Ontario’s recent economic turbulence and stagnant U.S. market growth has led to lower freight volumes and rates throughout the first part of 2015, although conditions on both fronts are still expected to remain quite resilient.
The Ontario Trucking Association’s second quarter 2015 business conditions survey for the bellwether sector (which covers carriers’ experiences and forecasts for on Intra-Ontario, inter-provincial, southbound US, northbound US freight lanes) shows that expectations going forward remain buoyant despite recent freight market weakness on both sides of the border, ever-tightening capacity, higher wage costs and unprecedented prices for new equipment and maintenance.
Intra-Ontario freight volumes took a steep tumble as nearly half of the carriers reported volume increases in the previous three months compared to carriers in the 4Q 2014 survey (25% from 47%). It’s the first time in 18 months that less than 30% of carriers reported volume improvements. Sixty-seven percent of carriers reported no change. Intra-provincially, 36% of carriers indicated increased volumes, nearly half of the 60% who said the same thing exactly a year ago. The year-to-year drop isn’t so surprising considering last winter’s volumes in early 2014 were inflated as a result of deferred bad weather-related shipments. That said, early indications of a “spring peak” season don’t appear to be reflected in these responses.
U.S. southbound volumes also slid as only 27% of carriers reported increases, compared to 55% and 65% of carriers in the last two surveys. That mark is the lowest since 4Q13 and the first back-to-back drop since 2Q13. Northbound U.S. volumes were relatively unchanged from the last survey. Again, like in Canada, the sharp downturn could indicate a return to normalcy during what’s traditionally a slow opening quarter, but it’s also true that the U.S. economy slowed to a crawl with GDP growth receding to 0.2% in the first quarter of 2015 compared to 2.2 consistently throughout most of 2014.
Perhaps another sign that recently depressed volumes aren’t immediately alarming to carriers is that their expectations don’t appear to have been significantly dampened going forward. Within Ontario, the projection that volumes would be improving over the next six months was expressed by 54% of carriers – up from 29% in the last survey and in line with the 63% from this time last year. Not a single respondent thinks volumes will decline. Intra provincially, 50% predict volume escalation – up from 40% from 4Q14, but down 20 points from a year ago. Interestingly, the sudden drop experienced in recent southbound volumes isn’t reflected in carriers’ outlook for the balance of 2015 as 50% expect increases and 45% say levels will stay balanced. Only 5% thought volumes would continue to plunge. The rate of carriers that expect increases in northbound U.S. was down more than half (33% to 14%). Seventy-three percent said things should remain unchanged in this lane.
Unsurprisingly, lower expectations for pricing within Canada reflected the softened volumes of the last three months, but the decline was comparatively modest and near-term rate expectations remain in line with the recent trend of robust pricing. Within Ontario, 33% expect rate hikes over the next six months – 12 points lower than the record high of 4Q14 (45%) but still the second highest ever recorded. Intra-provincially, the number of carriers forecasting higher rates fell from 47% to 36%, which is still three times more than those who said the same in 4Q13. Interestingly, U.S. lanes painted to a different picture. Despite economic stagnation south of the border to start the year, a majority (55%) of Ontario carriers actually said southbound U.S. rates are set to rise – 10 points higher than the previous survey and almost double of 4Q13. Those who think rates will sink only increased from 3% to 10%. For northbound, 41% also expect increases (+6%), tied for the highest level in three years.
According to respondents, there isn’t going to be any relief in capacity anytime soon. A meager 8% of carriers think capacity will increase – a whopping 19-point drop from 4Q14 and the lowest ever recorded by OTA. Meanwhile, 38% said capacity would tighten (+9%) while 54% expect no change. Over the next six months, again, a record-low of 8% expect a boost in capacity with 42% predicting less availability. Once again, despite the crunch, there’s little change in shippers’ willingness to lock in capacity by lengthening contract timeframes (only 16%). Meanwhile, a majority (56%) of carriers continue to say they plan to add drivers in the short-term, although the rate has hardly budged below or beyond the 45-60 percent window for nearly two years.
Although the business of trucking has been relatively buoyant since the end of 2012, carriers continue to struggle to keep up with rising costs. It’s apparent the added emission controls and safety technology in new generation trucks has propelled prices upward since 2010. But in this survey, likely as a result of the widened gap between the CND and US dollars, a whopping 24% of carriers said purchase prices have jumped by 20% or more – the first time ever respondents reported more than a single-digit increase in equipment costs. Sixty-two percent cited purchase prices in the 5-15% range. Relatedly, 83% of carriers report higher maintenance costs as equipment becomes more technically complicated and expensive to fix . Meanwhile, in a bid to retain and attract more truck drivers, fleets also continue to raise wages. For the first time, every carrier surveyed reported giving raises to drivers (92% indicated 2-5% increases and 8% saying they increased wages by 10% or more).
The driver shortage prevails as the top concern for carriers (50%, down from 55%). Capacity/rates was the second-highest reason for concern (38%, up from 21%). Only 13% stated the economy was their number one reason for alarm, a fraction of the 50% of carriers who expressed anxiety over markets at the end of 2012.