Despite a sagging outlook for freight volume in Ontario and a stubbornly unenthusiastic view of prospects for southbound freight to the U.S., most trucking companies in that province remain optimistic about their prospects for the next three months-- no doubt reflecting continued discipline regarding capacity.
That’s according to the Ontario Trucking Assn.'s (OTA) second quarter 2012 business expectations survey. Fifty-five carriers participated in the survey, which was conducted electronically in April.
In the survey, 67% of the Canadian carriers polled reported they were optimistic about trucking's overall prospects for the quarter — the same as in the 1Q12 survey. This is off the peak of 75% recorded in the 1Q11 survey, but significantly higher than the bare majority (55%) who said they were optimistic about the industry’s overall prospects from the 4Q11 survey.
The survey found that the results for freight volumes are indicative of a slowdown in the Ontario economy and continued sluggishness in the U.S. economy:
• Intra-Ontario. Only a quarter of respondents reported improvement in intra-Ontario freight volumes compared to the last quarter and this was virtually the same as reported in the 1Q12 survey. Moreover, pessimism for the immediate future grew with only 30% of carriers expecting increases in the latter half of 2012 vs. 39% who were upbeat in the last survey.
• Inter-Provincial . There is a clearly a higher degree of certainty among carriers for inter-provincial freight, likely as a response to rebounding markets in the western provinces. Thirty-four percent of carriers reported current volume improvements compared to 21% in the first quarter. Moreover, 59% of respondents said they expected improvement in inter-provincial freight volumes over the next six months (up from 40%). Only 3% predicted a decrease.
• U.S. Southbound. Once again, the mood among carriers is least encouraging in regards to U.S. southbound freight. In fact, according to respondents, U.S.-bound business appears to be regressing slightly. The number of carriers who said volumes had increased since the first quarter mirrored the 1Q12 survey at a meager 14%, while the majority (58%) said things were unchanged. However, the rate of carriers who reported decreased volumes rose from 21% to 28% — the first increase in pessimism in a year and the second-highest percentage of carriers reporting a retreat in volumes since 3Q2009. While the majority of carriers continue to expect relatively little volatility over the next six months (65%), there was a modest drop in the percentage of carriers who expect increases (23%, the lowest overall rate since 1Q09) and a small uptick in projected declines (7% to 12%).
• U.S. Northbound. Northbound freight continues to be a bright spot (provided the carrier has a truck in the States to pick it up or the shipper is prepared to pay a fleet to go empty to the U.S.), with nearly half (48%) of carriers reporting increased volumes vs. 30% and 35% over the last two quarters, respectively. Expectations for the balance of 2012 also improved with 40% of carriers reporting they are optimistic about northbound volumes for the next six months.
After about a year of modest rate improvements, the 2Q12 survey results indicate rates are holding steady (particularly in the inter-provincial market), but there is some softness creeping into those markets where volumes are weakest.
Overall, over half of the carriers reported the current rate environment as being "about the same." However, the percentage of carriers reporting the rate environment in the intra-Ontario market as decreasing rose to 28% from 23% in 1Q12.
Forty-five percent of carriers characterized the southbound U.S. rate environment as decreasing-- up sharply from 28% in the first quarter survey. The environment for northbound rates continues to be the strongest, with 43% of respondents saying it is improving compared to 30% in the previous quarter.
At the same time, carriers report increases in all major operating costs compared to last year. In a direct reflection of the shortage of drivers, labor costs — the largest component of operating costs — is also headed upward, with 71% of carriers reporting increases in driver wages (compared to 45% in 4Q11), most being in the 2-5% range.
The percentage of carriers (36%) who reported increases in owner-operator compensation of between 2% and 5% also increased — up from 31% in 1Q12. Nearly 95% reported fuel cost increases over the past year with the majority (67%) reporting increases of 10% or higher (after 44% said the same thing in the first quarter).
The costs of maintenance and tires are both on the rise with about 75% and 81% of respondents, respectively, reporting increases. Meanwhile, almost three in four carriers (73%) reported higher tractor-trailer purchase prices, with 24% indicating price increases of 10% or more (up from just 9% two quarters ago). Also, 67% of carriers say they’re paying more for trailers (25% say 10% or more), which is also up from only 45% six months ago.
The majority of carriers who say capacity in their segment remained level increased from 43% to 55%. However, capacity remains extremely tight as only 22% report they've increased capacity (down from 27% last quarter and 33% average throughout most of 2011) and just 28% expect they will expand coverage in the next six months.
As has been the trend since mid-2010, carriers continue to be cautious and resistant about adding to their driver pool. A minority (43%) of respondents said they plan to add more company drivers (vs. 46% and 49% in the last two quarters) while 52% said they have no planned changes.
Similarly, 44% said they plan to add more owner-operators, slightly up from the 40% who indicated the same last quarter. Carriers, meanwhile, appear to be doing a good job retaining the drivers they do have with 75% reporting a turnover rate of 20% or less.
Further indication that capacity will remain tight is reflected in carriers' buying intentions. While the vast majority (70%) of carriers said they will not increase the size of their tractor pool, those who said they will add to their net number of power units actually fell to 22% from 31% in the previous quarter — the lowest level since 4Q09.
The percentage of those who planned to add trailers also dipped (to 28% from 35% last quarter and 46% this time a year ago) while the majority (63%) indicated no change in trailer additions.
For the second time, the OTA survey asked carriers what are the top three major industry issues and/or concerns they're watching closely. More than half of all carriers (52%) said the capacity-rate situation was their top concern, followed by fuel prices, the economy and the driver shortage as number-one concerns.
Go to http://www.youtube.com/watch?v=lleprresz_I to watch a short video synopsis of the survey results with OTA president David Bradley.