CTL DEC 2013

SUMMIT SUMMARY

Great minds meet on transportation management

DECEMBER 2013

NEW HORIZONS

Announcing the launch of Canadian Shipper

Published Since 1898

OUTLOOK 2014:

The climate ahead for transportation purchasers

.., CT&L, Slug Cubed

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Published Since 1898 VOLUME 116

ISSUE NO. 11

DECEMBER 2013

C O V ER

Outlook 22. . .

MARINE CARRIERS: EXPANSION PLANS

Canadian shipping firms boast fleet renewal, increased investments

25. . .

AIR CARRIERS: TOUGH CLIMATE

Rate and yield pressures continue as cargo volumes show modest gains

28. . .

RAIL CARRIERS: HEIGHTENED SAFETY

OUTLOOK

The rail industry faces stricter climate on safety, process and service

32. . .

COURIER AND EXPRESS: NO SHAKE-UPS

The biggest players increase their market share, but otherwise the field is unchanged

Our annual report features the latest industry trends and topics affecting your business, expert analysis of economic factors shaping the year ahead, by mode, along with the most up to date research on transportation buying trends.. . . . 21

35. . .

MOTOR CARRIERS: MARGIN PRESSURE

Volumes are up but not rates

Special Inside 6 CITT REPOSITION 2013 REPORT

Exclusive coverage from CITT’s AGM features in-depth discussion of the CITT designation name change, and the debate around fuel surcharges and affected stakeholders.

4 THE VIEW WITH LOU Inside our rebranding to

www.ctl.ca

12 SURFACE TRANSPORTATION SUMMIT

Transportation Media and Dan Goodwill & Associates brought together some 300 participants in this year’s Surface Transportation Summit, which provided the opportunity for shippers and carriers to air their differences, in a spirit of collaboration, and “sparing no sacred cows”. ct&l december 2013

3

­

the view with Lou Volume 116 Issue No. 11 December 2013 EDITORIAL DIRECTOR

Lou Smyrlis (416) 510-6881 Lou@TransportationMedia.ca

what’s in a name?

ASSOCIATE EDITOR

We are changing our title to Canadian Shipper. But we are keeping, and growing, our commitment to supplying you with the comprehensive information you need to manage transportation.

PUBLISHER

Nick Krukowski (416) 510-5108 nick@ctl.ca ART DIRECTOR

Mary Peligra mpeligra@bizinfogroup.ca

S

ince our publisher Nick Krukowski first mentioned it in this space in the August issue, you’ve seen our promotional ads and you’ve been introduced to the upcoming change in our title if you attended our most recent Surface Transportation Summit. This is the last issue we will be publishing under the title of Canadian Transportation & Logistics.

Starting in 2014 we are adopting a new title: Canadian Shipper.

As much as I had grown used to the Canadian Transportation & Logistics title and the familiarity it enjoyed in industry circles, truth is that it was a mouthful to say and its overly long logo difficult to market.

The new Canadian Shipper title is much shorter and easier to promote but also better reflects Lou Smyrlis, exactly whom our editorial MCILT scope and mandate is meant to serve: proven buyers of transportation services, both inbound and outbound.

Our publication is 115 years old and has changed its title many times over the past dozen decades to better reflect the changes in the industry. But one thing has remained constant: Our focus has been on the transportation link of the supply chain. Our editorial is geared towards providing the information you need to get your product to where it needs to be, when it needs to be there, in the most efficient, secure and cost effective manner.

The focus on transportation will not change under the Canadian Shipper title but it will be expanded. One of the most important changes we’ve witnessed over the past two decades is the lengthening of Canadian supply chains as Canadian companies set their sights beyond the domestic or the US market towards global markets. Of course, longer supply chains are more complex supply chains.

Over the past couple of years we have tried to address the resulting need for more information about managing transportation in such global supply chains by sending our editors further afield to report directly on transporta4 4

Julia Kuzeljevich (416) 510-6880 Julia@TransportationMedia.ca

ct&l december 2013

tion and customs challenges. Expect more of the same next year with every issue of Canadian Shipper having a focus on a key global market: Europe, Asia, South America and, of course, our largest export market, the US. More global supply chains also mean an expanding mix of transportation modes.

While we have attempted to include information about every mode in our issues, the reality is we are constrained by the amount of space available in our printed product.

Another key change for 2014 is a sizeable increase in our frequency and an important change in our delivery method. We will publish 18 issues next year – six in the traditional features-based print format, and twelve digital modal updates, each of them focusing on key metrics for a specific mode, and providing you with the latest industry data, analysis, and insight affecting your transportation purchasing decision.

