Canadian Transportation & Logistics December 2012
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Published Since 1898 DECEMBER 2012 A year of promise or a year of risk? Prepare your supply chain for either scenario.
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Transcript of Canadian Transportation & Logistics December 2012
Published Since 1898
DECEMBER 2012
O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3A year of promise or a year of r isk?
Prepare your supply chain for ei ther scenario.
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ct&l december 2012 3
VOLUME 115 ISSUE NO. 11 DECEMBER 2012
Published Since 1898
Conquer the uncertainty. To help you gain a deeper understanding of the issues and pressures you will face in the months to come, we present Outlook 2013: our annual report combining expert analysis of trends in every mode with our latest research on transportation buying trends . . . . . . . . . . . . . . . . . . . . . . . . 16
COVER
6…CUBE AND CONTROVERSYWalmart Canada has unveiled a first-of-its-kind supercube trailer designed to greatly expand capacity. So why don’t truckers like it?
12…VIEW FROM THE TOPMulti-modal C-suite panel outlines what will shape transportation decision making next year at CITT’s Reposition 2012 event.
Features
O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3Outlook 18. . . OCEAN CARRIERS: CHANGING COURSEGlobal shipping lines seeing signs of fragile turnaround.
22. . . MOTOR CARRIERS: TRICKY TRUCKINGRates, overcapacity, and driver shortage creating challenges for trucking.
28. . . RAIL CARRIERS: BACK ON TRACKLevel of service legislation, shortline successes, and frontier track on tap for 2013.
32. . . AIR CARRIERS: FIGHTING CROSSWINDSBeleaguered airfreight industry fighting crosswinds of market volatility, changing shipping patterns, and movement to cheaper modes in 2013.
36. . . COURIERS: COMPETITIVE CLIMATE Fierce competition and growth paving way for bullish year for couriers’ Big Three.
8 TRANSPORTATION SUMMITShippers and carriers came together to discuss pertinent industry issues at our first-ever Surface Transportation Summit in October. In this issue, our line-up of blue chip speakers debates the value of RFPs and ponders the challenges of the coming months.
Special Inside
www.ctl.ca
44 ct&l december 2012
Relations between Canada’s Class 1 rail-ways and the multitude of Canadian shippers who rely on them for cost ef-
fective transportation have been filled with acrimony for years now, to the detriment of both. Shippers have had to endure service disruptions and angry customers due to ser-vice issues. Railways have likely missed out on more sizeable gains into new markets be-cause shippers didn’t trust them. It has also
likely been harder for the rail-ways to combat inefficient prac-tices because shippers didn’t want to play along. One is more likely to want to play nice with a friend than someone perceived as an adversary.
There are developments I’ve seen of late that I’m hopeful will go a long way towards improv-ing the situation.
The first involves a decision just reached on the legislative front which addresses shipper frustrations in dealing with railway penalties or ancillary charges they consider unfair. Back in 2008, a provi-sion was added to the Canada Transporta-tion Act, which, for the first time, allowed shippers to file complaints to the Canadian Transportation Agency when they found themselves at odds with their railway ser-vice providers over such charges. It was a big deal because for some shippers such charges amounted to millions annually.
It was a big deal with a short party.When the first complaint was filed, the
Canadian Transportation Agency refused to rule on it. It argued that a confidential con-tract was in place between the shipper and the railway and so it didn’t have the man-date to pry. That prevented other shippers locked into contracts but with similar com-plaints from taking their cases to the Agen-cy. Seeing the broad implications of such a decision (most medium and large shippers ship under confidential contract), the Cana-dian Industrial Transportation Association (CITA) upped the ante by taking the matter to the Cabinet of the Canadian govern-ment, asking that the Agency be ordered to make a ruling on the complaint. The Cabi-net agreed. But, as has often been the case in shipper-railway relations of late, that didn’t end it. CN asked for a judicial review of the Cabinet decision. The Federal Court
agreed with CN’s position and disallowed the Cabinet decision.
Undaunted, the CITA upped the ante yet again, appealing that decision to a higher court. At the start of November, the Federal Court of Appeal overturned the lower court’s decision and restored the Cabinet decision.
Unless CN or CP want to head back to court (if further appeal is even allowed) this means shippers are now free to file complaints on penalty and ancillary charg-es even if a confidential contract is in place.
So we should have peace on that front, with the Agency able to step in when nec-essary to handle disputes.
The second development that will help broker peace is Ottawa’s stated plan to pass legislation to better manage the relation-ships between rail companies and their customers. Shippers have been pushing hard for mandated service level agreements to give them more negotiating power, par-ticularly when they have only one choice for a rail carrier. The railways don’t want Ottawa interfering and believe the current system is working well enough.
Either way, if Ottawa sticks to its prom-ise (and our sources say that it will) we will see the proposed legislation before the year is over. Once passed, that, too, should help reduce the bickering.
As important as these two developments are, I’m more enthused about the third: the changing attitude among the nation’s Class 1 railways over the past year. Their top execu-tives are singing a different tune. Readily ac-knowledging they were inward focused for much of the past two decades as they tried to tackle financial difficulties and control inter-nal costs, they say they now need a more out-ward focus. As Jean Jacques Ruest, executive vice-president and chief marketing officer at CN Rail, told CITT’s recent Reposition 2012 conference in Halifax: “Rail needs to address better service. It’s not the cost of the service; it’s if we can provide a service the customer can live with…We need to be more innova-tive and creative with our services.”
If these words ring true, we can finally look forward to a more collaborative rela-tionship between Canada’s railways and the shippers who depend on them.
And I doubt either side will miss the bickering and acrimony of the past two decades. CT&L
Lou Smyrlis, MCILT
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Volume 115 Issue No. 11 December 2012
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here’s hopingWill latest developments bring thaw to
icy railway-shipper relationship?
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5ct&l december 2012
Blog bits Search our blog archives at ctl.ca Carolina Billings joins ctl.ca’s group of bloggers with expert advice on human resources issues.
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• Laurie Turnbull: Will BPA regulations impact transportation?
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6 www.ctl.ca6 ct&l december 2012
On Nov. 6, Walmart Canada took the wraps off a radical new tractor-trailer design it says increas-es cubic capacity by roughly 30%.
The “supercube” trailer was designed and built in On-tario, in partnership with Innovative Trailer Design. The trailer itself is 60.5 feet long, 7.5 feet. longer than the industry standard. A lowered floor and 126-inch interior increases trailer capacity by 28%, offering 5,100 cu.-ft. of storage, and a drome box mounted to the back of the cab adds another 521 cu.-ft. of carrying capacity. The trailer is pulled by a Freightliner cabover.
The tractor-trailer doesn’t exceed existing length or weight restrictions.
Andy Ellis, senior vice-president of supply chain and logistics for Walmart Canada, introduced the design to stakeholders at the 2012 Transportation Sustainability Conference.
“The conference provided us with a chance to show-case the supercube trailer not only with supply chain and transportation professionals, but also with other retail-ers,” Ellis said. “We’ve always said that sustainability is not a competitive advantage. We’ll share the knowledge and technology put into this truck with anyone who’s interested, just as we’ve shared the knowledge gained from our sustainable fresh food distribution centre in Balzac, Alta.”
Walmart’s supercube trailer was built under a special permit through a pilot program at the Ministry of Trans-portation in Ontario. The MTO is granting permits for four trailers, and two tractor units, and Ellis said the first of those vehicles was set to begin making deliveries as early as Nov. 12.
Shipments of low-density cargo could benefit from the improved productivity, Ellis pointed out.
While Walmart is more than happy to share the de-sign with other shippers and carriers, the trucking in-dustry hasn’t exactly greeted the new configuration with enthusiasm.
The Ontario Trucking Association (OTA) held a car-rier meeting prior to its annual convention Nov. 8 to discuss the new configuration. Numerous concerns were discussed about the manner in which the new trailer was brought to market and the oversight – or lack thereof – that could occur going forward.
In a statement, the OTA board of directors declared: “The proposal to allow the longer trailers is not some-thing the trucking industry has been advocating for or promoting. Therefore, the proposal does not enjoy the support of the trucking industry that previous changes to Ontario’s allowable truck configurations did. (The move, for example, to 53-ft. trailers or the controlled use of LCVs).” Continued on page 14
cube and controversy Walmart Canada has unveiled a first-of-its-kind supercube trailer to greatly expand capacity. So why don’t truckers like it?
By Julia Kuzeljevich, Carolyn Gruske and James Menzies
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88 ct&l december 2012
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Shippers and carriers work better when they work together. That’s what we have believed since bringing together our array of carrier and shipper publications, Web sites and newsletters more than a de-cade ago to create the most comprehen-sive information source on commercial transportation. And it’s what drove us to bring shippers and carriers together for
our first annual Surface Transportation Summit this Oct. 17 in Mississauga, Ont., in partnership with Dan Goodwill & Associates.
Transportation and logistics practices are becoming in-creasingly complex and an effective supply chain is be-coming recognized as a competitive differentiator. At the same time, there are lingering questions about capacity, pricing and service standards. By bringing shippers and carriers together in an educational setting, we were look-ing to foster productive dialogue and networking.
We were rewarded with a blue-chip lineup of speakers, more than 200 delegates and a very insightful exchange of ideas. But this conversation is too important to allow it to end there. So with this issue we are providing a comprehensive report on the major themes from the conference. Look also for our Inside the Numbers and HookedUp e-newsletters for more information as well as future episodes of our award-winning WebTV show, TMTV.
And don’t forget to book Oct. 16, 2013 into your calen-dar for our next Surface Transportation Summit.
Lou Smyrlis, editorial director, Transportation MediaDan Goodwill, president, Dan Goodwill & Associates
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An expert-level technical and business education and a professional designation from CITT are all affordable, accessible, and have the best ROI in the business. Visit our website at www.citt.ca for more information.
2012 SUMMIT SPONSORS
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Are Request for Proposals (RFPs) a constructive, mutually beneficial process for both shippers and carriers, or are they, as one motor carrier executive deemed them,
“Really friggin’ pathetic”?That was the most contentious issue of the day during the 2012
Surface Transportation Summit, which brought together more than 200 carrier and shipper executives. The event, sponsored by Motor-truck Fleet Executive, Canadian Transportation & Logistics and Dan Goodwill & Associates, included a spirited debate on whether an RFP builds, or damages, shipper-carrier relationships.
