transportation & logistics … · dr. alan saipe has been involved with supply chain and...
TRANSCRIPT
& LogisticsTransportation
CANADIAN
O U T L O O K 2 0 1 1H o w t o w o r k y o u r w a y t h r o u g h t h e m a z e o f u n c e r t a i n t y
2222 OUTLOOK 2011
O U T L O O K 2 0 1 1H o w t o w o r k y o u r w a y t h r o u g h t h e m a z e o f u n c e r t a i n t y
23OUTLOOK 2011
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.
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.
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.
Harry Rudolfs writes about motor carrier issues from both a hands-on and analytical perspective. An award-winning journalist, he combines years of experience in the motor carrier industry with a writing background which in cludes work for the Ottawa Citizen, Toronto Life and CBC Radio.
Dr. Alan Saipe has been involved with supply chain and logistics management for most of his working career – as a management consultant, an educator, and a line manager. Dr. Saipe is principal of Saipe and Associates, and also president of Supply Chain Surveys Inc.
Two steps forward, one step back. One step forward, two steps back. It’s a funny dance supply chain man-agers have been involved in over the past year while
their companies tried to adjust to what first came disguised as a robust recovery only to be revealed as a tepid one at best. With our Outlook last year we warned that the recov-ery would likely be less robust and much more volatile than the economic rebounds we’ve experienced in the past, and it seems we got that just right.
I’ve attended several economic forecasting sessions over the last couple of months and it seems the economists are as confused about what is going on as the rest of us. They can’t quite agree on which indicators are the ones to watch nor how deep a hole we’re in. Most expect the North American economy to slow down considerably over the next couple of quarters but avoid recession. Others believe we are in for a double dip recession. The only thing they seem able to agree on is that true recovery will be delayed till mid to late next year. But then again, I wonder if they are really convinced of that timing or if they say that because waiting beyond that would be unthinkable at this point.
Is it any wonder then that an international survey of supply chain managers conducted by eyefortransport found them to be so confused about the near future? Their top two concerns were about increased transportation costs and tighter transportation capacity, both products of a growing economy. Their next two concerns, and of almost equal weight, were having to deal with a sudden weakening in demand and supplier failures, both products of a slowing economy.
Dealing with uncertainty is a key ingredient in sound supply chain management. But with so much market vola-tility supply chain managers definitely face a challenge in 2011. To help you gain a deeper understanding of the is-sues and pressures you will face in the months to come we have produced Outlook 2011. Our annual Outlook report is the most comprehensive editorial project we take on all year. We combine expert analysis of trends in every mode with the latest in supply chain management studies and reports. Included with each modal feature are our Inside the Numbers reports detailing trends on rates, surcharges and capacity. The data is from our annual Transportation Buying Trends Survey conducted in partnership with the Canadian Industrial Transportation Association and CITT.
As in past years, we also look forward to discussing the survey results and our outlook for 2011 in transportation trends presentations across the country. (In fact we started early this year by presenting preliminary results because in-terest was so high.)
We know that during such volatile times concrete fore-casting is next to impossible. But we hope our report helps you to at least ask the right questions and be aware of the many scenarios likely to shape 2011.�
Lou Smyrlis Editorial Director
O U T L O O K 2 0 1 1H o w t o w o r k y o u r w a y t h r o u g h t h e m a z e o f u n c e r t a i n t y
2424 OUTLOOK 2011
After an unexpectedly strong run of resurgence, at the end of 2010 air cargo operators and
users suddenly find themselves mired in uncertainty and volatility again.
“The confidence we saw two months ago has eroded,” one forwarder execu-tive observes.
Since the fall of 2009, airfreight vol-umes had climbed rapidly. By the sum-mer they were back at levels seen before the downturn, easily outstripping growth in the maritime sector. Pro-pelled by a 29% rise in airfreight ton-nage (while ocean container volume grew 17%) forwarder Kuehne + Nagel tabled record profits for the second quarter. The same pattern played out in Canada, says Brian Pedersen, vice-president of airfreight, add-ing that the surge in airfreight traffic has been across the board, not confined to individual customers or client segments.
The trigger that derailed the industry’s impressive growth trajec-tory seemed innocuous enough. The peak season out of Asia, nota-bly China, turned out to be less strong than projected. Volumes did rise, but not in line with expectations, which led to a rapid deploy-ment of capacity throughout the summer. September saw a flurry of new freighter flights to Asian gateways, following three months of double-digit increases in lift capacity by Asian carriers. The moder-ate rise in volume did not match the armada of hungry aircraft, trig-gering a drop in rates and yields, which reinforced latent misgivings about the strength of the recovery, remarks Lise-Marie Turpin, man-aging director of Air Canada Cargo.
Suddenly planning horizons have shrunk drastically. “Things can change almost day to day. This makes planning very difficult. Long-range planning is to the weekend,” quips Bob McGowan, manager for Canada at Korean Air Cargo.
In the slump of 2009, shippers had fled airfreight, shifting as much traffic as possible to cheaper surface modes. Tight ocean freight capacity and rising volumes, coupled with the need to replenish in-ventory, reversed that trend and brought about a shift back to air, but amidst grumbling from shippers who felt that airlines were taking advantage of the situation to boost their yields rather aggressively, points out Jeff Cullen, chief executive for North America at forward-er Bellville Rodair International.
B y I a n P u t z g e r
Uneven growth brings long range planning down to just days
OUTLOOK 2011
air freight carriers
Albert Saphir, president of logistics consultants ABS Consulting, reckons that the weaker peak volumes were, in part, the result of shippers moving their traffic earlier, driven by a better grip on their inventory control and by a desire to avoid peak season surcharges. Over the past year, they often had to pay premium rates for regular service, just to gain access to limited capacity, he remarks, adding: “It makes no sense to pay such premiums.”
The fluctuations in airfreight rates over the past two years have been a huge headache for shippers, he contin-ues. Even the low rates of 2009, al-
though not unwelcome, made it hard to work with annual budgets; shippers would rather have stable pricing for longer-term planning, he argues.
“Last year, rates were simply too low for carriers to make mon-ey,” he acknowledges. Airlines may have been aggressive in their efforts to restore yields to pre-recession levels (in many sectors they are still depressed), but the airline industry’s return to profitability is, overall, a positive development, as this is the only way to safe-guard continuity of service, says Bill Gottlieb, president of David Kirsch Forwarders and a director of the Canadian International Freight Forwarders Association.
As a comparatively healthy market, Canada found itself a target for international freighter operators in search of better loads last year. Having complained for years about lack of main deck lift to interna-tional destinations, Canadian forwarders suddenly had ample choice both across the Atlantic and to Asia. Since then, most of this capac-ity has shifted elsewhere, such as Cargoitalia’s MD-11F link to Rome, or scaled back, as in the cases of freighter flights to Hong Kong and Korea by Cathay Pacific and Korean Air, respectively.
