There’s no denying it: The trucking industry in Ontario is returning to health as carriers report successively stronger freight and rate counts while projecting more optimism than they have in over half a decade. Undoubtedly, Ontario’s diversified trucking industry is reflecting the increased stability and economic growth elsewhere, specifically south of the border and inter-provincially.
In the Ontario Trucking Association’s second quarter 2014 survey of business conditions for the bellwether sector, carriers picked-up right where they left off last time – in what was a very positive 1Q14 survey – expressing even higher unprecedented levels of business improvement in all four sectors monitored by OTA (Intra-Ontario, inter-provincial, southbound US, northbound US). Moreover, for the second straight quarter, carriers indicate that rates are keeping pace with volume increases – something of a rarity since the 2008 recession.
After surprisingly strong results last quarter (during what’s supposed to be a slow freight season), reported freight volumes in the 2Q14 survey were even better as carriers headed towards the spring-summer “new peak” shipping season. Sixty-five percent of carriers said southbound freight volumes improved in the previous three months – the highest percentage ever recorded since OTA started the survey in 2008 and four times higher than the number of carriers who indicated improvements this time last year. It was also a 17-point increase over last quarter’s record high. Remarkably, not one respondent reported that volumes fell.
After remaining flat in the last survey, carriers who indicated that intra-provincial volume had increased jumped to 59% — the second highest level recorded. Sixty-two percent of carriers saw a surge in U.S. northbound lanes – a rate unmatched since 2011 and 18% higher than last quarter. Domestically, the number of carriers who suggested inter-Ontario freight had increased remained at 41%, which is still double the number this time last year.
However, carriers clearly expect Ontario lanes to start catching up at some point in 2014. Sixty-three percent of carriers predict volume escalation within provincial lanes over the next six months – a four-year high. Not that they think the rest of Canada or U.S. exports will let up: Intra-provincially, 77% of carriers expect volumes to keep climbing – a third more than who felt the same way last quarter. Southbound, 73% anticipate growth – a whopping 19-point increase from the last survey and highest level ever recorded by OTA. Amazingly, not one carrier respondent believed volumes would retreat in any of these three sectors over the next six months. The 61% who were positive about northbound U.S. business was the highest level since early 2010.
It appears that last survey’s robust characterization about the rate environment was not an anomaly. In fact, after bearish reports in most quarters since the recession, carriers now report unprecedented back-to-back rate progression. The number of carriers indicating increases to US southbound rates skyrocketed to 62% — more than double the previous all-time high of 29% last quarter and a far cry from the single-digit grades between 2008-2010. Carriers who felt rates in all other lanes also improved significantly q-q: Inter-Ontario 23% to 31% (all all-time high); Intra-provincial 47% (matching high in 3Q11); and northbound US from 32% to 41%.
Reflexively, the ripple of near universal volume increases brings with it ever-tighter capacity. There’s more indication that companies want to add drivers and owner-ops (58%), but just where those drivers will come from remains in question as the driver shortage will only get more acute as economic activity and freight continues to pick up. Rumbling tectonic plates underlying the trucking labour market are further shaking the supply balance as 58% of carriers reported capacity contraction – nearly triple the reports from the 2Q13 survey and, once more, the highest number of carriers OTA has ever recorded. Only 22% report flat capacity – the lowest level so far. Looking ahead, 46% expect further tightening – 10 points higher than last quarter and about double this time last year.
While tightening capacity is starting to lead to a few demands for longer-term contacts, the pace that shippers prefer to lock-in contracts is still remarkably slow considering the current environment. Despite a capacity crunch and higher transportation costs for customers, over 80% of carriers indicate contract timeframes are not changing.
As the competition between carriers to keep good drivers heats up, so are wages. Ninety percent of carriers indicate wages for both drivers and owner-ops have gone up. While most driver raises were in the 2-4% range, more than a quarter said wages crossed the 5% mark. About half of carriers indicated higher owner-op rates with about 50% of that in the 5%-range.
The cost of fuel expectedly came down since this year’s brutal winter ended (only 12% reported fuel cost hikes of 15% or more, compared to 38% who said so in 1Q14). Still, three in four carriers report overall fuel price increases in the 5-10% range. The relatively relaxed fuel price environment of 2013 is a memory right now.
Only 14% of carriers in this survey indicated the economy was their top concern going forward (compared to 46% who fretted most about the economy this time last year). Instead, the driver shortage has replaced the economy as the overwhelming number one concern (63% of carriers), followed by capacity/rates (22%).