The move to digital editions continues our efforts to provide information to you in a variety of platforms. Our award-winning WebTV show, TMTV, is not only a favourite on our website but is approaching half a million views on our YouTube channel. Our twice weekly e-newsletter keeps you up to date on the latest news happenings. It’s safe to say we have conducted more research on the transportation industry over the past 10 years than any other industry organization by a long stretch. Our own Surface Transportation Summit is becoming recognized as one of the best educational and networking opportunities in transportation today. And our social media presence on Twitter and LinkedIn is second to none in the industry.

It all amounts to having the tools and flexibility necessary to tell a story in the best way for that story to be told. We are committed to engaging with our readers in whichever way they prefer to engage with us. Expect to see us reach out to you in even more new ways in the years to come.

As excited as we are about the new title, we are working to ensure there is real subCT&L stance behind it. www.ctl.ca

CONTRIBUTING EDITORS

Carroll McCormick, Leo Ryan, James Menzies, John G. Smith, Ian Putzger, Ken Mark MARKET PRODUCTION MANAGER

Gary White (416) 510-6760 gwhite@bizinfogroup.ca

VIDEO PRODUCTION MANAGER

Brad Ling

RESEARCH MANAGER

Laura Moffatt

CIRCULATION MANAGER

Barbara Adelt (416) 442-5600 Ext. 3546 badelt@bizinfogroup.ca EXECUTIVE PUBLISHER

Tim Dimopoulos

VICE-PRESIDENT PUBLISHING

Alex Papanou PRESIDENT

Bruce Creighton HEAD OFFICE:­­ 80­Valleybrook­Drive,­Toronto,­ON­M3B­2S9­­ ­ CANADIAN TRANSPORTATION & LOGISTICS­is­­ written­for­Canadian­transportation­and­logistics­ professionals­who­manage­product­flow­from­ manufacturer­to­point-of-­sale.­Edit­orial­is­focused­­ on­re­porting,­analysis­and­interpretation­of­Can­adian­­ log­istics­trends­and­issues.­It­is­published­by­­ BIG­Magazines­LP,­a­division­of­Glacier­­ BIG­Holdings­Company­Ltd.­­ SUBSCRIPTIONS: Contact­us­at:­mmarasigan@bizinfogroup.ca­ Tel:­416­442­5600­ext.­3548.­Fax:­416­510­6875.­­ Website:­ctl.ca­(click­on­sub­scription­button) SUBSCRIPTION RATES: Canada:­$64.95­+­applicable­taxes,­ per­year;­$105.95­+­applicable­taxes,­for­two­years.­U.S.A.:­ US$105.95­per­year.­All­other­foreign:­US$105.95­per­year.­ Single­copies­$8­except­for­the­annual­Logistics­Buyers’­Guide­ (Aug)­$59.95­+­applicable­taxes,­(not­including­HST)­plus­$2.00­ for­postage.­USA:­US$107.95,­Foreign:­US$107.95­ISSN­ 1187-4295­(print),­ISSN­1923-368X­(Digital),­(Can­adian­ Trans­port­ation­&­Logistics.)­Indexed­by­Canadian­Bus­iness­ Period­icals­Index.­Printed­in­Can­ada.­All­rights­re­served.­The­ contents­of­this­publication­may­not­be­reproduced­either­in­­ Lou Smyrlis, part­or­in­full­without­the­consent­of­the­copyright­owner.­

MCILT

POSTMASTER: Please­forward­forms­29B­and­67B­to:­­ 80­Valleybrook­Drive,­Toronto,­Ontario,­M3B­2S9­­ Second­Class­Mail­Registration­Number­0721.­ PUBLICATIONS MAIL AGREEMENT 40069240 We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund of the Department of Canadian Heritage

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CITT approves change to designation name at AGM Change will be discipline-specific, and aims to better communicate expertise and experience

By Lou Smyrlis

In an exclusive interview with Warren Sarafinchan, CITT, and vice president of Supply Chain at Sun-Rype Products Ltd., Canadian Transportation & Logistics discusses CITT’s designation name change and certification.

CTL: Is it true that CITT has decided to change its designation name after over 50 years?

CITT: Absolutely, 100% true. And we think this is really fantastic news. The CITT membership approved it at our AGM with overwhelming support. This is a long-overdue, value-adding move for our designation holders and the companies they represent and work with.

CTL: Why did CITT decide to make this change?

CITT: The simple answer is that CITT certified members and business leaders have been asking for a discipline specific description of the designation holder to better communicate their area of expertise and high level of experience, integrity and professionalism.

