Inside Logistics

Carrier optimism waning in third quarter: OTA survey

September 11, 2012

TORONTO, Ont. — The level of optimism about the economy is softening, according to the latest quarterly survey of trucking companies conducted by the Ontario Trucking Association. The association’s third-quarter survey showed that while the majority (57%) of respondents remain optimistic about the industry’s prospects over the next three months, this is down by 10 percentage points over the proportion that were optimistic in both the second- and the first-quarter surveys. Thirty-six per cent said they were unsure what the next three months would bring – up from 22% in last quarter’s survey. More respondents ranked the economy as their major business concern (38%) than previous surveys.

Freight volumes
In each of the freight markets covered by the survey – intra-Ontario, interprovincial, southbound US and northbound US – the majority of respondents said that freight volumes had not grown over the previous three months and were about the same as they had been in the second quarter, despite the fact that this is traditionally the start of the peak pre-Christmas shipping season.

There was a bit of a slide in the number of carriers who reported improvement in intra-Ontario freight volumes compared to the last quarter, from 25% to 21%, which was also eleven points less than the same quarter in 2011. Sixty-seven per cent said volumes were about the same in the third quarter compared to the second.

Interprovincial freight followed a similar pattern. Reported improvements in quarterly volume fell to 21% of carriers from 34% in the second quarter. Seventy per cent carriers indicated interprovincial freight volumes had stayed about the same.

In the US markets, southbound volumes continued their weak performance of the past few years. The number of carriers who reported an uptick in volumes fell to just 10% from 14% in the second quarter survey, while those who said freight levels are decreasing rose from 28% to 38% – the highest level since the third quarter of 2009. Northbound freight remains strong as 43% of carriers reported volume increases, but even that is modestly (4%) below the level recorded in the second quarter. Fifty-seven per cent said northbound volumes were about the same, up seven points from the previous quarter.

Looking ahead
A shrinking number of carriers in all four freight markets expect freight volumes to pick-up over the next six months. Again, most expect volumes to stay about the same, according to the OTA survey. Compared to the second quarter survey, there was a nine percentage point decline (21% from 30%) in carriers who felt the freight outlook for intra-Ontario volumes would improve – less than half of the 54% who expressed optimism just over a year ago in the second quarter of 2011. Similarly, there was nearly a 50% quarter-by-quarter drop in the number of carriers who expect interprovincial volumes (which had been a source of optimism in the second quarter survey) to improve. Of the US markets, a third of respondents said they expected northbound volumes to improve over the next six months – still the best of the lot, but seven points below the results of the previous quarterly survey.

Freight rates
Freight rates appear to be holding their own, with the vast majority of respondents, at least in the Canadian markets, indicating that carriers are maintaining discipline in terms of capacity, according to the survey. In the intra-Ontario and interprovincial markets, 67% and 70%, respectively, of respondents characterized the current rate environment as being “about the same” and a lower proportion of carriers characterized the markets in both Canada and the US as decreasing. Northbound freight from the US market continued to be a bright spot with 45% of respondents characterizing the rate environment as improving, up slightly from the second quarter survey.

Surcharges and accessorials
The rate of carriers who successfully recoup fuel surcharges remains high at 85%, while the number of fleets who say they apply accessorial charges to most or all customers rose sharply from 27% in the second quarter to 44%. There was virtually no change in the proportion of carriers who say customers are taking longer to pay (15%), however that is much better than the 33% who said the same exactly a year ago.

Freight capacity continues to be tight, according to respondents, as only 15% reported that capacity had increased in their segment of the market over the past quarter, down from 22% in the previous quarterly survey and less than half of those who reported increased capacity during the same quarter last year. Thirty-one per cent said capacity continues to decrease, up from 24%. Sixty per cent of respondents expect capacity to remain about the same over the next six months – up from 48% in the previous quarter – despite concerns over a slowing economy.

There was a near 50-50 split between those who plan to leave their driver pool unchanged (48% for drivers; 53% for owner/operators) and those that plan to add manpower (48% drivers; 50% owner/operators). The last time there was a significant divergence between these two camps was in early 2010 when only 25% of carriers said they would add drivers. Seventy-five per cent of respondents reported a turnover rate of between 0-20%; 22% pegged their turnover rate at between 21-40%.

A majority of carriers (59%) said there would be no net change in the size of their tractor fleet over the next six months, although the number of carriers who said they expect to add tractors rose to 36%, up from 22% in the second quarter – the highest level in more than a year. Similarly, a slightly smaller percentage (59% from 63%) said they foresee no net change in the size of their trailer fleet, but the number who said they would be adding trailers rose to 36% from 28% in the previous quarter.

Operating costs
The vast majority of carriers continue to report year-over-year increases in all the major components of operating cost, according to the survey. Most respondents indicated equipment (tractor and trailer) costs are up in the range of 5-10% compared to last year. Most reported increases in driver wages and owner/operator compensation on the order of about 2%. Employee benefits most commonly rose by up to 5%, as did third-party liability insurance, although that is one cost area where a slim majority (53%) said were about the same as a year ago. (It’s unclear whether that has to do with when a carrier renews its insurance policy, OTA officials noted). Fuel, tire and maintenance costs were most often reported as increasing by up to 15% on a year-over-year basis.

Top concerns
The OTA once again asked carriers about their most pressing concerns or issues they’re watching closely. The “economy” overtook “capacity and rates” as the top issue (38% indicated economy, compared  to 25% last quarter while those who feel  rates and capacity is their biggest concern was 33%, compared to 51% last time). The driver shortage was also the top concern for 20% of respondents, while those who indicated fuel prices was the major concern fell to 9% (from 27% three months ago) reflecting temporary softness in fuel prices in recent months.