Overall, there is a reasonably good balance between capacity and demand, says Pedersen. Korean Air is considering adding a third freighter frequency on the Toronto-Seoul route again, but overall, there are no signs of a return of upper deck capacity in the coming year. Bellyhold space, on the other hand, looks set to go up in 2011, given plans by Cathay Pacific and Air Transat to add international flights. Middle Eastern carriers Etihad and Emirates have both signalled strong interest in more flights, provided they
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2626 OUTLOOK 2011
air freight carriers – cont’d
obtain the requisite traffic rights.Air Canada sees no significant change in its international activities
until it takes delivery of Boeing 787s, the new aircraft type that is now almost three years behind its original schedule, owing to a string of delays in its development and production. Canada’s flag carrier has concentrated much of its attention over the past year on an overhaul of its product line-up, which was unveiled in late October. While most of the special segments, such as live animal transport, hazardous materials or valuables required more detailed product definitions rather than changes in features, the airline has revamped its premium offerings for perishables traffic. Under the AC Cool Chain solutions brand, it now has three distinct services, of which two are aimed at the health care and pharmaceutical sectors, while the third targets shippers of fresh produce. These range from services including tem-perature-controlled containers to the use of special blankets for com-modities like asparagus, which generate much heat and condensation.
The detailed service definitions eliminate grey areas, making the parameters clear for both customers and Air Canada Cargo staff, Turpin says, adding that much of this was formulated on the basis of discussions with shippers and forwarders about their ser-vice requirements.
Special products, notably services aimed at the health care and pharmaceutical sectors, have been launched by a host of airlines over the past 18 months, typically on the basis of deployed temperature-controlled containers. The high yields commanded by these services are an obvious magnet for airlines in search of better returns, but forwarders have been sceptical of the profusion of new offerings, pointing out that considerable experience and expertise are needed
to move this type of traffic, where a spoilt shipment can mean sub-stantial financial losses. Pedersen stresses that there are significant differences in the requirements of individual customers, which means that usually dedicated solutions have to be devised. For Kue-hne + Nagel, pharmaceutical traffic is one of three strategic target areas for growth, besides perishables and the development of trans-pacific traffic, namely on the inbound sector from Asia.
South of the border, a huge focus for airlines and forwarders in 2010 was the implementation of the 100% screening regime for bel-lyhold cargo, which came into effect at the beginning of August. After all the apprehension and dire warnings of bottlenecks and ser-vice breakdowns in the run-up to the event, the experience proved surprisingly smooth and uneventful.
Over time, operators expect a similar regime to take shape in Canada. “The US are not going to sit by and let Canada operate a security system that is too removed from theirs,” comments Gottlieb.
This will come at a price, he adds. “Small shipments will pay more for ground handling and the security side than for getting up in the air,” he predicts.
A more immediate security step will be the introduction of Transport Canada’s certification program in March, Turpin points out. On another aspect of the emerging air cargo regime, she wel-comes the authorities’ decision to allow an electronic format for the security declaration. Insisting on a piece of paper would undermine industry efforts to eliminate paper from the supply chain and move to an electronic environment, she says.
Mike Morey, director of operational strategy at AC Cargo, notes a more cooperative approach on the government side. “Customs’ attitudes have changed. In the past, they’d find a million reasons why some solution that the industry was proposing wouldn’t work. Now they come to us for solutions. They’ve approached us to discuss their plan for an export clearance solution,” he says. CT&L
transportation buying trends survey
ratesincrease
49%
ratesstay same 47%
ratesdecrease
4%
ratesstayed same 57%
2010
CAPACITY CONCERN
4.87
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 20%
2.1-4% 22%
4.1-6% 30%
6.1-8% 10%
8.1-10% 9%
Greater than 10% 9%
SURCHARGES % RESPONDENTS PAYING
air
frei
gh
t sh
ipp
ers
Border Security 27%
EXPECTED 2011
RATE TRENDS
8%Border Delay
13%Detention
Currency 17%
Fuel 94%
excess capacity
balancedcapacity
very tight capacity
INSIDEthe numbers
0 5 10
ratesincreased
40%
ratesdecrease
4%
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2828 OUTLOOK 2011
After the stomach churning downturn of 2009, the past year has restored some strength to the courier and ex-
press business, as the results of the larger players amply show.
The two top operators south of the bor-der, UPS and FedEx posted sharp improve-ments in their balance sheets. The latest result from UPS shows a third quarter oper-ating profit of US$1.92 billion, driven by strong growth across all business segments. Operating profits in its US domestic and international package sectors soared 98.4%
B y I a n P u t z g e r
Couriers need full suite of services as customers look to leverage logistics buying
OUTLOOK 2011
express & courier operators
and 33.9%, respectively.FedEx, which expanded its domestic
overnight service in September, tabled a 99% rise in operating income for the quarter ended Aug. 31, while net income surged 110% and operating margin climbed from 3.9% a year earlier to 6.6%.
Purolator Courier, Canada’s leading play-er, has seen a strong rebound, says president Tom Schmitt, who took over the reins in September. This year’s result will be closer to the company’s record earnings tabled in 2008 than the modest profit for 2009, he predicts.
transportation buying trends survey
ratesincrease
47%
ratesstay same 50%
ratesdecrease
4%
ratesstayed same 52%
2010
CAPACITY CONCERN
3.64
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 30%
2.1-4% 40%
4.1-6% 17%
6.1-8% 10%
8.1-10% 4%
Greater than 10% 0%
SURCHARGES % RESPONDENTS PAYING
cour
ier
ship
per
s
Border Security 9%
EXPECTED 2011
RATE TRENDS
4%Border Delay
5%Detention
Currency 7%
Fuel 94%
excess capacity
balancedcapacity
very tight capacity
INSIDEthe numbers
0 5 10
ratesincreased
43%
ratesdecrease
6%
“We’ve had a good year, both domestic and on the import/export side,” says Mike Tierney, president of UPS Canada.
Although exports to the US have been hurt by the strong Canadian dollar and will likely remain challenging, as Tierney ob-serves, both he and Schmitt are upbeat on the transborder business. “I’m bullish on US-Canada traffic. We will see double-digit growth rates,” says Schmitt, adding the Purolator will open more offices south of the border in the year ahead.
One growth engine for flows up from the US has been the rising appetite of Canadian consumers for goods available on the Web sites of US retailers. “A lot is Internet-related orders producing inbound moves. I think that’s going to continue as the dollar remains strong,” Tierney remarks.