Mark Seymour, CEO of Kriska Transportation, got the discus-sion rolling when, while lamenting the tremendous amount of waste in the system, called for better collaboration between ship-pers and carriers and declared “business tenders are no way to get waste out of the system.”
Brian Springer, vice-president, transportation with Loblaw Companies, when speaking later the same morning as part of the Managing a Win-Win Shipper-Carrier Rate Negotiation panel, de-fended the process.
“I tend to disagree,” Springer said of carrier notions that RFPs are counterproductive. “Formal RFPs, when done in the right way – not a formal RFP where I’ll just grab the lowest cost and run with it, that doesn’t do anyone any good, you’re just back in the same place six months down the road – give you an opportunity to share all your lanes both ways with the carrier community and then really capital-ize in balancing those lanes with carrier freight. So, I think there are some good opportunities there.”
Dan Einwechter, CEO of Challenger Motor Freight, was part of the same panel discussion. He countered: “For every good RFP we see, I’d tell you I see two bad ones, where they’re empowering the wrong people to put data together; it’s a dumbing down of informa-tion, it’s not correct information and at our place, RFP at times means ‘Really friggin’ pathetic,’ because of the lack of data and be-cause of inconsistency.”
Too often, said Einwechter, shippers are hiring outside agencies to put together RFPs without a comprehensive understanding of transportation and logistics.
“What happens is that the incumbent carrier pays the price, and, at times, our shipper, the client, who you may have a strong rela-tionship with, pays the price because at the time when they least need or deserve turmoil, they have it intentionally inflicted upon themselves,” Einwechter said.
He said Challenger recently saw an RFP that listed $45 as the
target rate for loads going from Southern Ontario to Toledo, Ohio. “I told my guys, ‘Throw it away, don’t even look at it. There’s no
accurate data in there, don’t waste your time,’” Einwechter recalled.Wes Armour, CEO of Armour Transportation agreed that RFPs
often impose an unnecessary burden on carriers. He said his com-pany has received RFPs from customers that generate $30,000-$35,000 per year in revenue.
“Any money we make on them, we spend trying to fill out the RFP,” Armour said. “The questions are ridiculous, there’s no room for flexibility, such as ‘Can we give you an intermodal rate or short-sea shipping?’ – there’s none of that in there. It’s ‘What is your rate?’ and that’s what they’re after.”
For carriers that have established strong relationships with their customers, there could be opportunities to sidestep the RFP pro-cess. Michael Tan, divisional vice-president, supply chain and trans-portation with Hudson’s Bay Company, admitted he has forgone the process with sophisticated carriers such as Armour.
“When we sat down with Armour, it was initially predicated on an RFP,” Tan said. “My team and I quickly decided to throw the formalities of the RFP out the window, and instead ended up with very candid dialogues with Wes and his team. I don’t take the same approach with each negotiation, but in this case it worked out very well.”
Einwechter said RFPs generally fail to reflect the added value that large, sophisticated fleets can bring to the table, such as quick access to data, monthly route analysis, a customer’s trends and patterns, etc.
“That stuff doesn’t get picked up in an RFP, so when it comes to decision time, our contact who would like to deal with us is pres-sured from somebody else to go with the cheaper rate and they don’t realize what they’re going to be losing, so we have to keep selling that value proposition to our customers,” Einwechter said.
Springer admitted that, oftentimes, the incumbent carrier is at a disadvantage through the RFP process because it may be familiar with some of the inefficiencies in the system and will build that into the rate, while a competitor that’s bidding on the freight for the first time will not. Springer advised carriers to identify these extra costs in the RFP and not to bury them in the rate. He also admitted ship-pers need to be aware of these nuances when making decisions.
“The RFP process is an opportunity for carriers and shippers to get connected, not just grab the lowest cost and run,” Springer said. “It really comes back to understanding what’s in an incumbent’s cost and what’s in the new carrier’s cost.” CT&L
9ct&l december 2012
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Constructive or counterproductive?Shippers and carriers debate value of RFPs
B y J a m e s M e n z i e s
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Is a win-win scenario possible? Leading carrier executives outline the hard realities of rate negotiations
B y J u l i a K u z e l j e v i c h & L o u S m y r l i s
Executives representing some of Canada’s largest providers of sur-face transportation say that after
years of rate reductions, there is little room left to move on rates, and supply chain cost concerns must be dealt with by reducing waste.
“People still don’t get it. We have no more to give in terms of rates. What we have to do is work together to get rid of waste,” Mark Seymour, president of Kriska Transportation, told the Surface Transpor-
tation Summit. “Rates will have to go up as costs are rising dramatically, but they may not have to rise as fast if we can get more waste out,” he said.
Consolidations in the industry, fuel vola-tility (including big swings in regional fuel pricing), a talent shortage, and technology requirements will result in carriers needing to add more value than just “low rates,” con-curred Doug Harrison, COO of Day and Ross Transportation Group.
Customer demands are also evolving
and becoming more specific in the year ahead, he added.
“Competitive rates are a factor, but qual-ity still means a lot – what is the reliability of a carrier, what are its focuses? We’ve re-sponded to changes in the market by mak-ing sure we’re easier to do business with. We’ve taken our divisions down from eight to four,” he said.
“Opportunities to create data provide tremendous opportunities back to the cus-tomer. Certainly, it’s a period of change and evolution. Leading providers will have to understand and anticipate customer needs,” said Harrison.
Carriers, feeling the sting from the reces-sion, want to have healthier bottom lines by focusing on raising rates. Shippers have made a concerted effort over the last few years to reduce transportation costs by re-fusing rate increases or pushing for rate roll-backs, i.e. placing established business con-tracts on bid when necessary. And they remain focused on cost control. The results from the latest Shippers’ Pulse survey con-ducted by the Canadian Industrial Trans-portation Association in partnership with Canadian Transportation & Logistics, show it is one of their top two priorities.
Global concerns about an economic slowdown can only exacerbate the situa-tion. The sober outlook from Greg Hewitt, president DHL Express Canada, was that his company is expecting 2013 to be a tough year, globally.
“We see global markets and emerging markets – which are DHL’s strength – still growing, but slipping back from some of the double-digit growth rates they’ve seen. And we don’t see an end to some of the chal-lenges in the US market and European mar-ket,” Hewitt said.
So can these differences in priorities among shippers and carriers be brought into
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sync? Meeting in the middle will definitely become a necessary part of doing business for shippers and carriers.
“There certainly are shippers that do look beyond the price. Basi-cally, the good carriers are focused on long-term stability. I don’t think size has got a lot to do with it,” said Wes Armour, president of Armour Transportation Systems.
“Forget that we’re in trucking or that we’re shippers. As citizens of North America, forces are going to dictate that we work collab-oratively together to make sure we can move our freight as cost ef-fectively as possible,” said Dan Einwechter, chairman and CEO of Challenger Motor Freight.
“I’ve been hoping it would be closer now than it is. Unfortu-nately, 2008 was shellshock,” he said.
“I think it’s so important today that the relationship of trust and respect is built up between the customer and the carrier. Without that, I’m not sure how far we’re going to go.”
The need for greater cooperation among shippers and carriers – and also among carriers from different modes – was a theme which also framed the remarks of Michael Bourque, president and CEO of the Railway Association of Canada.
“In the future, we really need to work a lot more closely together as we see the trend towards supply chain integration. It’s the only way we are going to succeed in the future as a country. We have to find ways to be as efficient as possible to overcome [the challenges of] our shared geography, which we can’t get away from,” he said.
Bourque also addressed shipper concerns over customer service levels from the nation’s Class 1 railways. He acknowledged the rail-ways have not delivered adequate customer satisfaction, but noted the Shippers’ Pulse surveys have shown marked improvement over the last few years. He also asked shippers to place railway perfor-mance in context, pointing out that it was only 17 years ago that CN became a private company, instead of a Crown corporation that was very inefficiently run. That meant a change in management and working model. At the same time, there has been a considerable change in rail freight patterns to adjust from a strong north-south pattern to one that involves a lot of east-west movements and re-
quires a great deal more supply chain integration, working closely with ports, terminals, and other modes to deliver to global markets.
“That change has really forced the railroads to operate a lot more efficiently and to really change their model and they did so rather abruptly. Customers felt that pain, communicated it back and now there has been a lot more effort to work in cooperation with those customers. We’ve heard our customers and we are adjusting,” Bourque said.
Another important change which required considerable adjust-ment was the move to precision railroading – essentially a focus on asset utilization and velocity.
“In the old days, you could have a lot of railcars sitting around at customer locations. Especially in certain sectors, such as agriculture, they got used to having these railcars and when they could fill them up, they did and called the railroad to pick them up,” Bourque ex-plained. “Now, we are in a very different operating model. We can’t afford to have stuff sitting around; there is too much demand for that equipment and it costs the railroads money. A Crown corpora-tion can have them sitting there, but in a real-world, competitive global market, you can’t do that. So every effort is made to get every piece of equipment moving all the time.”
DHL Express Canada’s Hewitt used his remarks to look be-yond 2013. He noted that Deutsche Post commissioned a study in 2010 on customer needs, and there were some major trends emerging from this that will affect how carriers do business in the next few years.
First, said Hewitt, as the world economy grows between 2010-2020, climate change and issues around the environment will be a major economic force.
“It will create a period where a new set of green products and services will be unleashed on the market and sustainable energy production will be on the threshold of a breakthrough. Ecofriend-liness and conscientious consumption will determine, more and more, customer purchasing behaviour,” he said. “People will make the ethical choice – provided it stays within a happy range on the price point.” CT&L
11ct&l december 2012www.ctl.ca
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reportreposition 2012
Changing trade flows, modal shifts, labour challenges and the persistent need to leverage the power of technology will shape transportation decision making in 2013, accord-
ing to a panel of transportation stakeholders addressing CITT’s Reposition 2012 conference in Halifax in early November.
Global economic instability is creating a shift in trade flows and supply chain strategies that, in turn, is reshaping airfreight carriers’ approach to business, Lise-Marie Turpin, vice-president of Air Canada Cargo, told a packed room of shippers and carriers attend-ing the opening Multi-Modal C-Suite Panel at the conference.