CTL: What is the new designation name?

CITT: “CITT-Certified Logistics Professional (CCLP)”. CCLP was the most accurate, descriptive and appropriate designation name we could adopt. It also is the way we informally describe CITT’s fully certified pros and designation holders now. Each part of it provides important information about the credential holder.

CTL: What was the reaction among your members to the change?

CITT: Most members are thrilled. And we had tremendous participation from a huge portion of our membership base in the decision-mak-

6

ct&l december 2013

ing process. Some of our most enthusiastic CITT champions wanted to be sure that CITT would still have a prominent profile. And they’ll be happy and confident that CITT is prominent in the new designation name.

CTL: How can companies identify people who are CITT-Certified Logistics Professionals?

CITT: Companies have a wide range of practices on how industry, and other, credentials are shown with their staff’s signatures and on their business cards. For instance, some only allow job titles. So someone might have a credential but it isn’t shown. Of course, smart employers and customers will always ask if someone holds an industry credential.

That said, all CITT-Certified Logistics Professionals are entitled – and encouraged – to show the initials “CCLP” after their names and/or write out their full designation name.

And only those pros that are fully certified by CITT and are in good standing as members will be able to call themselves CCLPs. This really distinguishes them from CITT’s program of study graduates and articling students as people who have met our academic requirements in logistics and business AND have logged a minimum of 8,500 sector-specific professional hours, have committed to continuing professional development and have pledged themselves to ethical conduct.

The other way that CCLPs can be identified is if they’re showing our optional-use, www.ctl.ca

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reposition 2013 report

CCLP trust-mark. Since not all forms of communication will support or allow this kind of graphic, this is a value-added support for members and isn’t required for display.

CTL: Why did CITT pick “logistics” and not a wider description, such as “supply chain”?

CITT: CITT-Certified Logistics Professionals (CCLPs) play lynchpin roles in the glob-

al supply chain ecosystem. Yet we felt it was really important to avoid the faulty thinking that says there’s only ONE, definitive “supply chain professional”. In truth, there are several complementary skillsets that need to come together for someone to be a completely well-rounded supply chain professional. If people really want to be recognized as all-round “supply chain” professionals, they really need cross-functional

certification from more than one expert certifying body.

So CCLP is a LOGISTICS management certification, providing industry’s deepest and more comprehensive coverage of the technical discipline combined with operation-critical management abilities. The other big skill-set for supply chain is procurement, and we’ll leave this with our colleagues at SCMA since that’s their focus.

CTL: Who is the CCLP Designation for?

CITT: It’s for anyone who buys, sells or manages logistics, or is impacted by the transportation of raw materials or goods.

This is for people who work in businesses where logistics or ancillary services is the company’s core business or for people who work in supply chain and logistics roles on the client side such as resources, manufacturing, retailing, or import-exporting.

CTL: Why is certification good for people working in supply chain and logistics roles today?

CITT: When you know more, and have a third-party validation of that from a respected industry body you’re worth more professionally. And when times are tougher, or uncertain like they are now, companies really lean on and value people with proven supply chain logistics expertise. In all, it’s a proven investment that pays off with higher earning power, better advancement prospects and improved overall employability – no matter what’s happening with the cyclical economy or job market.

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CTL: Why is having a credentialed logistics professional (such as CCLPs) good for business?

CITT: There are quite a few reasons actually.

Industry certification makes it completely clear what someone knows by applying a credible third-party standard of proficiency.

For the CCLP designation, CITT’s standard is objectively-measured based on the participants’ performance results in the program (not just showing up to a course).

CITT’s standard is national and it’s recognized right across Canada as well as by international markets.

A professional designation really distinguishes the people who’ve made the effort to earn one. Unlike some other professional disciplines that require certification to practice, logistics credentials are entirely voluntary – although more and more people are becoming certified. Nevertheless, employers and customers can use credentials as a measure to identify credential holders as www.ctl.ca

ct&l december 2013

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Port Metro Vancouver is already close to Asian markets. And with unprecedented infrastructure investment in our gateway, we’re getting even closer.

We’re building land-side projects that boost rail and road efficiency. We’re increasing our container terminal capacity and reducing on-dock dwell through collaboration with supply chain partners. And we’re operating with longshore labour certainty to 2018. as a result, we’ve taken up to 3 days out of your supply chain. That brings your goods closer to market and you closer to your customers.

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reposition 2013 report

people who are committed to doing their jobs well and are serious about their careers and the business of logistics. And that will be more and more important with the coming wave of retirements.