The rising tide of Internet orders generating moves into Canada could accelerate dramatically if intentions to simplify the Customs clearance process bear fruit, points out Phil Cahley, director of policy and research at the Canadian Courier and Logistics Association. The CBSA is planning to introduce simplified tariffs for low-value goods.
“Today there are thousands of different tariff codes. The CBSA has proposed to simplify that whole process,” he says. “If that comes about, the cost of importing goods could decrease, and that could spur more Internet buying.”
Whether or not this scenario will become reality is hard to predict at this point, he thinks, citing opposition to the plan. “The courier industry is all for it, the customs brokerage industry is against it. I guess you could say they have an interest in keeping things compli-cated,” he says.
Tierney admits that delivery of Internet orders to Canadian con-sumers is not the ideal business proposition for express operators. “You’ve got to balance it out with your B2B growth. You’ve got to keep a close eye on it,” he remarks, but adds that it is a trend op-erators cannot miss. “It is a growing part of what consumers are doing. You need to be in a position to be part of that growth,” he reflects.
After the hit on premium services during the downturn, express firms are eager to recover lost ground on yield. Customers have been reluctant to trade up to more expensive offerings, but Tierney dis-cerns signs of a return. “We’re starting to see a change back from deferred to premium services,” he says.
What clients seem to be most interested in, though, are more service options and broader product offerings. “It has become more and more important to have broad, diverse offerings,” comments Cahley. “Customers look to leverage their logistics buying, so couri-ers need a full suite of offerings.”
Schmitt points to double-digit growth in Purolator’s pallet busi-ness. “Many customers that we historically served with envelopes do have pallets,” he comments, citing one client from the high-tech arena for whom Purolator handles both freight and package traffic in one of its Toronto facilities.
Cahley notes that some courier companies have embraced value-added activities like white glove services, delivering and installing appliances and consumer electronics on behalf of retailers. Likewise, the pharmaceutical industry is attracting much attention in terms of its cold chain requirements. With deregulation of the generic drug sector beckoning, this market is now in flux and difficult to gauge, but it will be hard to ignore, he reckons.
“I think this area is going to explode. Any courier company should look at that,” he says, but cautions that it is not for everybody, given the expertise and investment required.
Operators should pick their target sectors carefully, agrees Schmitt. “We have to be surgical. If what we do is not realistic or not perceived to be critical by the customers, that falls apart,” he warns.
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3030 OUTLOOK 2011
OUTLOOK 2011
express & courieroperators – cont’d
“This applies especially to the freight industry. That’s a tough place to make double-digit growth,” he continues.
Presumably, FedEx executives would agree with this verdict. Having lost US$171 million in the last four fiscal quarters in its LTL business, the company’s FedEx
Freight arm announced in September that will merge its longhaul national LTL opera-tion with its second- and next-day network, closing about 100 facilities and dismissing 1,700 employees by the end of January at a cost of up to US$200 million.
The FedEx announcement came as clouds were beginning to overshadow the momen-tum of the first eight months of the year. The recent slowdown in economic activity and cargo volumes has heightened concerns over the road ahead. Schmitt acknowledges that GDP growth has given the courier industry “a fairly decent tailwind,” but adds that it will blow less in 2011.
“Lately, volumes have been pretty soft. Projections were more bullish in the summer. Now most companies are in wait-and-see mode,” comments Cahley.
The same caution prevails south of the border. Albert Saphir, president of logistics consultants ABS Consulting, notes that many of his firm’s clients are actually having good business, but they are not hiring or expand-ing. “They will stay cautious until we see more solid conditions over a longer term,” he predicts.
The return to uncertainty makes strategic investment decisions more difficult, but UPS adheres to its long-term approach, says Tierney, pointing to the opening of major facilities in Toronto and Calgary with a combined price tag of some $200 million during the past two years. “It is a bit difficult to predict, but we want to make sure our infrastructure is in front of you as the business grows,” he states.
Likewise, Purolator intends to follow through with its expansion plans south of the border and on its home turf. The company’s automated hubs in Vancouver and Montreal that came on stream over the past two years have performed well and management is look-ing to upgrade several more facilities in the coming year, notably in Ontario.
While he doesn’t see much appetite for significant investment among most operators, Cahley predicts a strong focus on service levels in 2011. Aggressive cost-cutting in 2009 did result in deterioration of service, which led, in turn, to declines in the affected operators’ rev-enues and volumes, so they are now anxious to avoid any service failures, he observes.
“Companies focus on the fundamentals; they concentrate on customer service because they know it’s easier to retain a customer than to gain a new one,” he comments.
As far as Tierney is concerned, this does not translate into a static service portfolio. “Customers want value for their dollar, they want options,” he says. “You’ve got to be pro-active providing information and options to them, not wait for them to ask.” CT&L
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3232 OUTLOOK 2011
If the increase in Canadian im-ports and exports this year over 2009 hold, the rail industry
should have reason to be pleased next year. Total exports in the first eight months were up 9.6% over 2009. Total imports for the same period were also up 9.6%, accord-ing to Industry Canada.
Port Metro Vancouver report-ed a 17% increase in tonnage over 2009 in the first eight months of 2010. The port handled 16% more TEUs in the first nine months of 2010 than during the same period last year.
The Port of Montreal reported an 8% increase in bulk and gen-eral cargo in the first six months of 2010, compared to the same period last year, with containerized traffic up 12.5%. Zeroing in on the US Midwest market, containerized traffic was up 35% in the first half of the year, compared to the same period in 2009. The Port of Halifax reported similar performance handling cargo to and from the Midwest.
The Port of Prince Rupert must be breathless from the 50.8% increase in TEUs it handled in the first eight months this year, com-pared to the same period last year. “Growth in container volumes and coal are contributing to the strong growth in overall tonnage,” says Shaun Stevenson, vice-president of marketing and business de-velopment for the Prince Rupert Port Authority. “They reflect the increasing shipper awareness and understanding of the Port of Prince Rupert and the advantage it brings to their supply chain manage-ment, and the overall improvements in the trans-Pacific container trade. Growth in coal volumes reflect the increasing demand in Asia for inputs to manufacturing, i.e., steel production. We are seeing growth in volumes from existing users, and new shippers incorporate Prince Rupert into their trans-Pacific strategy.
“The global economic recession has officially been declared over … signal a positive outlook for 2011.”
Mainline capital expenditures in 2010 will reap benefits next year. CP is spending up to $800 million, mostly on track renewal and replacement. “We have taken, and will continue to take actions that create capacity for low cost-growth and improvements in safety, ser-vice reliability and efficiency, driven by improved asset utilization,” CP says.
B y C a r r o l l M c C o r m i c k
Increased tonnage and Rail Freight Service Review fallout are on tap for 2011
OUTLOOK 2011
rail carriers
CP also reports having initiat-ed three siding extension projects this year: two in Ontario and one in British Columbia. They will increase CP’s capacity to run lon-ger, more efficient trains across its network.