“We are seeing changes in Asia with a slowdown in exports. In the US, the outcome of instability is leading to [Americans] look-ing to bring jobs back to the US. And there is also the effect of natural disasters, which seem to be coming more frequently and hitting with greater vengeance, shutting down manufacturing in certain areas,” Turpin explained. Last year’s tsunami in Japan, floods in Thailand and the recent hurricane damage in the US northeast coast are all recent reminders of how fragile global sup-ply chains can be. And that is leading companies to reconsider concentrating all their manufacturing and/or sourcing in one area.
Turpin was joined on the blue-chip panel by Doug Harrison, COO of Day and Ross Transportation Group; Jeff Cullen, CEO of Bellville Rodair; Neil McKenna, vice-president of transporta-tion at Canadian Tire; Rudy Mack, president and founder of Rudy Mack Associates; and Jean-Jacques Ruest, executive vice-presi-dent and chief marketing officer at CN Rail.
Slumping trade volumes between China and North America could not come at a worse time for marine container lines. The globe’s ocean shipping lines are already bleeding badly, with no im-mediate relief in sight, according to Mack, founder of Rudy Mack
Associates, a New York-based consul-tancy focusing on maritime issues.
A combination of excess capacity and volatile rates is staining profit led-gers in red ink and can only lead to fur-ther industry consolidation and possi-bly further government intervention, warned Mack, who served as president and CEO of Hapag-Lloyd (America) from 1999 to 2007.
“There will have to be long-term fi-nancial patience from the marine lines and long-term financial guarantees and financial help from government…When I look at the future, I do see a better hori-zon, but not until 2014-15,” Mack said.
In the meantime, ocean shipping is continuing to suffer from ill-advised ca-pacity decisions made during the previ-ous global trade boom. Despite consid-
erable excess capacity right now, there are 520 new vessels scheduled to be coming online within the next few years, adding about 10% more capacity to the present global fleet. Attempts by the marine lines to reduce capacity by scrapping older ships are not aggressive enough, Mack argued, pointing out they are remov-ing just 2% of total capacity.
The excess capacity has placed considerable downward pres-sure on rates. The trend towards much larger vessels (some up to 18,000 TEU) is also placing downward pressure on rates. To real-ize the economies of scale they were designed to create, these much larger ships need to be full. Marine lines, however, are cur-rently faced with expanding market share in a global trade market not growing as fast as before.
While that is a boon for shippers looking for lower rates, it is also creating rate volatility in the short term and likely further consolida-tion in the long term, which will place upward pressure on rates. For example, marine lines are attempting to capitalize on things such as the prospect of a dockworker strike at US east and Gulf coast ports early in 2013 by raising rates to alternative destinations.
“They are seizing on anything they can get in addition to the base rate. But that’s only for the short while and only for the slot rate,” Mack said, pointing out the majority of freight moves on contract rates that are “far below” slot rates.
He believes further consolidation of carrier operations and of the carriers themselves are essential and need to continue.
Bellville Rodair’s Cullen believes the shift in trade patterns could pose a threat to Canadian shippers over the long term.
The strength of the Asian economies and the weakness of the North American recovery are creating independence from North American trade, said Cullen. “This leads to redeployment of assets
the topthe topthe topthe topthe topthe topthe topthe topMulti-modal C-Suite panel
outlines what will shape transportation decision making next year
By Lou Smyrl is
13ct&l december 2012www.ctl.ca
reportreposition 2012
(the larger containerships, for example) to inter-Asian trade routes. Smaller vessels back here lead to lower economies of scale and higher pricing,” he explained.
Meanwhile, growing issues with border clearance are introduc-ing increasing complexity to North American trade routes.
“Since 9/11, a changing North American perimeter has be-come an obstacle to trade,” Cullen charged.
For air cargo operators in Canada, 2013 will start with a bang via the implementation of Transport Canada’s mandate to screen all cargo in the bellyholds of passenger planes taking off from Ca-nadian airports. Cargo that hasn’t been pre-screened can’t be mixed with pre-screened cargo.
Turpin confirmed the last few months have been very chal-lenging because many shippers don’t want to pre-screen the cargo themselves, preferring the airfreight carriers handle that task. Yet it has not always been clear what Transport Canada expects with the new regulation.
“Ideally, we would like to see goods tendered to us pre-screened. But we have put in equipment at all our major stations. Someone who doesn’t tender pre-screened will have a bit of a delay,” Turpin said.
Cullen concurred with the communication difficulties experi-enced in dealing with the government on security legislation.
“There isn’t a whole lot of consultation with industry. What we see is a lot that is well-intentioned, but totally impractical,” he said.
While trade flows are changing, so, too, are modal preferences, fuelled by the continuing focus among shippers on cost control. Some large customers are seeing significant shifts to marine freight from airfreight, Cullen attested. Another example is the growth in acceptance of intermodal as a viable alternative to over-the-road transportation. Until recently, it was commonly accepted that the economics of rail surpassed the economics of trucking services at around the 750-mile mark. During the discussion of the C-Suite Panel, however, it was revealed that may have shifted down to 500 miles, with many motor carriers themselves using rail servic-es. And, in some cases, rail service could be viable at as low as a 350-mile distance if used to avoid congested corridors such as To-ronto to Montreal.
CN’s Ruest, however, emphasized that rail has to do a better job of addressing service concerns to seize on such opportunities. The future success for railroads in Canada, he said, will hinge on their ability to provide more innovative offerings and improve customer service rather than simply providing low pricing.
“Even though we have lower-cost solutions, in too many cases customers can’t use us because of the service we provide. Rail needs to address better service. It’s not the cost of the service; it’s if we can provide a service the customer can live with,” Ruest said. “We need to be more innovative and creative with our services. We need to be faster to get services to market.”
Ruest explained that railroads became inward-focused during the
1990s when they were in financial difficulties and had to cut costs. But today, railroads are the darlings of Bay Street thanks to their fi-nancial performance and need to pivot their focus. They need to de-fine how they will fit into and contribute to the overall supply chain.
“We need to provide rail service that is connected rather than disconnected to the whole supply chain,” Ruest said.
He pointed to the example of the coal terminal at Prince Ru-pert where all stakeholders must work closely and collaboratively in order to provide a customer experience that is competitive with what customers can receive from competitors in other countries.
As global and complex as the issues mentioned above may be, transportation decisions in the coming year and further ahead may be shaped by something as fundamental as labour.
The potential of a dockworkers strike shutting down deliveries along the US Atlantic and Gulf coasts is causing shippers to recon-sider their transportation strategies for 2013, Canadian Tire’s McKenna warned.
Tense negotiations between the US dockworkers union and the organization representing shipping companies broke down in late August, but were then extended for 90 days, through Dec. 29. The collective bargaining agreement between the Internation-al Longshoremen’s Association (ILA) and the US Maritime Alli-ance (USMX) was set to expire on Sept. 30. While the move to extend the deadline prevented a strike before the Christmas sea-son, McKenna said shippers can’t just wait and hope for the best.
“As a shipper, it’s the threat of a strike or lockout that causes shippers to move (to alternative ports). Forty-eight hours notice (about labour disruption) is not enough. We need to be moving to unaffected ports months in advance,” McKenna told Reposition 2012 attendees.
The need to find talent will also prove to be one of the greatest limiters to growth for Canada’s transportation industry, according to Day and Ross’s Harrison. In turn, the resulting limit on capacity (there is no sense adding new equipment to a truck fleet if there are not enough drivers to place behind the wheel) will inflate truck rates.
Not only is talent hard to find, it’s also hard to retain, at least in the trucking industry. Harrison pointed out that driver turnover among some of the larger truckload fleets in the US tops 100%. He ques-tioned how fleets besieged by such high turnover can train their driv-ers and engage them in providing superior customer service.
The graying of the current transportation workforce will also add to the shortage.
The challenges posed to all modes by the impending labour shortage make investment in new technologies that boost efficien-cies paramount. Turpin believes adopting e-business, or turning current manually-intensive paper reporting to more efficient elec-tronic data reporting, could prove a game changer. She said so far the airfreight industry has been slow to embrace e-business, but that must change.
“To do that, we need to have high quality data,” she said. CT&L
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14 www.ctl.ca14 ct&l december 2012
OTA also objected to the shipper, in this case Walmart, being granted a permit to operate the trailers when, in reality, they’d be pulled by third-party carriers.
“Our members are very uncomfort-able with this proposal as it currently stands,” said OTA president David Brad-ley. “The proposed issuance of special permits to a shipper is a major game-
changer for the industry; it completely turns the whole approach to monitoring and managing truck safety on its head. This must be changed.”
Asked to explain the issuance of a per-mit to Walmart Canada for equipment that would ultimately be operated by a third-party, for-hire carrier, and fall under said carrier’s CVOR, MTO spokesman
Bob Nichols said it simply didn’t happen that way. He said the supercube pilot will follow the tradition of past pilot projects, especially when it comes to who is re-sponsible for the trucks and trailers.
“There is no change as to how these permits are being handled,” Nichols told sister publication MM&D. “The permits for this limited pilot will be issued to Walmart’s carrier and not to Walmart.”
However, a Memorandum of Under-standing between the Ontario Registrar of Motor Vehicles and Walmart Canada Corp., obtained by Transportation Media, seems to imply otherwise. It reads: “The Registrar of Motor Vehicles, by authority of Section 110.1 of the Highway Traffic Act, agrees to issue Special Permits au-thorizing Walmart to operate extended semi-trailers on Ontario roads and high-ways.” The end of the document reiter-ates: “This MoU will remain in force as long as Walmart holds Special Permits.”
Nichols told MM&D that the trucks and trailers won’t be allowed on Ontario roads until the details of the pilot have been finalized.
Not to be lost in all this is the fact the supercube is a very compelling alterna-tive for transporting lightweight prod-uct. Benny Di Franco, president of ITD, said his company enjoyed working on the project.
“When they came to us, we said it’s a no-brainer. It’s fully doable and a great idea. We haven’t changed anything with-in the laws. We’ve just allowed more ca-pacity in the trailer without getting any longer,” Di Franco said.
Among the more interesting innova-tions: the trailer comes with a scissor lift capable of handling 15,000 lbs, so a fork-lift can be used to stock the front section of the trailer. A bogie airbag lift system raises the height of the trailer to meet the standard loading dock height of four feet.
Inside the trailer interior, a fully weld-ed and sealed lightweight all-aluminum flat floor with anti-slip surface minimiz-es trailer weight while providing a safe and low-maintenance surface. Flush-mounted LED lights in the ceiling with a timer switch at the trailer entrance pro-vide excellent visibility for loading and unloading freight.