Lastly, most professional groups have Codes of Ethics for their credential holders. CCLPs definitely have one, as did our “CITT”s.

While this isn’t a great differentiator with other professions or other sector credentials who also have Codes of Ethics, having a code for CCLPs definitely sets them apart from those people or companies in business who are not interested in operating with integrity.

CTL: Did any of the requirements change for someone to earn a CCLP designation (vs. a CITT Designation)?

CITT: No change at all.

CTL: Are there plans to change the name of the organization?

CITT: Absolutely not. CITT is CITT and will remain CITT; although, like IBM, we don’t spell out our full legal name very often anymore. We’ll keep CITT since CITT has a well-established and well-respected industry profile and is an iconic brand. CITT has been known, trusted and respected for 55 years and we’re not going to change that.

CTL: Where can someone learn more about becoming a CITTCertified Logistic Professional?

CITT: They can call CITT at 416.363.5696 or visit CITT’s CT&L website at www.citt.ca

Hitting the moving target on fuel surcharges Conversation is critical for shippers and carriers

By Julia Kuzeljevich

I

n a panel discussion on fuel surcharges at the CITT’s National Conference on Supply Chain & Logistics, Lou Smyrlis, Editorial Director of the Transportation Media group, asked shippers, carriers, and oil industry experts to weigh in on the discussion about types of fuel surcharges and the need to re-examine the processes around them.

Smyrlis also said he hoped the discussion would “spark an understanding of the different points of view and also the desire to continue the conversation.”

CITT’s National Conference, Reposition 2013, took place in Toronto this November.

Roger McKnight, senior petroleum analyst, with En-Pro International Inc., said there are many factors affecting the price of crude, whether it’s a low inventory in diesel as a factor of weather, a refinery or pipeline issue that immediately translates into a crude price hit, and even the perception of a political crisis that affects trading on currencies like the US dollar.

Six to twelve months out, he said, it’s expected that US shale oil and oil sands production will steadily increase and there will be some relief in terms of pipeline availability.

In the meantime fuel price volatility wreaks havoc on the transportation industry which must try to recoup some of that instability via fuel surcharges.

Ginnie Venslovaitis, director, Transportation Operations, for Hudson’s Bay Company, said that while she wouldn’t want to “take money out of the carriers’ pockets, fuel surcharges should be based on fuel consumption and not on second drops, waiting time and other accessorials that are more driver-labour related.”

Panelists also discussed the merits of both percentage based and invoice based fuel surcharges.

Mark Lerner, assistant vice president, Intermodal Sales, with CN Rail, said the railway uses mileage-based surcharges for carload but for intermodal, invoice based is easier for the customer to compare.

“Invoicing is more efficient for intermodal when the complexities are built in,” he said.

Jeff Bryan, president and CEO, Jeff Bryan Transport Ltd., noted that carriers have to keep on top of the changes every time there’s a 10

ct&l december 2013

different version out for a mileage program.

“The process needs to stay as simple as possible, i.e. invoice based,” said Venslovaitis, which would essentially keep the potential for arguments out of the process.

If someone did want to move to mileage based, there’s no easy way to do it other than grabbing on to something that already exists within the data, noted Richard Patenaude, vice president, Wheels International Inc. Are shippers and carriers willing to consider a revamp and a reset of fuel surcharge rates as they stand?

“Many of us as a group need to come up with what’s the new base rate and how much of getting from A to B is fuel these days.

As long as it’s simple, we should raise the bar up and make fuel the right component of a freight bill,” said Venslovaitis.

“We’re open to looking at how it’s calculated. The issue happens when there is a wide swing in oil prices that may lead to the need for recalculation or recalibration,” said Lerner.

Considering the wide range of variability in fuel pricing, if carriers are hedging to that speculation, “I would make sure I overstated my base rates to compensate,” said Patenaude.

Why hasn’t someone come up with a new benchmark? Smyrlis asked.

Because it costs money, said Bryan. “The shipper has to come to us and say we want to adjust our base rates to reflect ‘X’. Everybody has their own program-it can’t be whitewashed across the board. If a shipper wants to change their benchmark they could probably do that today,” he said.

“The reality is that we probably won’t take the initiative to change it. Everyone needs to be in alignment on the elements of what make up the charges. We also don’t need to get government involved in the process,” said Venslovaitis.

Are FCA fuel surcharge tables non-negotiable or can they be considered a starting point for shipper-carrier negotiations?

“It’s a guidepost to where the true negotiation and conversation should start. It protects your agreement with the carriers to volatility-when we look at the various reasons for why fuel prices jump CT&L around-someone has to have protection,” said Venslovaitis. www.ctl.ca

Coming in 2014!

