively low, but also the highest level in three years.
Freight Volumes
A majority of carriers remain unsure about intra-Ontario freight volumes compared to three months ago. The number who report improved volumes from the last survey is down slightly (31% from 37%), while only 6% believe they will experience decreased volumes. For inter-provincial movements, 28% predict volume improvements – a rebound from the six-year low of 16% reported last quarter, but still among the lowest level since 2012. The 41% of carriers who indicated a volume boost in southbound US freight is up from the last two quarters of 36% and 27%, albeit still down 20 to 25 points from 2014 reports. Nearly half (47%) are unsure. Northbound US freight saw another nice bump, as 31% felt volumes had improved compared to 13% in 4Q15. Only 25% reported negative volumes, down from 51% who experienced a decrease last survey.
Looking down the road, 27% of carriers said they were optimistic in their six-month outlook for intra-Ontario freight volumes, down slightly from 35% last quarter but the lowest since 4Q13. A large majority (68%) predict stagnancy or – depending on the preferred viewpoint – stability, as they indicate no short-term change in volumes. It’s a similar situation inter-provincially, where 62% don’t expect any significant flux. Meanwhile, 26% say volumes will improve – the same as last quarter but half of the number who said the same thing last year at this time. The 12% who suggested decreased volumes is a low percentage, but the highest in this category since 2010. Volumes appear to be the most stable southbound as 44% predict improvements – more or less consistent with the last three surveys. However, the 15% who anticipate a downturn in US volumes is the highest since 4Q13. Northbound, 32% expect improvements, up significantly from the 18% and 14% who said as much the last two surveys.
Capacity
Although half of carriers (46%) continue to report capacity as being unaffected, another 46% report increased capacity – nearly double from the last quarter (24%) and the only time since the Great Recession in 2009 when over 35% of carrier indicated excess capacity. Only 8% said capacity had decreased in the previous three months. Most carriers (60%) suggest little change in the capacity situation over the next six months, while 22% say capacity will expand further and 17% suggest it will tighten. Relatedly, only 32% of carriers expect to add tractors in the short-term – the lowest since 4Q13. The same goes for trailers as only 32% said they would add units.
Carrier Costs
Fleets continue to struggle to keep a lid on rising costs. Respondents were nearly unanimous (94%) in saying that tractor/engine prices have increased by at least 10 per cent and for the first time since OTA launched the business expectations survey more than half (52%) indicated price increases of 20% or higher – in part a reflection of currency fluctuations but likely also a consequence of more expensive EPA –mandated technology finding its way into fleets cycles. A near majority also specified higher trailer costs, although not as exponentially as power units. About 31% of carriers indicated trailer costs hikes of 20% or more. Nearly all respondents report some sort of wage increases (84%), down slightly from 92% from last survey. Naturally, with the price of oil collapsing over the last couple of years, carriers continue to see some relief at the pump, with only 21% reporting unchanged or increased fuel prices.
Top Concerns
After being listed as the top concern for several consecutive surveys, the driver shortage slipped to third place among issues on the minds of carriers, eclipsed by the economy and rates/capacity (36% each). The driver shortage was listed as the number one concern for 33% of respondents – down from 40% and 50% in the last two surveys.