The drome box can contain four skids and rolls to the rear of the truck frame so it can be loaded by forklift. The trailer it-self weighs 14,590 lbs, about 3% more than a conventional trailer. CT&L
Walmart – Continued from page 6
managementtransportation
O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3A year of promise or a year of r isk? Prepare your supply chain for ei ther scenario.
17OUTLOOK 2013
Three years into an agonizingly slow economic recovery sprinkled with a good deal of market volatility and uncertainty, you couldn’t blame Canadian corporate executives if they felt like
throwing in the towel when it came to forecasting for 2013. Ditto for the supply chain managers tasked with putting in place the transportation and logistics strategies necessary to keep costs in line while serving new customers in new markets, sometimes with new vendors, and always under increasing customer scrutiny.
Yet in my travels across the country – and there have been a lot dur-ing this fall – I don’t get a sense of bewilderment among supply chain executives or the C-Suite executives to whom they report. What I do get is a distinct sense of determination and a feeling they have a handle on the New Normal. And with that comes a certain degree of confi-dence in the future ahead.
Tumbling stock market reports followed by puzzling growth in new orders? No problem. Rising calls for steep transportation rate increases followed by months of stability on the rate index? Seen that one before. It sure is not pretty or for the faint of heart this mad dash from boom to gloom back to boom we experience every month. But it is what we have to deal with and we know how to dance to this tune. After three years, the one-step forward, two steps back, two steps forward shuffle has become something many shippers and carriers have learned to dance in unison.
Consider the findings from GE Capital’s most recent Canadian Mid-Market CFO Survey, which examines businesses across five distinct sectors, providing a national picture of how financial executives in dif-ferent industries view the business environment today and their outlook for the months ahead. Nearly two-thirds (61%) of CFOs expect reve-nues to increase; the expected increase grew five points to 13% from the last time GE Capital surveyed CFOs back in March. Yet, at the same time, the number of CFOs who expect their company revenues to decrease has jumped by 12 percentage points. How does one account for such contradictory results: It’s the New Normal. And we know how to dance to this tune.
For supply chain professionals it means remaining vigilant on cost increases while maintaining relationships with reputable carriers. It means being ruthless when it comes to removing waste from the system that hurts efficiency. It means staying on top of every market change – rising energy prices, increasing capacity shortages, heightened labor ten-sions, etc. – which could alter the current dynamic.
To help you gain a deeper understanding of the issues and pressures you will face in the months to come we have produced Outlook 2013. Our annual Outlook report is the most comprehensive editorial project we take on all year. We combine expert analysis of every mode with our Inside the Numbers reports detailing trends on rates, surcharges and ca-pacity. The data is from our annual Transportation Buying Trends Sur-vey conducted in partnership with the Canadian Industrial Transporta-tion Association and CITT.
As in past years, we also look forward to discussing the survey results and our outlook for 2013 in transportation trends presentations across the country.
Accurate forecasting may be difficult under such volatile times but you have proven over the past few years that it’s not impossible. We hope our report helps you to at least ask the right questions and be aware of the many scenarios likely to shape the coming year.
Lou Smyrlis Editorial Director
AUTHOR BIOS
Ian Putzger is an award-winning journalist with more than 20 years experience covering transportation and logistics issues. A former writer and editor with the Hong-Kong based Asian Sources Media Group and Airtrade, a British mag azine covering the global air cargo industry, his writing provides the international perspective crucial to today’s supply chain management issues.
Ian Putzger is an award-winning journalist with more than 20 years experience covering transportation and logistics issues. A former writer and editor with the Hong-Kong based Asian Sources Media Group and Airtrade, a British magthe global air cargo industry, his writing provides the international perspective crucial to today’s supply chain management issues.
For more than two decades, veteran journalist Leo Ryan has reported on key transportation and trade developments in Can ada. A former Montreal bureau chief for The Journal of Com merce, he specializes in port and shipping issues and was awarded the Medal of Merit in 1992 by the then Can adian Port and Harbour Association.
For more than two decades, veteran journalist Leo Ryan has reported on key transportation and trade developments in CanA former Montreal bureau chief for The Journal of Comspecializes in port and shipping issues and was awarded the Medal of Merit in 1992 by the then Can
Carroll McCormick has been writing about transportation-related issues and trends for more than a decade. Based in Montreal, Que., his in-depth reporting and feature writing have garnered several Canadian Business Press awards and nominations, considered the Pulitzer prize of business journalism in Canada.
Carroll McCormick has been writing about transportation-related issues and trends for more than a decade. Based in Montreal, Que., his in-depth reporting and feature writing have garnered several Canadian Business Press awards and nominations, considered the Pulitzer prize of business journalism in Canada.
Features editor Julia Kuzeljevich has been writing about transportation issues for more than a decade. Her meticulously researched articles have garnered several transportation and Canadian Business Press writing awards.
Features editor Julia Kuzeljevich has been writing about transportation issues for more than a decade. Her meticulously researched articles have garnered several transportation and Canadian Business Press writing awards.
O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3O U T L O O K 2 0 1 3A year of promise or a year of r isk? Prepare your supply chain for ei ther scenario.
1818 OUTLOOK 2013
The domino effect of the reces-sion of late 2008 through 2009 is still being felt by shippers and
shipping lines, notably amidst persis-tent economic doldrums in Europe and recent slower growth in China. The global shipping environment remains characterized by overcapacity and vol-atile rates. But there’s some light at the end of the tunnel on shipping enter-prise balance sheets thanks to the suc-cess of some freight rate increases and the positive impact of slow-steaming on soaring fuel costs. And, intriguingly enough, Canadian players on the world’s oceans and North American markets have embarked on a fleet re-newal process, with a pronounced “green” dimension, that has not been seen in more than three decades.
According to London’s Drewry Shipping Consultants, the re-cent implementation of rate restoration by carriers in the core east-west trade lanes means that most are now operating above break-even.
After total carrier losses exceeded US$6 billion in 2011, the overall 2012 figures could show a profit of just over $1 billion or a loss of similar size.
Global 2012 container growth of 4.3% is forecast by Drewry’s, which, in its annual market review this fall, stressed that continued supply side pressures mean the container industry will remain in a transition mode until at least 2014 and probably 2015.
“How well the operators manage capacity deployment during this time will largely determine where freight rates and overall prof-itability settles. Continued slow-steaming and more idling of capac-ity, which have been at a relatively low level over the past 12 months, will need to be more heavily utilized strategic weapons in the future – whether the carriers like it or not.”
Drewry’s considers that though carriers have coped relatively well with the influx of new capacity, the new reality is that “there are few genuine positive indicators out there: demand is weak and will remain on the core headhaul trades for the next 15 months at least, the charter market is showing no signs of pick-up, freight rates are under pressure and the cascade of tonnage through the system is starting to cause issues.”
Worthy of special note is a big new item on the table for carriers and shippers: the so-called “indexed contract.” The concept is just at an early stage, but the idea is for contracts covering several years
B y L e o R y a n
Global shipping lines seeing signs of fragile turnaround
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that would seek to smooth out the peaks and valleys of volatile ocean freight rates by offering a more stable pric-ing environment.
Industry observers, mean-while, are paying particular attention to developments on the crucial Far East-Europe trade lane, where a virtually across-the-board general rate increase (GRI) of US$500 per TEU (effective Nov. 1) was announced by carriers on this overcapacity-plagued route. It is felt that supply will need to be reduced rap-idly for the GRIs to have any chance of sticking within the
context of soft demand and sliding spot rates.The latest idle containership survey of Paris-based analyst Al-
phaliner shows the number of mothballed box vessels above 500 TEUs in size had climbed to 255 for 550,000 slots as of Sept. 24, or 3.4% of the existing world cellular fleet. Alphaliner considers that a further 30,000 slots will need to be withdrawn soon to restore some supply/demand balance in the troubled trade lane.
Escalation of slow-steamingOn the slow-steaming front, Alphaliner has also outlined a rather startling escalation of new trends.
Vessels today are sailing at speeds of less than 14 knots on certain legs in the Far East-Europe strings, increasing the average rotation to 10.5 weeks versus only 8.2 weeks in 2007.
Driven by surging fuel prices, this extra slow steaming is spread-ing from the Far East-Europe and trans-Pacific to other high-vol-ume secondary routes. Alphaliner estimates that the increased slow-steaming has soaked up 930,000 TEUs, or nearly 6% of the world box fleet.
In an interview, Ruth Snowden, executive director of the Cana-dian International Freight Forwarders Association, commented on the impact of the above trend in these terms: “We are now witness-ing much longer supply chain transits. Inventories are tied up. Equipment availability is much less. Every knot in speed cut out increases the need for more containers.”
Among various marine cargo challenges facing shippers, Snowden expressed strong frustration over the plethora of fuel sur-charges and GRIs. “There have been eight increases alone in the
Marine – continued on page 20
2020 OUTLOOK 2013
marine carriers – cont’d from page 18
trans-Pacific trades in the past 12 months. This imposes a huge ad-ministrative burden on freight forwarders who must reluctantly re-quote rates to their customers.”
At the Panama Canal, with construction of an enlarged water-way about six months behind schedule, global shipping lines will likely have until the spring of 2015 to adjust their fleet configura-tions accordingly.
The US$5.3 billion project includes the construction of two new sets of locks – one on the Pacific and one on the Atlantic side of the canal built in the early 20th century. Work also involves the widen-ing and deepening of existing navigational channels in Gatun Lake and the Culebra Cut. The historical definition of Panamax contain-erships will evolve from 4,500 TEUs to about 12,500 TEUs. Over-all bigger vessel capacity will have a profound impact on Asia-US maritime supply chains for all-water services to the east and east coasts of North America.
Cargo volume through the Panama Canal has bounced back since the 2008 financial crisis hurt international shipping. In fiscal year 2012, the Canal set a new record of 333.7 million tonnes, rep-
resenting a 3.6% increase over 2011. The top market segments were container vessels (120 million tonnes), dry bulk carriers (83.4 mil-lion tonnes) and tankers (51.6 million tonnes).
In light of its growing emphasis on Asian cargo, in September the Port of Halifax became the first Canadian port to sign a Memo-randum of Understanding with the Panama Canal Authority.
