Driver misclassification, an ongoing glut of capacity putting downward pressure on freight rates, cross-border trade and road safety in Ontario were some of the topics covered by a panel of Ontario trucking heavy hitters at this week’s Ontario Trucking Association (OTA) Congress.
Avery Vise, vice-president of trucking with industry forecaster FTR, visited from the U.S. to share insights into the current freight market. While he said the market should improve slightly in the coming year, don’t expect drastic changes as there remains too much capacity and stagnant freight growth. The consumer economy, he added, has little room for growth as it and employment are already strong.
“You can’t have a recovery just from capacity [leaving],” Vise said. “Even if capacity were to go away, you have to have freight growth to some degree.”
Asked why capacity has been slow to exit the market, he said “We had an unimaginable amount of stimulus [during Covid], which also went to people who decided to leave their jobs as truck drivers and get their own authority, creating a surge in new authorities that we’ve never seen before.”
He noted the U.S. still has 36% more active for-hire carriers than it did pre-pandemic, and that stimulus cheques have enabled those new operators to hang on in a weak market longer than expected.
Bouncing around the bottom
David Tumber, president of Kriska Transportation Group, provided a fleet perspective from the front lines. “We feel like we’re kind of bouncing around the bottom and we have for a few months now,” he said.
That has come amid a sharp increase in operating costs.
“I think across the board, our businesses have seen single-digit rate deflation but double-digit cost appreciation on our cap-ex side,” he said.
Kriska has responded by putting a pause on company acquisitions and scrutinizing how it deploys capital.
“The focus has been on getting our house in order, focusing on the balance sheet and working with the business we’ve got,” he said.
Newly elected OTA chairman Mark Bylsma, president of Spring Creek Carriers, noted being a small carrier in this environment may allow for increased agility, but also presents more exposure to the volatile spot market. His company is struggling with an imbalance of loads and rates going across the border.
“Right now, southbound to the U.S., the volumes are there,” he said. “We’re happy with those volumes. Bot northbound coming back from the U.S. is a completely different story. So now you’ve got trucks that are going out full with yesterday’s rates and trucks that are coming inbound and they’re even worse than yesterday’s rates. That’s where we’re at. So, you measure revenue per mile on a round trip. How do we overcome the poor inbound revenues? We overcome that by having great outbound revenues.”
Intermodal area of growth
A bright spot in the Canadian trucking landscape has been intermodal, noted Mark Knott, vice-president, central region operations for Fastfrate. Shippers have been shifting more freight to intermodal primarily due to the potential cost savings, and not necessarily the related emissions reductions, he noted.
But fleets in the room already dealing with higher costs must brace for another in the not-too-distant future. Vise said EPA27 emissions regulations are likely to add US$20,000-$25,000 to the cost of a Class 8 tractor in 2027. While those regulatory changes will come with a requirement by OEMs to extend the emissions system warranty, Vise said it’s unclear how much benefit will be enjoyed by the initial truck buyers who typically sell those units before the extended warranty would kick in, stretching to 450,000 miles (720,000 km).
“The question then becomes, can they get any residual value [on resale]?” Vise asked.
Tumber said Kriska is already beginning to discuss its own strategy for replacing equipment ahead of, and after, those higher costs go into effect.
“The timing of this probably couldn’t be worse,” he said, noting Kriska aims to hold new trucks no longer than three years. “At today’s rates, you struggle to say let’s put more trucks on the road. But the reality is, we can’t be short-sighted either. We can’t mortgage our future by not having an order in for a year then having that lump in the snake become a future problem. I think it’s probably a blend of stretching things out as well as ordering what we need in order to not put ourselves in a really, really difficult position in a couple years.”
Deploying zero-emission trucks will come with an even greater cost increase. Asked how a small fleet like Spring Creek can absorb that, Bylsma joked “I wait for Challenger, Rosedale and Kriska to figure it out and I ask them what works!”
Focusing on what you can control
Ron Uloth, vice-president of the Rosedale Group, said his business is focused on the variables it can control. It has better utilized telematics to improve customer service, while focusing on driver retention.
“There are things we can control and we do that on a daily basis,” he said. “We can control our warehouse hours, we can control our driver hours, we can control the payload on our trucks. We can also control our empty miles. We can pay attention to delay times on pickups and deliveries, and idle time. That’s one area that we’ve really focused on and we’ve had some substantial savings.”
Putting on his OTA chairman hat, Bylsma said a focus going forward for the association will be the ongoing battle against driver misclassification.
“We’re very good at lobbying and we’re good at policy, but we – the people in this room and out in the hallways – need to get together and have a grassroots political effort in a coordinated and collaborative way,” he said of efforts to get government to enforce laws already on the books.
Putting the S and G in ESG
Asked about the responsibility shippers have to avoid using carriers that wrongfully employ drivers as independent contractors, there was some frustration voiced by the panelists. Many such shippers have employment, social and governance (ESG) programs in place, said Tumber.
“I think what’s over-indexed in the ESG is focus on the E,” he said. “We certainly work hard to make sure we know what our mpg is and what that translates into as far as our carbon footprint. But don’t miss the opportunity with your customers, when you’re sitting with them, to speak to the S and the G. The social is an important aspect and the governance is an important aspect of ESG as well. And if you can tie together your story about the value you bring to the partnership and how you align with their corporate goals not only on the E, but also the S and the G, there’s a lot [of carriers] who can’t do that.”
Bylsma agreed, but added it’s challenging in an environment where shippers are putting out requests for proposals and having “faceless” conversations with their carriers during the selection process.
Benefits of nearshoring
Looking for a bright spot in the economy, Knott said nearshoring – with more production of goods moved from Asia to Mexico – will benefit the Canadian industry.
“Absolutely, there’s tons of opportunity there,” he said of nearshoring. But that, too, comes with challenges. He noted northbound freight out of Mexico is about 10 times greater than the freight moving into the country.
Vise said FTR expects the benefits of nearshoring to the trucking industry to surpass that to the broader economy, since most goods crossing the U.S.-Mexico border travel by truck and much of it is tied to the automotive industry.
Asked about road safety in Ontario, Uloth said an increase in driving school monitoring is required.
“We’ve got some great schools out there and some not-so-great schools,” he said. “I’m not sure anybody’s ever heard of a school’s licence being revoked or suspended.”
Rosedale evaluates a prospective driver’s driving skills, and is willing to work with the better ones even if they struggle with some aspects of the jobs such as pre-trips, load securement or paperwork.
Kriska has an in-depth finishing program that takes new entrants and better develops their skills before putting them on the road. Tumber said the program is constantly being modified but has been beneficial in raising the skill levels of the fleet’s drivers.
“It’s difficult, because fewer and fewer quality drivers come to our doors,” he said. “For every 100 applicants, we may bring on one.”
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