Shipper CANADIAN canadian

Formerly ‘Canadian Transportation & Logistics’

In 2014, Canadian Transportation & Logistics is adopting a new title - Canadian Shipper.

Shipper CANADIAN

The new title is more reflective of our editorial scope and mandate: a business journal written for Canadian Supply Chain professionals, in the context of their transportation needs and responsibilities.

The new title also lends itself more easily to the wide array of media platforms through which we are now able to serve you - not just our print magazine, but our eNewsletter CANADIAN Canadian Shipper News - and online portal as well - CanadianShipper.com.

Shipper Canadian Shipper will continue to publish the award-winning features and articles that you’ve come to expect from Canadian Transportation & Logistics - just with a fresh new look! Watch for us in 2014!

Canadian Shipper News

CanadianShipper.com

Surface TranSporTaTion 2012

ummit

transportation management

Surface TranSporTaTion 2013

ummit

OUR SPONSORS

S

hippers and carriers work better when they work together, in a spirit of cooperation and collaboration rather than confrontation. These are more than fancy words; they are the heart of what drives both Transportation Media and Dan Goodwill & Associates, two organizations which have made a concerted effort over the years to bring shippers and carriers together to discuss issues of importance, in an atmosphere that is both respectful of each other’s needs and yet spares no sacred cows.

And it’s what drove us to again bring shippers and carriers together for our second annual Surface Transportation Summit this Oct. 16th. More than 300 top level transportation and logistics professionals heeded our call for a full day of education and networking at our new venue, the Mississauga Convention Centre.

Our blue-chip lineup of more than 20 speakers dug deep into key subjects such as the economic outlook for transportation, the CEO’s view of the coming year, the future of intermodalism, the growth of dedicated transportation; retail supply chains; carrier performance management; effective transportation sales strategies; opportunities in mergers and acquisitions, and a frank debate on freight bids.

We were rewarded with a very insightful exchange of ideas.

But this conversation is too important to allow it to end there. So with this issue we are providing a comprehensive report on the major themes from the conference across all Transportation Media properties – Truck News, Truck West, Fleet Executive and Canadian Shipper, reaching more than 150,000 providers and buyers of transportation services across the country. Look also for our Inside the Numbers and HookedUp e-newsletters for more information as well as future episodes of our award-winning WebTV show, TMTV. We have already provided considerable coverage of the event on www.trucknews.com, www.ctl.ca, Twitter and on our Facebook page and will continue to provide more. This dialogue between shippers and carriers must continue beyond the Summit and we will be doing our best to ensure that it does.

Finally, we would like to thank our growing group of industry sponsors, whose support allowed us to bring the Surface Transportation Summit to a higher level. And don’t forget to book Oct. 15, 2014 into your calendar for our next Surface Transportation Summit.

Surface TranSporTaTion 2012

Lou Smyrlis, Publisher & Editorial Director Trucking Group, Transportation Media

ummit

Nick Krukowski, Publisher Canadian Shipper, Transportation Media

Dan Goodwill, President Dan Goodwill & Associates

Most economic indicators in positive territory ‘Cautious optimism’ remains, even with US debt ceiling impasse

D

By James Menzies

espite all the negativity on the news, and the uncertainty involving the US debt ceiling, most trends are pointing to a steadily growing economy that bodes well for trucking’s future.

That was the synopsis from leading economists and industry analysts speaking at the 2013 Surface Transportation Summit. Carlos Gomes, senior economist with Scotiabank, has earned a reputation for being more upbeat than many of his peers.

“I generally have been very positive over the past several years and I still remain positive with respect to the outlook,” Gomes said.

Globally, Gomes said the economy has been improving throughout the year, led by emerging markets in China, India and Brazil.

“They have moderated as well, but they continue to grow in excess of 5%, while the global economy is closer to 3%,” Gomes said.

Even Europe, which has been an economic anchor in recent years, returned to positive growth in the second quarter, Gomes noted.

China saw some moderation in economic growth last year, but it has enjoyed double-digit growth in late 2012 and into 2013, “which is telling us the slowdown in China that was expected to last several years is coming to an end.”

Job growth is improving in the US, by about 2% year-over-year.

That’s a leading indicator Gomes watches closely.

“Employment growth went negative a full year before the recession began,” he pointed out.

Here in Canada, Gomes characterized the economic picture as “more mixed.”

“Coming out of the downturn, we had a significant improvement both in manufacturing shipments as well as building permits,” 12

ct&l december 2013

Gomes said, noting growth has since moderated. Canada still relies heavily on the US for 70% of its exports.