“Asian cargo is growing over the Port of Halifax and with the Panama Canal expansion nearing completion, large ships will soon have another route option available to and from North America and the Port of Halifax,” said Karen Oldfield, president and CEO of the Halifax Port Authority. “With Halifax’s transit time advantages for our Asian target markets, it makes sense for us to establish a strate-gic partnership with the Panama Canal Authority and this MOU will be mutually beneficial.”
Full steam ahead on Canadian fleet renewalMeanwhile, Canadian shipping lines active in international as well as domestic markets are steaming ahead – big time – in renewing and expanding their fleets, with particular emphasis on greater fuel efficiency and enhanced “green” performance to further reduce an already low carbon footprint compared with other modes. The more than one billion dollar fleet renewal was kick-started by the federal government’s October 2010 removal of a controversial, longstanding 25% duty on new ships built outside Canada.
For the Great Lakes carriers, the advanced technologies de-ployed on the new generation vessels will allow them to even ex-ceed new environmental standards coming into force in North America in 2015.
The first such vessel that will be seen on the Great Lakes/St. Lawrence System will be the Baie St. Paul of Canada Steamship Lines. Following its completion in a Chinese shipyard, it set sail in
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CAPACITY CONCERN4.81
excess capacity balanced capacity very tight capacity0 5 10
6%
% expect this mode to have highest pricing power 2013
Change in use of mode 2013 EXPECTED RATE INCREASES 2013 Size of Increase % of Respondents
Down 5%+ 1%
Down 2-5% 1%
Down 0-2% 3%
Flat 22%
Up 0-2% 15%
Up 2-5% 13%
Up 5%+ 7%
Not sure 39%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
73%
23%
30%
3%
12%
Inside the numbers
Stay the same
60%
Increase 21%Not sure
15% Decrease 4%
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October from China for Montreal, where it was expected to arrive by early December.
The Baie St. Paul is one of four Trillium Class, self-unloading vessels ordered by CSL for the Great Lakes bulk shipping trades, beginning in 2013.
“The Trillium Class will set new standards in operational and energy efficiency, reliability and environmental protection,” said CSL president Louis Martel.
In addition to a more efficient hull structure, propeller design and anti-fouling paint, and Tier II main engines, the Trillium Class uses variable-frequency drives so fewer generators need to be on line to start machinery – thereby shaving fuel consumption.
Algoma Central Corporation of St. Catharines, Ont. is investing some $400 million for eight new ships, including six Equinox Class bulk carriers, also presently under construction in China. With a hull optimized for hydrodynamic efficiency and cargo capacity, these vessels will be powered by smaller, two-stroke engines that will consume 45% less fuel per cargo tonne than the older four-stroke engines.
In Quebec City, the Groupe Desgagnés has, in recent years, in-vested about $300 million on new ships, and a sixth is on order.
Montreal-based Fednav Limited has invested more than $500 million for 21 new vessels – nine allocated for Great Lakes/Seaway service – as part of a major renewal program. Seven have already been put into service. The six Lakers recently ordered from Japan’s Oshima Shipyard, to be delivered in 2015 and 2016, will use 20% less fuel and generate 20% less nitrogen oxide emissions than the first generation Oshima ships bought a decade ago.
Regarded as Canada’s pioneer in Arctic shipping, Fednav owns and operates two of the world’s most powerful ice-breaking com-mercial vessels, the MV Umiak 1 and the MV Arctic. In late Octo-
ber, it announced the placing of an order with Canadian Royalties, a Chinese-owned mining firm, of a 25,000-tonne, ice-breaking bulk carrier from a Japanese shipyard, with delivery slated for December 2013. This ship will be transporting nickel and copper concentrates from the Nunavik Nickel Project in northern Quebec to customers in Europe as well as the import from Europe of mine supplies and equipment.
Finally, and not least, was the news announced in October of privately-owned Oceanex’s order from a German shipyard for the construction – at a cost of $100 million – of what will be the largest Canadian-flag container/roro ship, with delivery scheduled in the fall of 2013. The Oceanex Connaigra will be joining three other container/roro vessels on the Newfoundland service.
Owned by veteran Newfoundland shipping figure Sid Hynes, Oceanex is a leading player in the east coast transportation indus-try, operating through the ports of Montreal, Halifax, St. John’s and Corner Brook. “The Oceanex Connaigra has been designed to meet the company’s anticipated growth for the next 30 years,” said Hynes. CT&L
CITT11E-PA02-profitability-OUTLI1 1 2/9/2011 3:07:22 PM
2222 OUTLOOK 2013
The Great Recession that began in 2008 did not leave motor carrier fleets unscathed. As they head
into 2013, how do carriers think they will fare and what strategies will help them?
There was some fierce competition during the recession, “but it made us a better carrier. We found that there were better ways to do things. We went out to look for more long-term partner-ships,” said Wes Armour, president of Armour Transportation Systems, and a panel speaker at the recent Surface Transportation Summit hosted by Transportation Media and Dan Good-will and Associates.
During the recession, smaller ship-
B y J u l i a K u z e l j e v i c h
Rates, overcapacity, driver shortage creating challenges for trucking
motor carriers
ments meant less volume.“Now, volumes are coming back
slowly, but it was an impact and it took us a while to figure out why we were not getting the same revenue,” said Armour.
Headquartered in Moncton, N.B., Armour Transportation Systems used to get a lot of its volume of traffic from paper mills in the maritime region, many of which are now closed.
“This created a huge imbalance that cannot be corrected. That was huge volume for our industry for years and years,” he said.
Now, he added, many carriers are taking on more of an administrative
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HELPING THE WORLD KEEP PROMISES.®
Old Dominion Freight Line, the Old Dominion logo and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identifi ed herein are the intellectual property of their respective owners. © 2012 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.
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We may be in shipping, but your business is our business. And if that business happens to include products moving abroad, that’s OD’s business too. Our LCL and FCL services extend seamlessly to points throughout Asia, Canada, Mexico, Alaska, Hawaii, Puerto Rico and beyond. So whatever you import or export, our technology, global logistics experience and people will ensure a promise made is a promise kept, in any language. odpromises.com/global
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If you’re in the global wine and dine business, so are we.
M2OD0009_CanadianTL_Dec.indd 1 11/13/12 11:48 AM
23OUTLOOK 2012
transportation buying trends survey
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CAPACITY CONCERN5.09
excess capacity balanced capacity very tight capacity0 5 10
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% expect this mode to have highest pricing power 2013
Increase 30%
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Change in use of mode 2013 EXPECTED RATE INCREASES 2013 Size of Increase % of Respondents
Down 5%+ 1%
Down 2-5% 3%
Down 0-2% 4%
Flat 23%
Up 0-2% 23%
Up 2-5% 23%
Up 5%+ 9%
Not sure 14%
SURCHARGES % RESPONDENTS PAYING
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Inside the numbers
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CAPACITY CONCERN4.23
excess capacity balanced capacity very tight capacity0 5 10
24%
% expect this mode to have highest pricing power 2013
Increase 39%
Staythe same
48%
Decrease 8%
Change in use of mode 2013EXPECTED RATE INCREASES 2013 Size of Increase % of Respondents
Down 5%+ 2%
Down 2-5% 2%
Down 0-2% 5%
Flat 22%
Up 0-2% 28%
Up 2-5% 23%
Up 5%+ 10%
Not sure 8%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
96%
8%
23%
6%
15%
Inside the numbers
Staythe same
52%
Not sure 6%
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2424 OUTLOOK 201324
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workload as their customers grapple with fewer staff as a result of their own cuts.
“It seems like the customer doesn’t have the horsepower to do the things they used to do. In some cases, you can’t even get a phone call back on something that turns out to be their issue. We’ve seen that becoming a big change over three, four years ago,” said Armour.
Another impact of the Great Recession was that freight rates recovered much slower than many carriers anticipated.
This is not a surprise to those who observed a “race to the bot-tom on rates” during the recession, said Dan Einwechter, chair-man and CEO of Challenger Motor Freight.
“A lot of carriers that weren’t in the east-west business decided to go into that marketplace. We made a serious commitment to upgrade our equipment. We went into some different markets in our heavy haul, and we faced some additional competition on the van side,” said Einwechter.
There are challenges ahead for 2013 as carriers continue to try to get compensatory rates in a market of overcapacity and stagnant growth.
“It’s trying to get top line revenue when costs on the bottom
motor carriers – cont’d from page 22
are pushing up all the time. It’s about maintaining margins,” said Doug Munro, president of Maritime-Ontario Freight Lines. Mun-ro was a panel speaker at Supply Chain Canada’s Oct. 1 breakfast seminar in Mississauga, Ont.
The driver shortage was also supposed to have impact on ca-pacity and put upward pressure on pricing.
At the moment, this hasn’t happened “because there’s an over-capacity on equipment, forcing assets to keep turning,” Munro said.
“My opinion is that in LTL there is an even greater overcapac-ity because there are more movements. Carriers are our own worst enemy is terms of pricing; we don’t know our own true costs. If there is consolidation, maybe there will be some change, but I think we’re at the status quo for a while,” he said.
Keeping service levels up is a huge priority, according to Munro.“It’s educating customers on the one hand, but with the mar-
kets so competitive, we have to maintain a high level of service. Without that, nothing else matters,” said Munro.
There are some promising niche markets in resources and cold chain, said Munro, but there is just not a lot of growth.
“My outlook is that 2013 is going to be a bit of a tough year, but I think we’re getting a bit of market share from our competi-tors. We’re hoping for increased volumes, but whatever volumes we’re getting, we’re going to get off our competitors; we’re kind of fighting for a share of the same pie,” he said.
Carrier cash flows and balance sheet ratios also took a hit during the recession and going into 2013, many motor carriers will continue to be squeezed, said Mark Seymour, president of Kriska Transporta-tion.
“We lost control of pricing,” said Seymour.” What may have
O U T L O O K 2 0 1 3
Motor – continued on page 26
E F F E C T I V E S O L U T I O N S :
STRONG PARTNERSLINK THE U.S . AND CANADA
Shipping between Canada and the U.S. promises potential for new worlds of
industry expansion and increased pro�tability. But mobilizing freight on “the other
side” has consistently been a challenge for shippers in both countries. Until now.
Two leading national carriers, U.S. Xpress and Maritime-Ontario (M-O), are
partnering together to provide what you need to easily get your shipment across
the border — no matter if your freight is headed north or south.
