Learning Curve: Containing transportation costs

by Tracy Clayson
Tracy Clayson is director of client development of
In Transit / CPC Logistics Canada. E-mail Tracy.

Every shipping firm operating today tries to contain the costs of moving products and materials. It’s a no-brainer, since shipping represents a huge operating expense and its costs can often mean the difference between a quarterly profit and a loss. But as these costs keep escalating a perfect storm has been building, and if you are in the eye of it you’ve no doubt started feeling its momentum.

Specifically, 2018 first-quarter trucking spot rates were up 27 percent from a year earlier, according to Bloomberg Intelligence, with no relief in sight. Worse, companies most affected are finding that past solutions to reverse this trend haven’t worked.

The key reason costs are up is the serious scarcity of truck drivers. Recent estimates from FTR Transportation Intelligence found that the U.S. has about 280,000 fewer truckers than it needs. This number stood at 78,000 just two years ago. At that time, it could be tempered somewhat if drivers increased their overtime and made other work-scheduling adjustments.

But those days seem to be over, as American trucking firms were mandated on December 18, 2017 to use electronic logging devices to ensure drivers comply with limits on driving hours. Specifically, drivers must take regular breaks and can’t drive for more than 11 hours a day (nor drive plus perform other duties for more than 14 hours a day, total). Enforcement, or the threat of it, has meant most U.S. drivers have cut their hours significantly.

The Canadian government announced it will also require all commercial truck and bus drivers to install electronic logging devices by 2020. Stephen Laskowski, president of the Ontario Trucking Association, said last May on CBC Radio’s All in a Day program that most companies follow the rules, and many already have electronic logbooks in place. “I don’t think any good company, which is the vast majority of companies that have a culture of safety, ever push their drivers,” he said.

Despite Laskowski’s assertion, human nature dictates that some companies or people will always try to capitalize on an opportunity. It also stands to reason that there aren’t many extra hours to coax out of drivers in the existing labour pool.

Solving the problem by quickly training and hiring new drivers won’t work either, considering the high number of retiring truck drivers and low North American unemployment rates. In Canada, the unemployment rate dropped to 5.7 percent in December, according to Statistics Canada, the lowest jobless rate since the mid-1970s. The U.S. unemployment rate fell to 3.8 percent in May 2018.

To attract drivers, trucking companies have been offering sign-on bonuses and other financial incentives. But these add, rather than reduce, costs and they aren’t always enough to overcome a hesitation to embrace the challenging driver lifestyle.

Some relief could be gained by using more long combination vehicles (LCVs) – tractor-trailers pulling two full-length trailers – for certain loads. LCVs are more commonly used in the Prairie provinces, but Ontario, Quebec, New Brunswick and Nova Scotia harmonized their requirements for LCVs in 2016 to make transporting goods that way more easy across these neighbouring provinces. It’s not a new concept, but it could make sense for some.

One of the only other ways to save money is to find a cheaper source of labour. Though it is illegal, some firms nevertheless have decided to treat drivers as independent contractors. In this situation, the driver forms a corporation which he or she draws a salary, but does not make contributions to the Canada Pension Plan or pay employer health tax, employment insurance or statutory holiday pay. Firms don’t have to worry about a group health plan, pension plan or severance packages either.

There is a downside. If you hire a service provider that uses independent contractors or procures labour paid for via an independent contractor payment scheme, you could find yourself with insufficient or a lack of workplace safety insurance coverage. Your 3PL-carrier partnership may even be in jeopardy if staffing providers fail to meet payroll contribution obligations and the claim defaults to your business.

So if, in your efforts to escape today’s higher shipping costs, you find a carrier or 3PL offering unbelievable rates, there’s a chance they are not operating an above-board payment model. Getting caught in a deal like that could throw you into the eye of a different kind of storm.

In the meantime, it seems finding and training more young drivers – as slowly as that might have to happen – could be the only real answer to the problem of high shipping costs.