OTA 1Q13 Business Survey points to divide in market conditions
(Toronto, Jan. 30, 2013) — Contrasting trajectories of truck freight volumes and freight pricing appears to be further muddying the trucking economic forecast for the next several months, suggests the most recent Ontario Trucking Association survey of business conditions in the bellwether sector.
With another less-than-peak shipping season in the rearview mirror, the New Year brought more uncertainty for Ontario carriers. According to the 1Q13 survey, the level of optimism about the industry’s prospects softened once again as less than half of carriers (44%) indicated they were confident about the next three months (down from 52% last quarter). However, outright pessimism also subsided as the rate of carriers who were not confident fell seven points to 9%. Consequently, the number of respondents who said they were “unsure” about the industry’s prospects jumped from 32% in last survey to 56% — more than doubling those who said the same thing a year ago in the 1Q12 survey and the highest level of uncertainty the OTA survey series has ever recorded.
Freight Volumes & Rates
This lack of clarity among carriers is perhaps a reflection of an emerging gulf between rising freight volume expectations and a flattish pricing environment.
Volumes in all sectors experienced only modest fluctuations over the last three months, with a majority of carriers continuing to report unchanged volumes Q-Q. Slightly fewer respondents reported improved volumes in Intra-Ontario and southbound US compared to 4Q12; while volumes in Inter-provincial and Northbound US were said to have improved modestly. Interestingly, though, carriers’ volume expectations for the next six months jumped across the board. While 50% to 60% of carriers still don’t expect changes in any of the four sectors, there was clearly a significant boost in the percentage of carriers who predict improvements in the near-term: Intra-Ontario (40% from 32% in the last quarter, and highest level since 2Q11), Inter-provincial (41% from 27%); Southbound US (34% from 25% — the highest expectation for improved volumes in this market for two years); and Northbound US (37% from 28%).
Pricing, however, (especially domestically) has not paced carriers’ high freight volume expectations but has remained dependably stable even throughout recent soft economic conditions. Asked to characterize the rate environment for Intra-Ontario, 69% indicated no significant movement. Only 5% of carriers reported improved rates (down from 18% last quarter); There is virtually no volatility inter-provincially as well, as 82% report an unaffected rate environment. Just like the last quarter, a third of carriers report lower rates in southbound US, which is more favorable than a year ago when nearly half suggested the same. Northbound rates, a highlight for Ontario carriers in the last few years, rebounded up to 37% of respondents indicating improvement compared to 27% the previous quarter.
Capacity remains frozen as carriers continue to be disciplined in adding both equipment and drivers in the absence of the proper economic conditions to support growth. A large majority of carriers (64%) said that capacity in their segment remained the same compared to the previous quarter while those who say capacity increased dropped even further (20% from 23%). Those rates are virtually identical to the responses of carriers projecting capacity for the next six months.
While there was some indication in the 4Q12 survey that more shippers were looking to lock in capacity, the rate of carriers who indicated customers are lengthening timeframes of contracts fell from 27% to 13% in the most recent survey while those who indicated no net change rose from 70% to 84%. However, only 2% said timeframes were shrinking.
Somewhat concerning, the rate of carriers who say it’s taking longer for customers to pay their freight bills jumped from 20% last quarter to 30% — the second highest level in three years and double what was indicated in the 2Q12 survey. Meanwhile, the percentage of respondents who say they collect accessorial charges from most of their customers remained at about a third – higher than the 24% who reported that was the case a year ago in the 1Q12 survey, but still a far cry from the 45-55% who indicated successful accessorial collection in late 2010 and early 2011.
At All Costs
While receivables are being extended, there is no such deferment for carriers in terms of their own costs. The vast majority of carriers continue to report increases in all the major components of operating cost, such as equipment and maintenance fuel, and labour. On the latter point, 66% of carriers indicate wage increases of 2-5% for drivers. Those numbers are expected to increase as the risk of a driver shortage escalates in the coming years.
© 2012, Canadian Trucking Alliance