Now you can cross the border with con�dence, knowing that you’ll have the
access, capacity and convenience to move your freight easily into either country.
U.S. XpressDave Dulaney
VP | International
423.510.3425
Maritime-OntarioSteve Snow
VP | Sales & Customer Service
905.792.6154
Contact Us...............................................................................................................................
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O U T L O O K 2 0 1 3
motor carriers – cont’d from page 24
saved us was to use the pricing disciplines we had in place prior to the recession. Many organizations thought they were disciplined in cost control, but we realized we weren’t as good or disciplined as we had thought. We had to make some hard decisions to ‘right the ship.’ Rates had to go up and it’s not over,” he told the ship-per-carrier audience at the Surface Transportation Summit.
Kriska Holdings has made some five acquisitions over the last five years, said Seymour.
“There are lots of sellers, but buyers are cautious. It’s tough to find good acquisitions in terms of cultural fits. Buyers can’t afford to make mistakes,” he said, adding that carriers should always run their business as if they want to sell it.
A shortage of drivers will remain an issue for carriers and the industry is a tough draw, said Seymour, citing a driver turnover rate that hit 106% in the US in late September.
“It certainly isn’t sexy. And the associations are trying to pro-tect us from ourselves, trying to do the right thing while many of us go out and do the opposite. We’re putting e-logs in the owner/operators’ trucks and they’re leaving like crazy,” he said.
It doesn’t help that there is more regulation coming down the pipe for carriers.
“I’m not against regulations, but there are far too many to en-force and too many in the pipeline. It creates an uneven playing field with too many people trying to fly under the radar. And it makes drivers very transient,” he said.
Citing numbers from the Canadian Chamber of Commerce and the Conference Board of Canada, Doug Harrison, Chief Operating Officer, Day and Ross Transportation Group, said the Canadian transport industry is short 27,000 people today, with that expected to grow to 74,000 people by 2015.
“I can order trailers, I can order power, I can buy fuel, but I can’t manufacture people,” Harrison said. “To me, the greatest constraint going forward will be the people side of the equation, not the equipment side or the fuel side.”
Day & Ross is looking to position itself as a “preferred em-ployer” in hopes of attracting more drivers and support staff to its operations.
“It’s people that deliver the value that you provide,” Harrison said. “For us going forward, we’ll be spending more time on our culture, focusing on how we bring people in and how we look at succession plans to ensure we’re a place people want to join.”
Harrison also said the company will be developing relation-ships with post-secondary schools and First Nations groups to raise awareness of the career opportunities available at the company and within the industry.
Even if drivers were readily available, Harrison said Day & Ross would be cautious about adding capacity in the current environment.
“As an industry, we’re all watching very closely for when is the right time to invest in capacity,” Harrison said. “We certainly have to invest in renewal, but when is the right time to invest in capac-ity? The pragmatic view is caution as we move forward.” CT&L
2828 OUTLOOK 2013
Whether your way is the highway or the railway,Hub Group Canada is the solution. We are literallyeverywhere you turn and offer one of the most capacityrich transportation networks in North America.
With Hub Group Canada, you’ll have instant 24/7access to the services, carriers and centralizedcontrols you need to smoothly manage thetransportation needs of your business. Our highwayand intermodal specialists are standing by to respondimmediately to your next LTL, full load or specializedtransportation requirement.
Everywhere You Turn
Please contact : Barry O’Neill, Vice PresidentHub Group Canada, [email protected] www.hubgroup.com
O U T L O O K 2 0 1 3
Despite measurable improve-ments in shipper satisfaction since 2008, complaints about
the quality of service offered by the railways will not go away, but not for lack of trying. For example, an attempt this year by a stakeholder facilitation committee to get shippers and rail-ways to agree on a template to guide negotiations to arrive at ser-vice level agreements came close, but was unsuccessful.
This September, members of the Coalition of Rail Shippers (CRS) took their beef with rail service to Ottawa. They asked the government to implement legislation – to be contained in changes to the Canada Transportation Act – that would permit more bal-anced relationships between shippers and railways.
“The legislation should be designed to set a framework that a shipper will have the right to a service level agreement and dispute resolution process, so the railways would not be able to stonewall and refuse either one. The goal should be a rebalancing of the framework that will encourage effective commercial negotiations,” says CRS chairman Bob Ballantyne.
Claude Mongeau, president and CEO of CN, objects. “I do not believe in the need for new regulations…We have a lot of positive momentum building in the wake of the [Rail Freight Service Re-view] and I believe we are on the right course,” he wrote in a letter to CN’s customers.
Underlining this view, Michael Bourque, president of the Rail-way Association of Canada, refers to service level ratings compiled by the Canadian Industrial Transportation Association. They show that in 2011, 72.5% of shippers were satisfied at least 95% of the time, up from 23.5% in 2008. “This is evidence of a significant improvement in rail service,” he says.
Nonetheless, says Ballantyne, “There is a lot of skepticism that once the spotlight is off, there might be a return to the bad old days. The shippers are essentially saying that in order to at least go some way to redressing the imbalance that legislation is needed.”
A common refrain is that shippers must pay penalties to rail-ways for non-performance, but railways have no reciprocal finan-cial obligations in the case of their own non-performance. Is this correct? The Facilitator’s Final Report: Service Agreement Tem-plate and Commercial Dispute Resolution Process, aka the Din-
B y C a r r o l l M c C o r m i c k
Level of service legislation, shortline successes, frontier track on tap for 2013
rail carriers
ning Report, published May 31, notes on page 17: “The railways’ position is that they will meet their common carrier obligations for all shippers and will negotiate financial consequences for railway non-performance with shippers who make a reciprocal com-mitment on traffic volumes.”
Ed Greenberg, CP media relations, comments, “[T]he Dinning Report provides valuable insight on how the commercial system can be improved. We support the conclusion that improving pre-dictability and reliability of the rail supply chain is through recip-rocal commitments...If the Government moves forward on legisla-tion, it should be based on commercial principles including reciprocity and be a backstop only. CP has commercial agreements with our customers…which include dispute resolution mecha-nisms.”
Moving along to capital projects, the mainlines tabled $1-bil-lion-plus budgets in 2012, which will yield service improvements as finished projects come on line this year and in 2013. CP, for example, is in year two of its four-year $250-million North Main Line infrastructure upgrade. “It will increase volume growth, re-sult in shorter route miles for certain traffic and provide a more rapid recovery time from any potential incident or outage,” Green-berg reports. Other work will increase long train productive capac-ity. This September, CP announced faster intermodal services that will shorten its Vancouver-Toronto run by one day and its Van-couver-Chicago service by two days.
CN customers will enjoy expanded freight train capacity in its Edmonton-Prince Rupert corridor – the BC North Line – thanks to a $155-million project to construct five sidings that will increase the fluidity of its operations. This year, CN announced it would acquire more than 2,200 freight cars, including 600 60-foot, dou-ble-door boxcars for forest products and metals traffic.
Of the $1.8 billion CN is spending on its North American rail network this year, a project currently in the feasibility study stage is of singular note. In collaboration with five mining companies and in partnership with La Caisse de dépôt et placement du Qué-bec, CN is looking at laying down a 550-kilometre railway from the Labrador Trough in northern Quebec and Labrador to Port Sept Îsles, on the Saint Lawrence River. Intended to serve the min-
Rail – continued on page 30
Whether your way is the highway or the railway,Hub Group Canada is the solution. We are literallyeverywhere you turn and offer one of the most capacityrich transportation networks in North America.
With Hub Group Canada, you’ll have instant 24/7access to the services, carriers and centralizedcontrols you need to smoothly manage thetransportation needs of your business. Our highwayand intermodal specialists are standing by to respondimmediately to your next LTL, full load or specializedtransportation requirement.
Everywhere You Turn
Please contact : Barry O’Neill, Vice PresidentHub Group Canada, [email protected] www.hubgroup.com
30 OUTLOOK 2013
O U T L O O K 2 0 1 3
rail carriers – cont’d from page 28
ing sector in Quebec’s vast Plan Nord development, this line would be the longest new rail line built in Canada since the con-struction of the 692-km Great Slave Lake Railway from Roma Junction, Alta. to Hay River, N.W.T. in the early 1960s and the 578-km Quebec North Shore Railway built in the early 1950s.
This October, CN announced that starting in the second quarter of 2013 it will start loading 30,000 barrels of crude a day – over 50 tank cars worth – at a crude oil rail car loading terminal it will con-struct near Cromer, Man., part of a Memorandum of Understand-ing CN has signed with Tundra Energy Marketing. The facility will have the capacity to accommodate a unit train of 100 tank cars.
CN sees moving crude as one of its fastest growing businesses and sees the potential to double crude oil shipments to 60,000 carloads in 2013. “I think 2012 will be known as the year we start-ed shipping crude by rail on a permanent basis. Rail service is en-abling producers to obtain higher prices for their product by reach-ing hard-to-serve markets, including the US west coast. Oil producers are starting to look at rail as a permanent part of the mix,” Bourque declares.
On a flatter note, CN announced this August it would seek as-sistance from the New Brunswick government to preserve rail freight services on a 224-km stretch of track, called the Newcastle Subdivision, between Irvco, just west of Bathurst and Catamount, near Moncton. At the same time, CN has placed this track into the rail line discontinuance process, noting that freight volumes do not justify the $50 million required to maintain service.
Back out west, some shortlines have good news that will benefit shippers in 2013. In Manitoba, the Lake Line Railroad launched a shortline service between Gimly and Selkirk this year, with $1.25 million in support from the Manitoba government.
With an $800,000 loan from the Saskatchewan government to help buy a 66-km line between Estevan and Tribune from CP, the Long Creek Railroad, the province’s thirteenth shortline, opened this October. The business plan includes the provision of rail ser-vice to the agriculture and oil industries. Shippers on 11 other Saskatchewan shortlines will see improvement in the coming months as $700,000 in grants from the Shortline Railway Sustain-ability Program is spent on maintenance work, tie replacements and bridge repairs.
A plan to rescue Vancouver Island’s rail network, the 180-km Southern Railway of Vancouver Island (SVI), is firmly on track. The Federal and British Columbia governments have agreed to con-tribute a total of $15 million if the Island Corridor Foundation (ICF) can raise an additional $3.2 million from five regional districts and $2.2 million through a combination of loans and fundraising. Work will begin as soon as the financial package is complete.