Gomes acknowledged Canadian household debt is a valid concern, but that it may not be as dire as it seems. Canadians now carry a debt-to-household income ratio of nearly 160%, which is higher than in the US today, and about equal to where US debt loads sat before the recession.

However, thanks to low interest rates, debt charges account for just 7% of disposable income in Canada, a figure that was in excess of 9% in 2008 and as high as 12% in the 1990s. Interest rates would have to climb by 100 basis points to bring the debt charges as a percentage of disposable income to its average rate of 8.5%. So while Canadian household debt is high, Gomes said it’s manageable as long as interest rates remain low.

Charles Clowdis Jr., managing director, North American markets with IHS Global Insights, said he was “embarrassed” by what the impasse in Congress over the debt ceiling threatens to do to the economy. He said a quick resolution should prevent any lasting damage, but that it could interrupt some positive momentum with leading indicators such as housing and consumer confidence.

“Until two weeks ago, we were cautiously optimistic,” about the economy, Clowdis said. “We’re still cautiously optimistic.”

Focusing on transportation, Clowdis said he’s seeing evidence of near-shoring, with as much as 5% of manufacturing that was moved to Asia, returning to North America, usually to Mexico. This bodes CT&L well for trucking and rail providers, he noted. www.ctl.ca

transportation management

Going intermodal:

Where’s the demand and are service levels improving?

By Julia Kuzeljevich

A

panel of intermodal experts attending the 2013 Surface Transportation Summit, held by Transportation Media with Dan Goodwill & Associates, shed light on where this mode of transport is headed going into 2014.

The panel, moderated by Dan Goodwill, was asked to elaborate on some of the common perceptions about intermodal use.

Neil McKenna, vice president, transportation, with Canadian Tire Corporation, indicated that intermodal is a strategic part of the Canadian Tire network, and that this mode is used to handle some 30% of the company’s 4 billion pounds/year of freight, and specifically 36% of the inbound freight coming in from Vancouver.

“It’s (for) freight that doesn’t move over the road. Where the infrastructure is conducive to it is an indication of where it’s used,” he said.

“I agree the driver shortage has some impact on moving containers to the intermodal mode, but I don’t think the shortage is as serious as it’s being portrayed-I think it’s a capacity thing,” added McKenna.

Ron Tepper, executive chairman and CEO, Consolidated Fastfrate, said the company is engaged in lots of intermodal activity through its recent trucking company acquisition and also through Canada Drayage “which has offered up a lot of opportunities for us. We have to find ways that are competitive, or better, to move LTL shipments. Because our freight is portable we can load it as cost per cubic foot. We have a real value to the railway in terms of repositioning shipments out west again,” said Tepper.

The company’s trucking business is a little more diversified while the intermodal business is 100% LTL, he said.

Barry O’Neil, executive vice president, Hub Group Canada, said that out of some $3.1 billion in total business, $2 billion is from intermodal.

“We’ve grown our drayage operations to become one of the largest in North America. The growth of HUB is driven by our asset management and control. We continue to grow our asset program as assets are depleted in the intermodal business,” he said.

Mark Lerner, CN’s AVP, domestic intermodal, said the CN vision for intermodal is not to change it.

“We want to build on it in terms of investing in our infrastructure and giving our customers more value, and more options. We’ve invested in infrastructure, in more track, and more sidings. We have a $200 million facility in Calgary that will give us the capacity to grow in key western markets, with faster ramping and deramping of trains and co-location opportunities.

We’re also looking at capacity in terms of domestic and international,” he said.

The railway also just purchased 100 reefers that it’s starting to offer in the transborder market.

www.ctl.ca

In terms of length of haul, and where intermodal fits best, Goodwill noted times have changed.

“I recall 1500 miles was kind of a benchmark back when.

Now, we’re talking about lengths of haul as short as 600, 700 miles, with 80% of truck movements in the 500 mile or less space. What’s the impact on cross-border, and on Canadian freight?” he asked the panel.

“A lot of the trucking companies we deal with are happy that we can move in the shorthaul corridors. In order for railway to compete there’s a lot of fixed costs. You need a truck-like service, dependable and fast. You need a good low cost infrastructure in terms of being able to doublestack,” said Lerner.

The Chicago-Toronto corridor is showing incredible growth, he said, both from freight transloaded out of LA-Long Beach or originating from the Midwest interior.

“It is quite doable-we may even see this accelerate,” he said.

Shippers continue to have questions about rail service levels and according to Lerner, a lot has changed in intermodal products over the last decade.