Its long and efficient train strat-egy service is improving service reliability and creating capacity to grow. The number of cars per in-termodal train is up 43%, with some trains hitting 90-plus cars totalling 10,000 to 12,000 ft long.
During peak grain season, it is sometimes doubling the length of grain trains, to 14,000 ft between Winnipeg and Thunder Bay. Besides helping meet short-term peaks, for example, CP explains that, “In the future, should traffic levels and train starts grow beyond the capacity we have today, this capability allows us to add incre-mental capacity and move more traffic without exceeding the rated train start capacity for that corridor.”
Shippers with an eye on fuel surcharges can take some comfort knowing that longer trains and fuel savings technologies are saving CP more than three litres per mile.
CP explains other operational performance improvements: “We are improving our operating systems and processes to enable better information to drive improvements in car velocity and customer supply. These improvements will drive our yard dwells lower, which is a key input to miles/car day.”
CP signed new contracts with several unions, including a three-year collective agreement with the Canadian Signals and Communications System Council No. 11 of the I.B.E.W., a three-year collective agreement with Teamsters Canada Maintenance of Way Employees Division, and a three-year contract settlement with the Canadian Pacific Police Association.
Meanwhile, the other Canadian Class I railway, CN, has a $1.6 billion capital expenditure budget this year. “Approximately C$1 billion is targeted towards track infrastructure to continue to operate a safe railway and to improve the productivity and fluidity of the network,” CN says. Some of that will be spent on the Elgin, Joliet and Eastern Railway Company (EJ&E) property in Chicago that CN acquired in 2009.
CN and shippers will benefit next year from other 2010
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3434 OUTLOOK 2011
purchases; e.g., $300 million to improve the quality of the fleet, including 70 new high-horsepower locomotives. The remainder will be spent on facilities to grow the business, including transloads and distribution centres, on information technology to improve service and operating efficiency, and on other projects to increase productivity.
CN has also been improving its service and system reliability. Earlier this year, for example, CN introduced a plan that has dra-matically increased the reliability of its grain service. “Since the be-ginning of 2010, CN has achieved more than a 90% success rate in delivering the specified cars to the specified elevators on the specified day,” CN explains.
Mark Hemmes, the president of Quorum Corp., an independent firm in Edmonton that monitors grain transportation, says that changes around CN’s grain operations planning has really impressed the industry. “Their service scheduling initiative has resulted in con-sistency levels not seen before.”
In anticipation of expanding its steel business, CN bought nearly 700 new iron ore cars hauling pelletized iron ore in the Upper Midwest and has established strategic car staging locations near pro-ducer facilities; e.g., in Sorel-Tracy, Que. and Paris, Ont. CN is also acquiring 200 standard gondolas and 200 open coil gondolas to ex-pand and improve the quality of its freight car fleet serving the North American steel industry.
New labour contracts will reduce the number of potential sourc-es of disruption at CN; e.g., in May, CN and the Teamsters Canada
Rail Conference/Rail Canada Traffic Controllers ratified a three-year labour agreement. In July, the Teamsters Canada Rail Conference on CN’s Northern Quebec Internal Short Line ratified a five-year collective agreement. In September, CN and United Transportation Union employees that work on the Duluth, Missabe and Iron Range Railway Company ratified a seven-year collective agreement. In October, CN reached tentative three-year collective agreements with the Teamsters Canada Rail Conference – Conductors, Trainmen and Yardmen.
Both CN and CP signed agreements this year with companies and ports to, generically speaking, increase productivity. In June, CP and TSI Terminal Systems, penned an agreement to enhance the future flow of containers through the Vancouver gateway. CP also signed a productivity and performance agreement with marine terminal operator DP World Vancouver through Canada’s West Coast ports. In October, CP and Teck Coal announced a 10-year agreement to transport Teck’s steel making coal from its five mines in southeast B.C. to Vancouver-area ports.
CN, using terms like “supply chain collaboration agreements” and “partnership framework,” has made pacts with the Prince Rupert Port Authority, Port Metro Vancouver, the Port of Quebec and the Halifax Port Authority to improve service. “This commer-cial service level agreement outlines key performance indicators … to measure and guide our service provision to ensure a consistent and high quality customer experience over our port,” says George Malec, vice-president of business development and operations for
rail carriers – cont’d
Rail – continued on page 45
transportation buying trends survey
ratesincrease
39% ratesstay same 58%
ratesdecrease
4%
ratesstayed same 68%
2010
CAPACITY CONCERN
5.24
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 34%
2.1-4% 31%
4.1-6% 24%
6.1-8% 9%
8.1-10% 3%
Greater than 10% 0%
SURCHARGES % RESPONDENTS PAYING
rail
fre
igh
t sh
ipp
ers
Border Security 7%
EXPECTED 2011
RATE TRENDS
6%Border Delay
31%Detention
Currency 12%
Fuel 89%
excess capacity
balancedcapacity
very tight capacity
INSIDEthe numbers
0 5 10
ratesincreased
29%
ratesdecrease
3%
Rosa Parks refuses to give up her seat to a white
man on a bus in segregated Montgomery, Alabama.
Montreal erupts in riots after Rocket Richard is
suspended. Johnson and Johnson introduces
the first No Tears baby shampoo. Disneyland
opens with one million visitors in the first seven
weeks. The Polio Vaccination Campaign begins in
schools across Canada and the US. Ray Kroc
opens the first McDonalds. James Dean is killed in
his 550 Porsche Spyder. The Edmonton Eskimos win
the 43rd Grey Cup at Empire Stadium in Vancouver.
Northwest Tank Lines raises its red, white and
black colours for the very first time. Jerry Lee
Lewis releases Great Balls of Fire. The Warsaw
Pact is signed. Sports Illustrated is first published.
The year was 1955 when Northwest Tank Lines first entered into the highly competitive world of transport and began setting new
standards of excellence in business ethics, road safety and environmental stewardship. These standards continue to this day with
industry-leading initiatives like proud partnership in both the Responsible Care and TransCAER programs, and one of the most rigorous
ongoing driver protocol programs in the business. Northwest Tank Lines takes great pride in these leadership initiatives and maintaining
its reputation for outstanding corporate citizenship. Needless to say, it’s a very proud 55-year history. But better yet, it’s only the beginning.
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May 25 2010pdf
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0
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10095NWTL_55thAd_Trans&Logi.indd 1 5/25/10 10:07:33 AM
Rosa Parks refuses to give up her seat to a white
man on a bus in segregated Montgomery, Alabama.