SVI runs from Victoria to Courtenay, with a spur out to Port Alberni. VIA Rail service was discontinued in March 2011, but ICF expects that improvements to the line will allow it to negoti-ate a new passenger rail service agreement. Although the business case for the $15 million was for passenger service, every dollar will assist the freight service on the line too, according to Frank Butz-elaar, president of the Southern Railway of British Columbia
(SRY), which operates SVI. The rail line requires track upgrades and structural repairs on 48 bridges.
The two locomotives that SRY keeps on SVI move an average 800 railcars a year. Freight moved along the line and ferried be-tween the rail marine terminals in Delta and Nanaimo includes grain, telephone poles, and some chemicals for the pulp and paper industry. Superior Propane brings propane by train in bulk to its tank farm for distribution by truck. Although the freight could be moved by truck, “Bulk and dangerous commodities are much eas-ier to move by rail,” Butzelaar comments.
The money will ensure that the passenger service will run for 10 years. Looking forward, Butzelaar notes, “To operate a railway on a small island like that you need several lines of business to make it successful. In the future, when we develop new lines of freight business, we will develop the business case. There is a coalmine being talked about in the Courtenay area. Every dollar you put into the railway assists the freight business, but to get the railway up to North American industry standards, a lot more work needs to be done.” CT&L
Coalition of Rail Shippers Recommendations
Our government sources indicate Ottawa is pushing ahead with plans to table legislation based on the conclusions of the Independent Rail Service Review Panel. It is expected legisla-tion will be tabled before the House of Commons breaks for the holidays around mid-December.
Over the past few months shippers have been busy laying out their expectations and have placed a heavy emphasis on the right to a Service Level Agreement.
Included below are the recommendations from the Coali-tion of Rail Shippers.
1. The right to a Service Level Agreement (SLA) that will provide some definition of the service that the railway will supply. (While basic elements like transit time and car sup-ply would generally be included in all SLAs, the details will be different for each shipper depending on the specifics of the traffic).
2. A dispute resolution process, probably arbitration, to ob-tain a SLA if one cannot be achieved through direct negotia-tion and the same dispute resolution process to be available to arbitrate the enforcement of an established Agreement.
3. Consequences on the railway for non-performance. Rail-ways now have the right, by law to unilaterally and arbitrarily impose penalties on shippers for non-performance, i.e. de-murrage charges for cars held too long for loading or unload-ing. Shippers would like the same rights.
The coalition represents close to 20 members with a total of more than $230 billion in annual sales and $22 billion in annual capital investments.
rail
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inte
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31OUTLOOK 2013
transportation buying trends survey
rail
fre
igh
t sh
ipp
ers
CAPACITY CONCERN4.80
excess capacity balanced capacity very tight capacity0 5 10
15%
% expect this mode to have highest pricing power 2013
Stay the same
55%
Increase 26%
Not sure 15%
Change in use of mode 2013 EXPECTED RATE INCREASES 2013Size of Increase % of Respondents
Down 5%+ 1%
Down 2-5% 1%
Down 0-2% 3%
Flat 25%
Up 0-2% 14%
Up 2-5% 14%
Up 5%+ 6%
Not sure 35%
Inside the numbers
Decrease 5%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
85%
5%
54%
5%
14%
transportation buying trends survey
inte
rmo
dal
fre
igh
t sh
ipp
ers
CAPACITY CONCERN4.75
excess capacity balanced capacity very tight capacity0 5 10
10%
% expect this mode to have highest pricing power 2013
Stay the same
50%
Increase 32%
Change in use of mode 2013 EXPECTED RATE INCREASES 2013 Size of Increase % of Respondents
Down 5%+ 1%
Down 2-5% 0%
Down 0-2% 2%
Flat 23%
Up 0-2% 15%
Up 2-5% 20%
Up 5%+ 8%
Not sure 32%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
90%
5%
25%
1%
5%
Inside the numbers
Decrease 3%
Not sure 15%
3232 OUTLOOK 2013
For air cargo operators, 2013 will be starting with a bang – thanks to the implementation of Trans-
port Canada’s mandate to screen all cargo in the bellyholds of passenger planes taking off from Canadian air-ports. A few months back, there were still serious misgivings about the state of preparedness in the industry, but much progress has been made since, industry executives report.
“I think we are generally comfortable. There is a lot of aware-ness in the industry what is coming down the line,” says Bill Got-tlieb, president of David Kirsch Forwarders and one of the direc-tors of the Canadian International Freight Forwarders Association (CIFFA).
He adds, though, that the authorities have yet to clarify some points of confusion. According to Jeff Cullen, chief executive of Bellville Rodair International and chair of CIFFA’s airfreight com-mittee, that may be more challenging than it looks, as some people on the government side “still have a lot to learn about the air cargo industry.”
Beyond the regulations, one major question mark is over how much freight will arrive at airline docks unscreened. Most small and mid-sized forwarders will not equip their facilities with screening equipment and rely on the airlines, Gottlieb predicts.
Lise-Marie Turpin, vice-president of cargo at Air Canada, ex-pects more and more freight to be screened before it reaches the airport as forwarders and shippers become used to the new regime. “The best place to handle this is at the shipper’s level,” she adds.
In an effort to create a harmonized security regime with the US, the screening mandate will be extended to inbound air cargo down the road, which will require new adjustments from airlines, forwarders and shippers.
“At the end of the day, the quicker we become standardized, the better. Until then, there will be lots of moving parts,” Turpin comments.
The increasing complexity of the security regulations will seri-ously challenge small and mid-sized logistics providers, who will find it hard to muster the requisite resources to deal with this, Cullen warns.
Automation will play a major role in this process. Security re-quirements are turning into a major boost into the industry’s push
B y I a n P u t z g e r
Airfreight industry fighting market volatility, changing shipping patterns, movement to cheaper modes in 2013
air carriers
for e-freight, which seeks to eliminate paper from the pro-cess, Turpin says.
Whereas large forwarders have established e-freight capa-bilities, smaller cargo agents lack the wherewithal to do so, she observes. In order to sup-port the initiative with this cli-entelle, Air Canada has prompt-ed Cargo Portal Services, which
provides a channel for online bookings with several participating airlines, to develop a virtual e-freight Web site, where small for-warders can enter their air waybill data to be sent electronically.
Forwarders welcome the initiative, but point out that users end up keying in data twice, which constitutes both an additional ef-fort and a potential source for errors. “We need IT suppliers to jump on and make this part of their system with little incremental cost,” Gottlieb says.
At this point, the incentive to do this is still somewhat slim, as a number of trading nations have yet to embrace the international conventions that pave the way for a paperless customs regime. “E-freight is a very good thing, but there are certain countries where you cannot do it. It’s all about customs,” comments Brian Pedersen, vice-president of airfreight at Kuehne + Nagel.
In the current market situation, many operators are reluctant to spend on initiatives that have little short-term impact on their bottom line. “A return to profitability seems rather elusive these days,” comments Gottlieb, and Cullen describes the market as “über-competitive.” Over-capacity, weak demand and market volatility have produced a fierce price competition – which is showing no sign of abating. Ad hoc pricing is rampant, which is undermining long-term agreements. “A lot of sectors are too vola-tile to lock in rates,” Cullen remarks.
Jamie Porteous, executive vice-president of sales and service of Cargojet, notes that shipping patterns have shifted. Automotive traffic, which made up a significant portion of airfreight traffic some years ago, has gone down drastically, as have shipments of CDs and DVDs. Other types of products, like the iPhone and iPad, now make up a significant share of traffic.
Some segments have remained strong. “We are seeing growth in the luxury market, some well into double digits,” Cullen re-ports. For Kuehne + Nagel, pharmaceutical and healthcare busi-ness has grown considerably, and so has perishable traffic.
O U T L O O K 2 0 1 3
Air – continued on page 34
3434 OUTLOOK 2013
air carriers – cont’d from page 32
On top of volatile market conditions and changing patterns in shipping, operators have to contend with shippers’ desire to re-duce their use of airfreight and attempts to shift as much traffic as possible to slower, cheaper modes of transport.
“There is business that over the years has slipped to ocean, but slow steaming is not for everybody,” Turpin remarks.
According to Gottlieb, the trend towards cheaper alternatives looks set to carry on. “We will continue to see a movement to sea-freight wherever possible,” he predicts. “Airfreight continues to be a beleaguered industry – not that the other modes are in great shape.”
The impact is particularly heavy on pure freighter operators, who have no passenger traffic to shoulder part of the operating costs. Even European freighter airline Cargolux, traditionally a very profitable carrier, is currently conducting a fundamental re-view of its business model to stem the flow of red ink on its bal-ance sheet. “If I had a choice, I would support a freighter carrier to keep the alternative in the market,” Pedersen says.
Cargojet’s contract business with the large express operators has softened the impact from soft demand for general cargo on its
balance sheet, but in the first quarter of the past year, its volumes were 20% below the level it had 12 months earlier. Management tweaked the schedule to permit more charter activity, and the market showed some improvement towards the end of the year. Another huge factor was the expansion of UPS into the Mari-times, which called upon Cargojet to mount two nightly flights to the region and gave it an overnight link between western Canada and the Maritimes for the first time.
At Air Canada, much of the focus in recent months has been on the development of plans for a low-cost carrier offshoot, which is due to take off in the coming summer with two Boeing 767 aircraft and two or three smaller Airbus A319s. The new carrier will be a separate entity with its own operating certificate, but its cargo ca-pacity will be managed by air Canada Cargo. However, neither the narrowbody planes on the transborder routes nor the 767s, which will be deployed to sunshine destinations that have little freight traf-fic, are expected to carry much freight. “From a cargo perspective, there will be no significant impact,” Turpin says.
Of greater importance will be two additional Boeing 777s that
O U T L O O K 2 0 1 3
transportation buying trends survey
air
frei
gh
t sh
ipp
ers
CAPACITY CONCERN4.66
excess capacity balanced capacity very tight capacity0 5 10
4%
% expect this mode to have highest pricing power 2013
Stay the same
56%
Increase 18%
Decrease 9%
Change in use of mode 2013 EXPECTED RATE INCREASES 2013Size of Increase % of Respondents
Down 5%+ 0%
Down 2-5% 1%
Down 0-2% 2%
Flat 20%
Up 0-2% 14%
Up 2-5% 18%
Up 5%+ 10%
Not sure 35%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
79%
11%
6%
1%
16%
Inside the numbers
Not sure 17%
35OUTLOOK 2013
are going to join the carrier’s fleet in the coming year. Routings have not yet been de-termined, but quite likely they will be field-ed chiefly across the Pacific, Turpin says. With 25-35 tonnes of cargo capacity, these planes constitute the equivalent of a mid-sized freighter.