“When people experience something once it’s hard to shake it.

I understand that if there was a bad experience there would be the fear it would happen again. But with the reservation process we put in back in 2003, 2004 we are able to understand shipper demand and size our cars accordingly. If we don’t understand what’s coming at us we can’t plan for it,” he said.

CN’s intermodal-focused customer service department is in charge of looking at service issues 24/7.

“The team sits with every new customer on delivery windows, expectations, contacts, targets. We have the KPIs against it. Now we buy ahead of the cycle-we have a little bit more than we actually need,” said lerner.

McKenna said that reservations “have improved fourfold, and 80% of time we’re getting what we need.”

“Intermodal is the cheapest mode of transport next to water, and the lowest in emissions per tonne/km. It’s a no brainer as a sustainable part of your strategy,” he said.

With the Panama canal expansion and targeted opening for 2015, questions abound about whether the larger vessels will increasingly call on east coast ports, and how this will play out on the use of intermodal.

Shippers are increasingly procuring sophisticated technology that is allowing them to determine where intermodal fits optimally.

“We’re in the process of implementing a TMS-it’s necessary because of the complexity of the intermodal system and for keeping track of freight, bills and for reconciliation purposes,” said McKenna.

“Rail costs are lower than trucking costs so when it can move by rail, then it should, and other than that it should move by CT&L road,” said Tepper. ct&l december 2013

13

Surface TranSporTaTion 2012

transportation management

The right fit

ummit

Surface TranSporTaTion 2013

ummit

Surface TranSporTaTion

ummit Carrier metrics, performance,2012 feedback key to solid shipper relationship

By Julia Kuzeljevich

14

ct&l december 2013

“

F

or shippers charged with managing the transportation equation of their business, creating an optimized transportation solution that results in efficiencies is the goal to strive for.

But what are the steps it takes to get there?

This year’s Surface Transportation Summit offered a comprehensive carrier performance management seminar featuring guest speakers Tom Coates, senior vice president and COO, Lakeside Logistics Inc. and Anna Petrova, senior manager, customer service & transportation, with Ferrero Canada Ltd. Lakeside Logistics, noted Coates, handles a wide variety of transportation requirements in infrastructure products, floral distribution, food, and consumer goods.

“After 27 years, we’re more focused on the transportation management service.

About five years ago we decided to move away from the transactional business and more into strategic alignment with customers, dealing at the C-level, and offering more of a transportation management solution where we would do network optimization, activity costing, business analytics and benchmarking,” said Coates.

When selecting carriers, as part of the agreement with customers, said Coates, “we always like to look at the incumbent carriers as part of the new stable of providers that we’re going to use. We have a database of approximately 4000 carriers that we do business with or have done business with and we would look at those companies too, to figure out something that fits the needs of the customer.”

Petrova said that Ferrero’s carrier selection process is very much about looking for “the right fit”.

“The right fit to me is service and capacity. Capacity is an important matter because we’re a seasonal company and we still spike around Christmas time, with the second biggest spike (in volumes) around Easter,” said Petrova, adding that ten years ago over 60% of the company’s inventory was sold during the Christmas season alone.

When discussing future relations with a potential carrier, Ferrero uses a very selective process, relying a great deal on carrier reputation and background.

“We make sure we are dealing with reputable service providers,” said Petrova.

For Lakeside Logistics, which has a full safety and compliance group in the company, “what we’re looking for when we have an opportunity to look at new carriers www.ctl.ca

“There’s always going to be risk. The issue is how to manage it.”

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Surface TranSporTaTion 2012

transportation management is predominantly Canadian based carriers.

They are very familiar with crossborder requirements,” said Coates, adding that carrier safety records, CVORs, and insurance coverage are key considerations.

“We have insurance minimums they must obtain-$250,000 worth of cargo.

We’re also looking for WSIB coverage, and the carrier’s physical location in relation to our clients. We work with companies with four or five trucks and we work with some

16

ct&l december 2013

ummit

Hercules D

Surface TranSporTaTion 2013

ummit

of the biggest carriers in Canada. We focus on value added services too, and credentials Surface like CSA for the northbound, FAST, and TranSporTaTion C-TPAT.” ummit 2012 “I would be a hypocrite if I said that cost was not a consideration,”said Petrova of the carrier selection process at Ferrero. “We do RFPs, but these are not a way for shippers to intimidate carriers,” said Petrova.

RFPs were a hot topic of discussion at the summit this year. Jacquie Meyers, pres-

ident of Meyers Transportation Systems, issued a plea to shippers and carriers attending the Summit to re-evaulate the tender process, which she says has commoditized the trucking business.

