Ontario Trucking Survey Reflects Improved Industry Outlook, But Real Freight Growth Remains Flattish

Optimism among Ontario motor carriers rebounded somewhat in the first quarter of 2012 after a dip in confidence to close out 2011. This occurred at the same time as growth in freight volume is muted, suggesting a modest but steady economic outlook and continued capacity control.

General Outlook

The latest Ontario Trucking Association (OTA) quarterly survey of the pulse of the trucking industry – a leading indicator of economic activity — shows a higher degree of certainty amongst carriers to start the year, perhaps signaling that the worst of the economic storm clouds have passed overhead. The number of carriers who reported they were optimistic about the industry’s prospects over the next three months increased from 55% in the final quarter of 2011 survey to 67% in the 1Q12 survey – the highest level since reversing a trend for three straight quarters where carriers expressed pessimism about the short-term outlook. Although 67% was the highest percentage since 2Q11, it was still well down from the second and third quarters of 2010 when carrier optimism peaked at 73%. The number of carriers who said they were pessimistic about the industry’s prospects remained relatively flat, rising modestly from 5% to 8%.

Freight Volumes

While the outlook appears rosier for the future, fewer carriers reported that freight volumes were improving in all areas of domestic and international transport over the last three months. Only 24% of respondents indicated that intra-Ontario freight volumes are improving compared to 36% in the last quarter, while the number who said volumes were the same rose from 57% to 65%. Inter-provincially, the number of carriers who reported improved freight volumes plummeted to 21% from 39% in the last quarter and a massive drop from the 60% high in 2Q11. Seventy-two percent said volumes stayed the same – a large increase over the 49% who said the same thing 4Q11.

The large majority of carriers who said southbound US volumes remained unchanged, mirroring exactly the 65 percentage points reported in the last quarterly survey. Only 14% said southbound US volumes had increased, down from 21% three months ago. In the northbound US market, which has been relatively strong in recent years, the percentage reporting an improvement in volumes declined to 30% from the 35% last quarter and the 51% 3Q11.

Looking ahead, carriers are cautiously anticipating a rebound. Although most carriers indicated freight volumes would remain relatively similar in all categories when asked of their expectations, 38% did say they thought things would improve intra-Ontario (up from 33% last quarter); 40% said the same for interprovincial (up from 33%) and for northbound US, 34% expected an improvement (up from 28%). The percentage of those who expected southbound US volumes to improve was 26%, exactly matching the same rate in the last quarter.

Rate Environment

The majority of respondents reported that rates were “about the same” in each of the geographic markets – although there were improvements reported by some carriers inter-provincially (28% compared to 19% last quarter). While the number of carriers who indicated improvement on southbound rates was steady quarter-to-quarter (19% from 21%), there was some softening in northbound rates, with the rate of carriers reporting an improvement falling from 44% to 30% from the previous quarter.

Fuel Surcharges & Assessorial Charges

After a 14-point dip last quarter from 3Q11 in the number of carriers who indicated they are applying accessorial charges, the percentage of carriers who said they are successfully applying a surcharge to most of their customers rebounded in this survey (from 27% to 43%). The percentage of carriers who indicated customers are paying a reasonable fuel surcharge, fell slightly from the last quarter, but stayed in-line with the 80-90% range since 2008.

All Costs Increasing for Carriers

Carriers continue to face across the board increases in all major operating costs compared to last year: Nearly 90% reported fuel cost increases over the past year, with 44% reporting increases of 10% or higher. The costs of maintenance and tires are both on the rise with about 95 and 90% of respondents, respectively, reporting increases; and in both cases around half of respondents indicated price increases of 40-60% (Trailer tires were especially high, with 60% of carriers reporting price increases, compared to 26% in the last quarter). Labour costs — the largest component of operating costs — are also on the upswing, with 67% of carriers reporting increases in driver wages, most of which being in the 2-5% range. Employee benefits costs are under upward pressure with 65% of respondents reporting increases of between 2% and 15%. The percentage of carriers (31%) who report increases in owner-operator compensation between 2% and 5% was unchanged from 4Q11. A whopping 72% of carriers reported higher tractor-trailer purchase prices, with 25% indicating price increases of 10% or more (up from just 9% last quarter).

Loaded Miles/Length of Haul

The majority of respondents (72%) report that loaded miles remain the same, up from 55% in 4Q11. The percentage of carriers who reported loaded miles are increasing continues to fall steadily (14% from 27% 4Q11 vs 45% 3Q11). Seventy-four per cent reported that the average length of haul is also staying the same, while 14% reported it is increasing.

Capacity

A majority of carriers (46%) continue to expect capacity in their segment to stay level, albeit tight, over the next six months. The percentage of those who expect capacity to decrease or increase was fairly split (30% and 24%, respectively). While the percentage of those who expect capacity to decrease is line with the last two quarters, there are 13% fewer carriers who predict capacity expansion compared to 2Q11.

Drivers/Owner-Operators

Carriers continue to be split on whether they should add to their driver pool or not. Forty-six per cent of respondents said they plan to add more company drivers (vs 49% last quarter) while 50% said they have no planned changes. Similarly, 40% said they plan to add more owner-operators, although that’s down from the 51% who indicated the same thing 4Q11.

Equipment

Further indication of the carriers’ desire to manage capacity is evident in the responses regarding equipment, although there are slight increases from the last quarter. Sixty seven percent said they plan no new additions to their fleet of tractors while the number who said they could add tractors rose modestly to 31% from 24%. The percentage of those who planned to add trailers hardly budged from 4Q11 (38% and 35%, respectively), while the large majority (60%) indicated no change in trailer additions.

Regulatory Issues

The 1Q12 survey for the first time asked carriers what are their top three major industry issues and/or concerns they’re watching closely. Overwhelmingly, most carriers indicated that their top-of mind issues are (in this order): the changing U.S. hours of service rules; the process of mandating electronic onboard recorders (EOBRs) in Canada and the US; and the CSA safety rating regime in the US. A smattering of other issues also populated the list, such as capacity and the driver shortage, increased border security, “trivialities” during roadside inspections; retesting drivers over 65in Ontario (see recent developments here); fuel and insurance costs; and empty trailer moves in the US.

53 carriers participated in the survey which was conducted electronically in January 2012.