The Canadian transportation industry is currently experiencing a “perfect storm” of economic factors. Lower fuel prices, slow economic growth and an improving Canada-US exchange rate have all put significant pressure on carriers to lower rates, while buyers of over-the-road freight services are clearly benefiting.
According to the monthly Canadian General Freight Index (CGFI), prices paid by Canadian shippers in July 2009 for over-the-road truck transportation have declined 15.6 percent year-over-year, and a full 9.7 percent since December alone.
A significant factor driving this decline has been lower fuel prices and the resulting reduction in fuel surcharges assessed by carriers (from 16.3 percent at the end of last year to 12.3 percent in July).
However, the base rates paid by Canadian shippers has clocked a decline of 5.7 percent since the beginning of the year, even when the impact of fuel surcharges is removed. This is a significant decrease in light of the usual trend of price increases levied by carriers.
Further examination of the CGFI data shows the drop in freight costs has been closely correlated with the slow-down in the North American economy. Not surprisingly, cross- border less-than-truckload transportation base rates are down more than 20 percent since the end of last year.
Truckload rates are down approximately five percent across the board during the same period, while domestic less-than-truckload rates appear to be relatively stable.
What does this mean to Canadian shippers? A lot! Based on information presented at a recent industry conference, transportation represents on average 60 percent of a company’s total supply chain cost. Delivering a five percent improvement on this expense item has the potential to significantly improve bottom line performance.
The information on freight rates is generated by Nulogx, a provider of transportation management solutions. The company has created a massive database of current shipment activity and rates. According to Alan Saipe, president of Supply Chain Surveys Inc., and long-time industry analyst who helped create the CGFI, “Nulogx has been able to leverage its extensive database of more than two million annual transactions to develop a unique insight into Canada’s freight market.”
The CGFI is a free service available to the general public through the CGFI.ca website. Nulogx can also provide to customers access to more detailed information based on shipment sizes and regions.
How can Canadian purchasers of transportation benefit from this information? The first and most obvious action would be to benchmark your performance against the index. Have your costs declined 9.5 percent in 2009? Are you paying more or less than 12.3 percent on average for fuel surcharges? Are there some undiscovered opportunities for improved performance?
All of the recent data clearly suggests now is an important time to evaluate your transportation costs.
Scott Irvine is vice-president of business development with Nulogx Inc. He may be reached at scott.irvine@nulogx.com The freight rate index can be found at www.cgfi.ca