Montreal erupts in riots after Rocket Richard is
suspended. Johnson and Johnson introduces
the first No Tears baby shampoo. Disneyland
opens with one million visitors in the first seven
weeks. The Polio Vaccination Campaign begins in
schools across Canada and the US. Ray Kroc
opens the first McDonalds. James Dean is killed in
his 550 Porsche Spyder. The Edmonton Eskimos win
the 43rd Grey Cup at Empire Stadium in Vancouver.
Northwest Tank Lines raises its red, white and
black colours for the very first time. Jerry Lee
Lewis releases Great Balls of Fire. The Warsaw
Pact is signed. Sports Illustrated is first published.
The year was 1955 when Northwest Tank Lines first entered into the highly competitive world of transport and began setting new
standards of excellence in business ethics, road safety and environmental stewardship. These standards continue to this day with
industry-leading initiatives like proud partnership in both the Responsible Care and TransCAER programs, and one of the most rigorous
ongoing driver protocol programs in the business. Northwest Tank Lines takes great pride in these leadership initiatives and maintaining
its reputation for outstanding corporate citizenship. Needless to say, it’s a very proud 55-year history. But better yet, it’s only the beginning.
File Name:
Size:
Docket #:
Product:
Fonts:
Digital Artist: Producer:
Account:
Art Director: Writer:
Proof Reader:Creative Director:
Final File: Shipped: Date:
Concerto Marketing Inc. 400 -220 Cambie Street Vancouver BC, V6B 2M9 T: 604.684.8933 F: 684.8934
This proof is:
Ad #:
Suitcased:
Picture Info:Phantom #
C Y M K
10137NWTL_55thAd_Trans&Logi
10137May 25 2010
May 25 2010pdf
1
0
Trim 8.125”x10.875” Live 7x10Ad
10095NWTL_55thAd_Trans&Logi.indd 1 5/25/10 10:07:33 AM
3636 OUTLOOK 2011
Although the destruc-t ive fo rces that brought the world
economy to its knees two years ago have abated, many coun-tries are now bracing for slow-er growth than anticipated in the post recession period. A fragile recovery is especially noticeable in the US, posing serious challenges for global shipping lines which are seek-ing to counter this trend by concentrating more of their fleets on China-led Asia trades rather than on less profitable routes such as the North Atlantic. But even the blue chip Asia-to-Europe trade lane has witnessed a small capacity cutback for the winter season.
General freight rate increases and capacity reduction have paid big dividends for leading shipping operators. The most dramatic turnaround in financial performance has come from Maersk Line, the world’s number one carrier. From a huge loss of nearly US$1 billion in the first half of 2009, it recently reported a profit of US$1.2 billion in the first half of this year. The balance sheets for the same periods were similarly healthy for Orient Overseas Container Line, Hapag-Lloyd and other shipping lines.
However, some carriers with substantial orders for newbuildings when prices were at their peak are struggling to finance these investments. Here, the most visible example is France’s CMA CGM which has approached the French government for a major cash injection.
In response to the slower economic growth patterns, maritime transportation providers have responded in a way deemed correct for their companies on capacity and rate matters, remarks Joy
B y L e o R y a n
Global shipping lines juggling routes and services as demand revives
marine carriers
OUTLOOK 2011
Nott, president of IE Canada. “As volumes are returning to-wards normal levels, shippers are finding that ships are full, containers are in short supply, and ocean rate increases and other surcharges have become the norm.
“To make things worse, in-dustry consolidation over the last few years has resulted in fewer providers, resulting in less competition on the more active trade lanes.
“Shippers are feeling pain from both the soft economy and the uncertainty of transportation charges – making trading internationally more of a challenge than ever before,” Nott stressed.
Volatile shipping markers
hard to predict
In light of the variables that can change so quickly, Michael Broad, president of the Shipping Federation of Canada, exclaims: “Trying to predict shipping markets has become more difficult than pre-dicting stock markets!
“Issues to watch over the coming year,” he says, “include a po-tential global currency war as trading nations try to stimulate ex-ports – which may eventually affect Canada’s exports.”
On the currency front, the Canadian dollar has recently been flirting with parity with the US greenback, thanks in part to strengths in world commodity and oil markets.
But the biggest currency issue remains the persistent high value of the Chinese yuan. In Washington, it’s felt that China is deliber-ately maintaining an undervalued currency for its own advantage.
37OUTLOOK 2011
O U T L O O K 2 0 1 1
Britain’s The Economist weekly magazine has pegged this under-valuation at a whopping 40%.
“China holds a large trade emphasis on Asia interregional trade, causing North America and Europe to see capacity and pricing is-sues escalate,” noted Bob Armstrong, president of SCL Canada.
Canadian supply chain managers see supply chain management of Asia-Canada trade revolving around reliability and consistency of service as increased transit times result from slow-steaming, said Armstrong, adding: “It raises the question of whether vessels, con-tainers, rail cars and chassis will be readily available.”
Baltic Dry Index stabilizing
The Baltic Dry Index, which measures rates charged for chartering ships carrying coal, grain, and iron ore, has been showing signs of stabilizing following a dizzying rollercoaster ride. After falling below 1,000 in October 2008, the BDI was at about 2,700 this past October. This remains under past peaks of over 4,000.
In its annual review of global container terminal operations,
Drewry Shipping Consultants noted that the container port indus-try has been through the most difficult period in its relatively young history. Global economic trends meant that container throughput at the world’s ports fell for the first time ever, from 524 million TEUs in 2008 to 473 million TEUs in 2009, a drop of almost 10%.
Emerging markets were generally less hard hit than the mature markets. Volumes in North America and Europe fell by around 15%, but in the Middle East and Africa the downturn was hardly felt.
While worldwide volumes fell by 10% in 2009, the total equity TEU volume handled by the 22 global/international container ter-minal operators was only 7.5% lower.
Neil Davidson, senior advisor for Drewry comments: “2009 was a year the like of which has never been seen before. Historically, for global terminal operators, it has always been about expanding and adding capacity as quickly as possible. Then, suddenly, they were all faced with changing their mindset towards drastic cost control and halting of projects.”
Marine – continued on page 45
transportation buying trends survey
ratesincrease
47%ratesstay same 42%
ratesdecrease
10%
ratesstayed same 45%
2010
CAPACITY CONCERN
6.09
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 18%
2.1-4% 13%
4.1-6% 20%
6.1-8% 12%
8.1-10% 11%
Greater than 10% 26%
SURCHARGES % RESPONDENTS PAYING
mar
ine
frei
gh
t sh
ipp
ers
Border Security 25%
EXPECTED 2011
RATE TRENDS
7%Border Delay
39%Detention
Currency 40%
Fuel 88%
excess capacity
balancedcapacity
very tight capacity
INSIDEthe numbers
0 5 10
ratesincreased
50%
ratesdecrease
5%
3838 OUTLOOK 2011
After a dismal 2009, fol-lowed by an uneven 2010, things appear to be im-
proving slightly for ground freight providers. “I’d call it cautious opti-mism,” says Vaughn Sturgeon, president and CEO of Atlantica Diversified Transport Systems, of Moncton, N.B. “Times have been so difficult over the past couple of years, and shippers and carriers have started to get a better hand on supply and demand. So there are less trucks on the road and the capacity balance is certainly closer than ever to where it should be.”
