Cost of diesel hurting carriers
The high cost of diesel has put Atlantic Canada’s trucking industry between a rock and a hard place. Industry executive Shane Esson more aptly describes it as being in survival mode.
Skyrocketing diesel prices have put several Atlantic companies in a precarious financial position and any short-term relief is not on the horizon.
Diesel prices have increased as much as 50 per cent in the past year and trucking companies are paying in excess of $20,000 a year more per truck for fuel over last year.
“There are a lot of carriers who are right now operating at a loss,” says Mr. Esson, general manager of Keltic Transportation of Moncton. And if there are any companies making money, it’s very minimal, he says.
Cash flow for a lot of carriers, he adds, is severely impacted by weekly fuel increases and “you just can’t catch up.”
The industry can apply a fuel surcharge to try and compensate for the high diesel price, and although that may seem like a simple solution, it doesn’t necessarily work in the carrier’s favour.
The Freight Carriers Association of Canada, through a formula, recommends a surcharge on a weekly basis. Presently it is in the vicinity of 40 per cent of the basic shipping rate. But trucking company customers may refuse to pay that much, so hauling cargo may become a bit of a bidding war based on surcharges.
“Some of the larger shippers in Canada aren’t paying the full surcharge; they are only paying a percentage . . . and a lot of the carriers are agreeing to it,” Mr. Esson says. Their want the work but it means more pressure on the carriers and they are being squeezed.
So fuel surcharges can, in effect, become a bargaining chip for customers. Furthermore, these surcharges have, in an indirect way, deterred trucking companies from raising their basic hauling rates.
Carriers need a fair return for their services to survive, not only because of the cost of fuel but to pay for new equipment, especially for new engines to meet stringent emission standards, higher labour costs and increasing compliance costs with all the programs required at the Canada-U.S. border.
But customers are not anxious to pay an additional three or four per cent on a hauling rate when they are already paying fuel surcharges.
The industry is not allowed to collectively set hauling rates, so each company must negotiate its own tariffs with customers. Supply and demand can play a large part in what customers will pay and what companies are willing to settle for to get a load.
Mr. Esson explains that at certain times of the year — January and February, after the Christmas rush and in the summer — business is slow, when volumes are down, so carriers are all competing for less business. Other times of the year when retailers require seasonal products and the agriculture industry is in full production, trucks are busy. It’s a cyclical business.
And to put further pressure on the industry, fuel suppliers are getting tougher with some of their clients. In some cases credit terms on fuel bills are being reduced from 30 days to 14 days. Fuel bills are higher and fuel companies want their money sooner.
“They are nervous and concerned carriers may go out of business,” Mr. Esson says.
The financial squeeze is also forcing companies to make tough decisions, says Mr. Esson, and at the end of the day, there will be fewer trucking companies. That scenario may have already started.
“It is getting fairly busy coming out of Ontario and Quebec east-bound and we are hearing situations where shippers up there can’t get their product moved into Atlantic Canada because there are not enough trucks available,” he says.
“There are shippers up there paying carriers to run empty from the Maritimes to go up and pick up their loads to get them back here,” he said.
Some customers understand the plight of the industry, says Mr. Esson, while others are dealing with their own financial difficulties. There is no easy solution to the truckers’ situation.
“Talking as an operator, we need to communicate to our customers the situation we are in,” Mr. Esson says. “They require consistent on-time services and we need to be paid a fair dollar for the service we provide. So you try and educate your customers. You try to share with them your situation and why you need to charge a surcharge and why you need a rate increase.”
In the end, it will likely be the consumer who will pay as transportation costs continue to be a major part of retail prices.
Source: The Halifax Herald Limited
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Tags: diesel, fuel costs, price rising, unemployment, unempolyeement