Air Canada stands to receive a substantial injection of capacity in 2014, when the long-delayed Boeing 787 is finally due to enter its fleet, where it will replace the smaller B767-300 aircraft.
The long wait is easier to bear at the mo-ment, when there is ample capacity in most sectors in the market. Finding lift has not been an issue, not even on notoriously tight sectors like the Australia route, Pedersen says. Only lift to Latin America remains tight, although Air Canada just shifted from a 767 to a 777, he adds.
The picture is unlikely to change in the near future. Given the macroeconomic framework, a resurgence in demand looks unlikely, particularly for airfreight, which remains in shippers’ crosshairs for further cost containment.
“As much as I am looking for a silver lin-ing, 2013 is going to be a tough year,” states Gottlieb, who expects operators’ costs to go up, but not tonnage or revenues. “I don’t see a recovery unless Apple launches a new product every few months, and even then you have to wonder if consumers would keep up the demand,” he adds.
“Nobody sees light ahead. The market is flat now and it will be flat in 2013,” Tur-pin says.
In this environment, few operators will be inclined to invest in expansion or towards longer-term objectives.
Air Canada Cargo does not have any sig-nificant expansion on its agenda for 2013. “We will be very focused on costs and finding more efficiencies. We will try to find new so-lutions, new opportunities,” Turpin says.
Gottlieb cannot help pointing out a glar-ing contradiction in the airlines’ position. “We get airlines saying they’ve got to wring out ef-ficiencies. At the same time, we get their sales guys knocking on our doors and offering ri-diculous rates. The airlines compound the problem they say they have,” he says. CT&L
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O U T L O O K 2 0 1 3
3636 OUTLOOK 2013
B y I a n P u t z g e r
Fierce competition, growth pave way for bullish year for couriers’ Big Three
couriersO U T L O O K 2 0 1 3
Barring a veto from Brussels, 2013 should bring about a tec-tonic shift on the global express
landscape, as the number of multina-tional behemoths on the stage shrinks from four to three, with UPS taking over TNT Express for 5.2 billion Euros ($6.63 billion). The marriage, which was announced in the spring, will pro-duce a global powerhouse with com-bined revenues north of $50 billion a year. TNT gives UPS a much stronger network in Europe and a sizeable pres-ence in China and Southeast Asia built on TNT’s surface network in the region.
The impact of the takeover will not be felt in the coming year, though. TNT and UPS have signalled that the integration process should take about four years, as UPS management intends to take a phased approach concentrating on customer alignment first be-fore the operational integration.
In Canada, the marriage of the giants will barely ripple the market. “It is not going to have as much of an impact for us here as in Europe and other parts of the world,” says Mike Tierney, president of UPS Canada. “TNT has a small presence in Canada.”
For him, his company’s push into the Maritimes has been a more momentous development in the past year. UPS opened six stations in Atlantic Canada and laid on two nightly flights that connect Halifax and St. John’s to its Canadian hub in Hamilton, drastically reducing transit times to and from the region.
“It was an overdue expansion,” Tierney says.The Canadian market has not experienced any dramatic shift
comparable to the UPS-TNT hook-up or last year’s rebirth of Loomis in the wake of DHL’s retrenchment and withdrawal from the domestic market. The new Loomis has not made waves in the market this year. “They said after the takeover that their focus initially would be on managing the transition. I think they should be getting near the end of that. I expect to see them make a move before long,” says Gary Breininger, president of BGR Coaching and Strategic Solutions.
Market leader Purolator Courier saw the departure of presi-dent Tom Schmitt after barely two years at the helm. The com-pany’s market share has slipped, but at most by one percentage point a year, estimates Breininger. “They continue to be the mar-ket leader. It would take a lot for them to be unseated.”
It remains to be seen who will take over the reins at Purolator and what course will be charted for the coming years. The fact
that its interim president hails from Canada Post has fuelled some speculation that the par-ent company may abandon its traditional stance of keeping its hands off Purolator and seek to control its activities, but it is too early to draw conclusions on its future strategy and involvement with its parent.
According to Tierney, UPS has seen growth in Canada, not least of all because of its expan-
sion into the Maritimes. Overall, however, the large express op-erators are feeling the headwinds from the macroeconomic situa-tion. UPS and FedEx both lowered their earnings outlook in September, citing weakness in the global economy, and reduced their freighter aircraft capacity, notably in Asia, previously the chief engine for their growth. Over in Europe, TNT posted a 12% decline in earnings in the third quarter.
Competition has been fierce and is showing little sign of letting up. “There has been a lot of market share stealing going on, and price has been a key component in this,” notes Breininger. He adds that using multiple courier firms is common among shippers, which is often sub-optimal. Courier companies have responded with ef-forts to look at competitive solutions for a shipper’s entire portfolio.
In the short run, this very competitive climate benefits ship-pers, but over the longer term, the question is how sustainable this is, he continues. While cost cutting remains a key element of most operators’ strategy going forward, opportunities for significant savings are limited. “Most cost cutting opportunities were done in 2008/9. Now it’s more fine tuning,” remarks Breininger.
Price increases announced for the coming year average 4-5%, which is above the rate of inflation, but reflects the high cost of maintaining the networks. “Margins are not as lean as in trucking, but they are not as high as in some other areas like retail,” com-ments Breininger. He adds that it is doubtful that companies will be able to get their large corporate clients to agree to 4-5% higher rates, given their own cost pressures.
Moreover, the trend to substitute premium services with cheaper, slower alternatives is expected to continue through 2013.
Despite the challenging market conditions, both large US inte-grators have sent out bullish signals for the Christmas rush in their home market, predicting record package volumes during the pe-riod driven by strong growth in online shopping. According to Breininger, the trend is well entrenched south of the border, but S
Canadian TransporTaTion & LogisTiCs, in assoCiaTion wiTh MoTorTruCk FLeeT exeCuTive
and dan goodwiLL and assoCiaTes, presenTs:
Mississauga Convention Centre
2012
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The 2012 SummiTwaS an ouTSTanding SucceSS!
check ouT a few of The commenTS
Anna Petrova, Senior Manager, Customer Service & Transportation,
FERRERO Canada Ltd.
Melissa Gracey, President, DTA Services Ltd.
please plan on joining the Country’s
Top Transportation Executives for a day of
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Couriers – continued on page 38
SCanadian TransporTaTion & LogisTiCs,
in assoCiaTion wiTh MoTorTruCk FLeeT exeCuTive and dan goodwiLL and assoCiaTes, presenTs:
Mississauga Convention Centre
2012
suM
Mit
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The 2012 SummiTwaS an ouTSTanding SucceSS!
check ouT a few of The commenTSS“Great variety of subjects. Cost was really reasonable. SSGood speakers and presentations.” SAnna Petrova, Senior Manager, Customer Service & Transportation,
FERRERO Canada Ltd.S“I have always found the Surface Transportation Summit SSinformative and well worth my time. The speakers are Stop-notch and because they work in the industry, they speak Stop-notch and because they work in the industry, they speak SSfrom their day-to-day experience which is projected with SSraw, truthful honesty.”SMelissa Gracey, President, DTA Services Ltd.
OctOber 16, 2013 please plan on joining the Country’s
Top Transportation Executives for a day of
Education & Networking
couriers – cont’d from page 36
O U T L O O K 2 0 1 3
less pronounced in the Canadian market.“B2C e-commerce is seen as a huge growth factor, and this
continues,” Tierney comments. UPS has underscored its focus on this business in the past year with a couple of initiatives, most re-cently in the US with the option for consumers to choose between different delivery or pick-up locations. According to Tierney, the response to this has exceeded expectations. In Canada, the com-pany has introduced a similar service which notifies consumers upon an unsuccessful delivery attempt that their parcel will be ready for pick-up at the nearest UPS Store, or they can call and specify a location for delivery.
“We have seen a tremendous reaction in Canada to this,” Tier-ney says.
For all its potential – and the integrators are facing stiff integra-tion in this space from the postal services, notwithstanding agree-ments for last-mile delivery – B2C commerce is not going to gal-vanize the courier business in Canada in the coming year. Many online shoppers are unlikely to pay premium rates for delivery of their products, given that cost savings often prompted them to buy online in the first place, notes Breininger.
In the battle to gain and retain customers, one of the prevalent strategies in 2012 and beyond has been what Breininger calls “mass customization,” the development of solutions tailored to customer needs rather than set products. This often goes hand in hand with another ongoing trend: the diversification beyond the core courier business to other segments of the logistics business, like warehousing and distribution.
At the top end of the market, the multinational giants have been trying to carve out a larger niche in the healthcare and phar-maceutical industry vertical, a segment that has proven largely resistant to the economic downturn, and offers long-term growth and juicy margins due to the need for special services. DHL, TNT, FedEx and UPS have been marketing offerings based on containers with active temperature control capabilities.
“Healthcare continues to be a significant emerging part of our logistics portfolio. It is going to be a big part going forward for UPS,” Tierney confirms.
The courier market itself could do with a booster injection. “There will not be a lot of organic growth going on. We will see more of the same,” predicts Breininger. CT&L
transportation buying trends survey
cou
rier
fre
igh
t sh
ipp
ers
CAPACITY CONCERN3.61
excess capacity balanced capacity very tight capacity0 5 10
16%
% expect this mode to have highest pricing power 2013
Stay the same
58%
Increase 24%
Decrease 10%
Change in use of mode 2013 EXPECTED RATE INCREASES 2013 Size of Increase % of Respondents
Down 5%+ 3%
Down 2-5% 2%
Down 0-2% 3%
Flat 24%
Up 0-2% 25%
Up 2-5% 19%
Up 5%+ 7%
Not sure 18%
SURCHARGES % RESPONDENTS PAYING
Fuel
Currency
Detention
Border Delay
Border Security
88%
3%
9%
Inside the numbers
OUTLOOK 20133838
Not sure 9%
4%
4%