Stan Dunford, CEO and chair of Contrans in Woodstock, Ont., thinks that a leaner approach taken by stressed carriers has resulted in a better bottom line. “Everybody’s in a better frame of mind. You would think revenues would be up, but they’re up very little. Yet if you called any of our general managers across the country they would tell you we’re really busy, we can’t keep up. Well, they are, but they’re doing everything with a lot less equipment. Where the profit comes from in this quality of revenue is in the utilization of assets that can offset lower pricing. So you’re working for 5% less than last year, but you’re utilizing your assets better and you’re making more money than a year ago.”
Warren Sarafinchan, supply chain director for Mars Canada, terms this process “sweating your assets,” the strategies whereby car-riers and private fleets are able to get the full potential out of their operations, equipment and personnel. “We should all be mindful of building cost-efficient operations, not getting too asset heavy, and taking a more conservative approach going forward,” he says.
Truck and trailer sales have started to rebound slightly, but most carriers are reluctant to make major purchases until they see a better economic picture. “Most fleets haven’t been buying much equipment and some of those older trucks have been coming off the road,” according to Jacquie Meyers, president of Meyers Transpor-tation Services in Peterborough, Ont. “Mostly, we’ve been buying specialized equipment where we know we can make a return on
B y H a r r y R u d o l f s
Some reasons for optimism as bleeding coming to an end
OUTLOOK 2011
motor carriers
our investment.”Fred Arnold, president of
Arnold Bros. Transport, thinks that capacity hasn’t quite bot-tomed out yet. “There are still some companies with plated ve-hicles who may not choose to re-new and others who are at a turn-ing point where the availability of credit is drying up. There’s a ‘wait and see’ attitude prevalent within the industry, but I think there will be a further reduction in capacity in the next six months.”
But more importantly, Arnold speaks of the necessity of freight price increases. “We’ve gone through a time of ridiculously low freight rates and I think, for the most part, the bleeding has come to an end. The major players in the industry share the view that the present rates cannot be sustained and need to start moving.
“We’re seeing northbound rates coming up and I don’t think it will lose steam. Lately, we’ve seen volumes stay steady and some improvements. I expect rates might go up 3-5%, but nothing in the double digits,” adds Arnold.
Meyers, like most trucking executives, is in agreement with Ar-nold. “Freight rates need to go up, both LTL and Truckload. Over the last two years, most carriers held their rates while some quoted rates below their costs just to keep their equipment moving. Some of the rates to the US were just decimated in the last couple of years. There’s no more room to go down no matter how much we try to drive out costs and improve efficiencies. Rates should in-crease around 6% in the TL market and hopefully 3-4% in the LTL market.”
Manufacturers and distributors, on the other hand, would like to see rates stay flat as the soft economy continues its fragile recovery. “I would anticipate that we are likely going to face another year where rates will need to remain at the same levels,” says Sarafin-chan. “It will be important for manufacturers, carriers and retailers to continue to find ways to take costs out of the entire business. We’re always looking for ways to work with transport providers to
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OUTLOOK 2011
4040 OUTLOOK 2011
transportation buying trends survey
ratesincrease
48%
ratesstay same 46%
ratesdecrease
6%
ratesstayed same 51%
2010
CAPACITY CONCERN
4.73
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 27%
2.1-4% 34%
4.1-6% 20%
6.1-8% 8%
8.1-10% 6%
Greater than 10% 4%
SURCHARGES % RESPONDENTS PAYING
TL
frei
gh
t sh
ipp
ers Border
Security 16%
EXPECTED 2011
RATE TRENDS
15%Border Delay
30%Detention
Currency 9%
Fuel 98%
excess capacity
balancedcapacity
very tight capacity
INSIDEthe numbers
0 5 10
ratesincreased
33%
ratesdecreased
16%
motor carriers – cont’d
achieve maximum utilization, and optimize our routing so we can take costs out of the system. And reductions in costs are something we can all share.”
But Claude Robert, president and CEO of Groupe Robert in Boucherville, Que., thinks the problem is that shippers have gotten used to cheap rates. “They don’t have a clue why the rates need to go up. Big customers are asking for price increases, yet they want a rate decrease in freight rates. People need to be realistic.
“Right now, customers are going for very short contracts, if at all. One shipper I know needs 25 trucks per week, but won’t commit to a dedicated carrier. Instead, he is looking on the Internet for peo-ple to move his freight. But that will change. Just wait for CSA 2010 and onboard computers to kick in,” adds Robert.
Nevertheless, the marketplace remains tilted in the shipper’s favour; they’re the ones who have the most clout at the bargaining table. According to Mike Owens, vice-president of physical logistics for Nestle Canada. “When it comes right down to it, we buy hard. We leverage Nestle on a North American basis, and we shop all our
freight through our shared services purchasing group. Freight rates have been nudging slightly upward, but not a lot. We certainly haven’t been startled.”
Dunford argues that the coming driver shortage will be the major impetus behind rate increases. “The main thing that’s going to drive the rates back up to an acceptable level is the driver short-age. There are enough guys that have already left the industry and there are not a lot of good replacement drivers out there. It’s not going to take much of an (economic) improvement for customers to get scared when they can’t get service. Then they’ll be willing to pay a bit more and lock into a contract.”
Sturgeon is positive that the next driver shortage is just around the corner, and it’s going to be a bad one. “The next time we need to increase our driver pool, there’s going to be a big problem. The demographics aren’t there. In the past, we’ve gotten drivers from Germany, the Netherlands and the U.K., but even those nations are drying up as a resource.”
There is widespread agreement that fuel costs will increase in
41
O U T L O O K 2 0 1 1
LTL
frei
gh
t sh
ipp
ers
98%
OUTLOOK 2011
INSIDEthe numberstransportation buying trends survey
ratesincrease
52%
ratesstay same 43%
ratesdecrease
4%
ratesstayed same 47%
2010
CAPACITY CONCERN
3.90
RATE INCREASES 2010 Size of Increase % of Respondents
1-2% 29%
2.1-4% 40%
4.1-6% 19%
6.1-8% 7%
8.1-10% 4%
Greater than 10% 2%
SURCHARGES % RESPONDENTS PAYING
Border Security 18%
EXPECTED 2011
RATE TRENDS
12%Border Delay
23%Detention
Currency 11%
Fuel
excess capacity
balancedcapacity
very tight capacity
0 5 10
ratesincreased
39%
ratesdecreased
14%
2011, but without the dramatic spikes we experienced a few years back. “Fuel is going to keep going up, but I don’t think we’ll see the volatility that was so hard to manage previously,” says Murray Scadeng, president of Triton Transport, a heavy hauler headquar-tered in Langley, B.C. “We can manage slow increases, but in many cases, fuel surcharges, or the way they were handled, turned out to be a bit of a cash grab for some carriers.”
The march towards a “greener” economy is reflected in the num-ber of measures fleets are taking to better their fuel mileage. But Scadeng worries about getting stuck with the bill for problematic engines. “Although the 2007 engines may have been better for the environment, we have found them more costly to buy, less reliable and less fuel efficient. Hopefully our experiences with the 2010 EPA engines will be better.”
One pioneer who is challenging the diesel/gasoline paradigm is Robert. His recent announcement to purchase 50 hybrid Liquid Natural Gas tractors could be a new direction for ground transport in Canada. “We’re going into LNG because I strongly believe that
the experience we acquire is going to put us at an advantage when others are ready to come on board,” he says.
Canada is comprised of regional economies that are subject to sudden and profound changes. But Scadeng sees some positive fac-tors from his perspective in B.C.’s lower mainland. “It’s hard to tell where we will go from here. We see the Alberta market as more volatile, while in B.C. some large projects have started up and vol-umes are up, as is pricing. We haven’t suffered the same turn down as the rest of Canada, but the resources industry is hard to predict. I don’t see us getting back to 2007 levels in the near future – it was the one time I can remember when, in our sector, demand out-stripped supply.”
Fred Myles of Rosedale also sees some brightening emanating from Canada’s left coast. “We just opened a terminal in Vancouver and are expecting an increase in business. As the Asian market continues to take off, getting back on its economic feet to where it was in the past few years, this will have a positive trickle on the global markets which, in turn, will cause a ripple effect across the rest of Canada.” CT&L
98%
4242 OUTLOOK 2011
How much will truck transpor-tation rates increase in 2011? In this note, we will review the
situation and make our prediction. As of this writing, we believe that rates will increase next year. However, several factors combine to make the crystal ball a little hazy, so the extent of the in-crease is still uncertain.
How Prices Have Changed
Over The Business Cycle
The Canadian General Freight Index, published by Nulogx, gives us a good look at how general truck transportation rates have changed during the business cycle. Average freight rates were rising quite quickly in the first half of 2008 at nearly 15% a year. Even though the economy slowed for the next four quarters, average freight rates continued to grow for three quarters until April 2009. However, they grew much more slowly, at nearly 4% per year. From April 2009 through the first quarter of this year, average rates came down and stayed down. They fell 7% in the year, right back to early 2008 levels. Since April of this year, average rates
B y D r . A l a n S a i p eS u p p l y C h a i n S u r v e y s I n c .
looking ahead at freight rates
OUTLOOK 2011
have been growing, and appear to be grow-ing reasonably quickly as the economic recovery continues.
The old saw that you can drown in three inches of water does apply to truck rates. Nulogx data reveals that Canadian/US cross-border truckload and LTL rates have been more volatile than Canadian domestic rates. They were slower to respond to the falling economy, fell farther, and have been more sluggish to bounce back.
How Fuel Surcharges Have
Changed Over The Business Cycle
Although rates drive freight costs, the other key factor is fuel sur-charges. Throughout 2008 and into the first quarter of 2009 aver-age fuel surcharges followed in lock step as the price of crude oil first peaked in June 2008 and then declined sharply to its bottom in February of 2009. But then something interesting happened. Although the cost of crude has returned to the $US75-$US85 per barrel range, average fuel surcharges have not bounced back as much. Shippers have had the benefit as fuel surcharges have been slower to adjust upwards.
Figure 1 – How Rates Have Behaved (Jan 2008 - May 2010)
43OUTLOOK 2011
O U T L O O K 2 0 1 1
Going Forward
What does all this mean for rates and surcharges next year? Carriers clearly want rates to increase – and the evidence is that the increase began in the second quarter of this year.
But the economic recovery is still very sluggish, and this is bound to hold back the increase in transportation rates. As of this writing, the third quarter GDP results are not yet out – and there is still the possibility of at least one quarter of negative growth in 2010. Even if we don’t double dip, most observers agree that growth will continue to be slow well into 2011.
There is also uncertainty about where the cost of crude will go,
and therefore fuel surcharges. So far, the weak global recovery has kept both the demand for oil and its price relatively contained. Until the global economy is firing on all cylinders, we won’t really know where oil prices are going.
If the recovery continues much as it has, we believe that general truck freight rates will grow at an average annual rate of from 3% to 5% in 2011. If the economy weakens a little, look to the low side.
We expect average fuel surcharge as a percent of base freight costs to stay in the 13% to 16% range, as long as crude oil costs do not rise sharply. CT&L
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Figure 2 – What Determines Fuel Surcharge (Jan 2008 - May 2010)
44 ct&l november/december 2010 www.ctl.ca
D A S H B O A R D
TransCore’s Canadian Freight Index showed a 30% year-over-year increase in spot market freight volume compared to September 2009. Month over month, the index showed a drop of 6 points but still tops over 200 in volume. The last 6
months have all surpassed the 200 point threshold. Like August, September 2010 is the highest volume of freight availability for the month of September in comparison to the same month over the last five years. The index is consistent with fluctuation due to seasonal patterns.
In August the index was up 2% over July and posted its strongest August in five years, coming in at 50% year-over-year. Combined cross-border loads were up 55% year-over-year in August while equipment availability dropped 16% compared to last August. TransCore officials say the increase in freight availability coupled with a decline in trucks searching for freight is a pattern that has continued for the year.
TransCore’s Loadlink freight matching database constitutes the largest Canadian network of carriers, owner operators, freight brokers and intermediaries and has been available to Canadian subscribers since its inception in 1990. Over 12 million full loads, ltl (less than truck load) shipments and trucks are posted to the Loadlink network an-nually. As a result of this high volume, TransCore believes its Canadian Freight Index is representative of the ups and downs in spot market freight movement and provides a historical account of the domestic and cross border spot market freight movement.
The first four columns in Table 1 include monthly index values for years 2006 through 2009. The last column indicates the percentage change from January through September 2009 to 2010. For the purpose of establishing a baseline for the index, January 2002 (index value of 100) has been used.
TransCore’s Canadian Freight Index records30% rise in spot market freight volume
2006 2007 2008 2009 2010 Percent Change Y-O-Y
Jan 204 173 214 140 171 22%
Feb 179 174 217 117 182 56%
Mar 211 228 264 131 249 90%
Apr 200 212 296 142 261 84%
May 275 280 316 164 283 73%
Jun 271 288 307 185 294 59%
Jul 197 219 264 156 238 53%
Aug 210 235 219 160 240 50%
Sep 190 206 203 180 234 30%
Oct 188 238 186 168
Nov 182 227 143 157
Dec 159 214 139 168
TransCoreCanadianSpotMarketFreightIndex2006-2010
TransCoreCanadianSpotMarketFreightIndex2006-2010Nulogx Canadian General Freight Index shows ground rates continue to rise
Ground transportation freight rates in Canada posted a fourth consecutive month of increase in August, up 1.5%
over July. That marks the fourth straight month of increases since the Canadian General Freight Index (CGFI) reached a low point in April.
“Increases in overall freight costs for Canadian shippers continue to be driven by the domestic truckload sector,” said Doug Payne, president of Nulogx, which publishes the Index. “While truck-load is leading the way, we also now see a strength-ening of the LTL and transborder rates.”
Overall ground transportation freight costs in-creased by 3% in July compared to June. Base rates, which exclude the impact of fuel surcharg-es assessed by carriers, also increased by 3.2% while average fuel surcharges decreased slightly from 13.42% of base rates to 13.13% during the same period.
“The information provided by the CGFI con-tinues to indicate that we reached a floor in trans-portation costs for canadian shippers in April of this year,” said Doug Payne, president of Nulogx. “Since then we have seen four consecutive months of increases, led primarily by activity in both the domestic and transborder truckload sectors.”
US truck tonnage remains a bumpy ride
US for-hire truck tonnage continued its choppy course in September, rising 1.7% after falling a revised 2.8% in August.
Compared to September 2009, tonnage was up 5.1%, well above August’s 2.9% year-over-year gain. Year-to-date, tonnage is up 6.1% com-pared to the same period in 2009, the American Trucking Associations reports.
“While I am glad to report that tonnage grew in September, the fact remains that truck freight volumes leveled off over the summer and early autumn. This is a reflection of an economy that is barely growing,” said the ATA’s chief economist, Bob Costello. He noted that the trucking industry is significantly smaller than it was prior to the re-cession, but as a result, is better equipped to deal with slower than normal tonnage growth.
In July, US for-hire truck tonnage was up 7.4% year-over-year.
45OUTLOOK 2011
OUTLOOK 2011
rail carriers – continued from page 34
the Halifax Port Authority.Yet not all is peaceful with rail shipping. Tongues are wagging over the in-
terim report on the review of rail freight services, issued this October; Transport Canada will study it and issue its recommendations in time for the new year. The 102-page document offers hours of pleasant reading, but one recommendation particularly galls shippers: the Rail Freight Service Review Panel found that a key cause of service problems is the power imbalance between the mainlines, who form a dual monopoly, and shippers, who, if not captive to one mainline, are only slightly less captive to both.
“The panel [concluded that] railways possess market power over their cus-tomers. This is a remarkable finding. This market power has, and continues to be a major cause of service problems,” says Tom Maville, president of TL Maville and Associates.
Equally remarkable, in the eyes of shippers, is the panel’s reluctance to im-pose regulatory solutions. “The panel has not recommended any immediate changes to the Canadian Transportation Act. It has decided it wants to give the railways till 2013 to keep up the momentum, to continue improving the service, that there is no need for legislative change. But if the railways do not improve, the panel has prepared a package of regulatory remedies it will recommend,” Maville says.
The panel wants railways and shippers to kiss and make up with commercial agreements, not through regulatory shotgun matrimony. This suits the mainlines, but leaves shippers clutching their throats. “Because the railways have so much market power, we don’t think this can be resolved this way. We don’t see how the panel could come to two such [diametrically opposed] conclusions,” says Avrim Lazar, president and CEO of the Forest Products Association of Canada. “We don’t want to wait three years. We are optimistic that if government regu-lations were implemented, things would get better. But you have to scratch your head why they would want to extend a [dysfunctional] situation another three years. The railways have been mounting court challenges of dispute resolution cases, [for example]. Rates should be based on a regulatory framework.”
Without regulations, the next chance for change might only come in 2020. “2013 would only be the start of a reassessment of whether service has changed. In 2015, there is a mandatory statutory review of the Canadian Transportation Act. The government might say in 2013 to wait till 2015 [to make any changes]. It could be 2018 before we see anything come out of this process,” Maville calculates.
In fact, says Bob Ballantyne, president of the Canadian Industrial Transportation Association, “The panel sent a confidential document to stakeholders in late August that said, ‘to actually see change to the law, you are talking 2020.’ If there are no regulatory changes before 2020, that will not hold railways’ feet to the fire.
“The panel said that changes to the law and regulatory structure should be written right away, so if necessary, regulations could be put in quite quickly. But they have just gone through a service review, and the panel’s analysis is pretty good. So why wait till 2013 for Service Review, Next Generation? This doesn’t make sense.” CT&L
Rising container
terminal activity
With economic prospects now brighter, Drewry has revised its medium-term container trade growth projections upwards – although still noth-ing like the double-digit growth rates seen in the heady years of the early part of the 2000s. Container throughput is projected to increase globally by an average of 7.2% a year between 2009 and 2015. As a result, global container port volumes are forecast to rise by 245 million TEUs from 473 million TEUs to 718 million TEUs, an increase of just over 50% in this period.
At present, the capacity of the world’s contain-er terminals is forecast by Drewry to grow by 143 million TEUs during the same time frame, a rise of just under 20%. The much slower rate of container terminal capacity growth relative to throughput will inevitably increase global container terminal utilization rates unless more projects are brought back to life.
“Several parts of the world could see the spectre of congestion returning by 2015 if some of the originally planned expansion projects cannot be reactivated within the next three to five years,” ac-cording to Drewry.
Drewry predicts that by 2015 average global utilization levels will have reached just over 80%. Although this might not appear to give too much cause for concern on a global level, terminals in prime locations are usually more highly utilized than the average and there are some regions, most notably the Far East and Middle East, where the inadequacy of currently confirmed projects to keep up with demand is exposed. By 2015, average uti-lization levels could be around 95% in the Far East and Middle East regions.
Meanwhile, container throughput at Canadian ports on the east and west coasts – Halifax, Montreal, Port Metro Vancouver and Prince Rupert – has been showing double-digit increases. However, despite a nearly 20% uptick in bulk cargo volume as the 2010 season approached its winter closing, the St. Lawrence Seaway is still functioning at barely 40% capacity. CT&L
marine carriers – continued from page 37