“There are lot of challenges inherent to these tenders,” Meyers said. “Number one, it reduces the decision making down to price…often times when we win these tenders, you are not really winning. It’s not a long-term win. It means you were the cheapest or close to the cheapest. You have to give something up to be cheap. If you’re the cheapest, what are you leaving out?

Driver training? Safety? Security?” Meyers said in a presentation during the summit.

For the shipper, RFPs act more along the lines of a quality control tool, Petrova stressed.

“In a lot of global organizations you have to watch for multiple audit reports, governance policies, and risk minmization, and RFP is a tool we’re expected to use in a lot of cases and quite frankly they can end up costing us more money. All it does is it gives you a reality check. It compares your business requirements to what the market has to offer. Sometimes prices go up and you end up paying more,” said Petrova.

“As a buyer, I should not be overpaying for the service, so that is sort of part of my personal exercise. Do we have to run RFP every time we want that reality check? I would say no, because RFP is a very highmaintenance process on everybody’s part, not just on the transportation company’s part. Imagine all the data you have to gather-imagine all the analytical support you have to go through. It’s the responsibility of every freight buyer to understand what the market has to offer. Anyone who has the skill of creating a simple Excel spreadsheet can and should do it,” she said.

The measurement of carriers, and the key variables inherent to that process, is another important process in selection and retention.

“Before we measure them we have to be clear about what our expectation is. People need to know when they are not performing to our expectations and this will make them better. With regard to specific KPIs we have them – we collect one-time delivery reports from our carriers. It’s a self evaluation report-they send us the 214 EDI information they put into a nice spreadsheet with the reason codes as to why they were late,” said Petrova.

“The other thing I look at are carrier claims-how much Nutella did they freeze www.ctl.ca

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Surface TranSporTaTion 2012

transportation management for me, and how much Rocher did they melt? The bottom line is it’s important they execute to our expectations and to their commitment. Because this is what went into their regional agreement and we have to hold each other responsible because it’s a partnership,” she said.

“When we start a relationship with a company we need to understand what our client needs are-and we bring that back and put a plan together on how we can get that

ummit

Surface TranSporTaTion 2013

ummit

out to carriers. Sometimes we would issue an RFP, and we create a scope document so Surface carriers can understand what it is they’re quotingTranSporTaTion on. We’re measuring the carriers ummit 2012 on compliance issues. In retail a lot of fines can happen. If someone levies a fine on a late delivery we have to get in the middle of that and find out were the goods picked up on time, did they have enough time in transit-we’ll push back and fight off a fine based on what our records indicate,” said Coates.

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ct&l december 2013

“We have been somewhat mild in managing our carrier base, but we have to be very transparent and very clear. If there are examples of poor service, by all means they will be brought up at the moment of rate renegotiations, by all means they will be discussed, and I will want to know what will be the corrective and preventive actions to make sure that the next year of our partnership we see less of those,” Petrova said.

Coates said Lakeside Logistics has created an operations person to work on the operational side and liaise with the customer.

“We have strategic account managers who manage our major accounts who are not salespeople but when there is an issue they would help solve it or bring it back to us,” said Coates.

Petrova said she aims for a “short-lived” relationship with salespeople.

“I talk to the salespeople at the point of rate discussions, and then I try to terminate that relationship. In some transportation companies there is that belief that salespeople should be the mediators between me and the rest of their organization. Quite frankly, salespeople should be out there bringing the owners more sales and new accounts, they shouldn’t be buried with operational issues, and I shouldn’t have to go through the sales rep to talk about operational issues that I have. Moving forward I would like to have a solid operations contact with whom I can speak the same language as ops person to ops person. And I would probably not settle for less than a VP level on the transportation side, because I do want to make sure that I speak with the people who make decisions,” she said.

Adding that “the fish stinks from the head”, Petrova noted that the “exceptional carriers” are those where the owners are invested in, and interested in, each aspect of the jobs their company is awarded.

In terms of a company that stood out for her in this regard, Petrova said Ferrero signed a contract three years ago with a new carrier.

“One of the first trucks shipped out was driven by the owner-the whole atmosphere around that was very interesting. He showed up in his work boots and jeans with a big notepad. He wrote everything down.

He asked me to take him to the warehouse.

He asked me to take him on the factory tour and looked into every wastebin. He asked for a copy of the bill of lading and mentioned a few things he wanted to see differently. It made an incredible impression and tells you the value and the stanCT&L dards of the organization,” she said. www.ctl.ca

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OUTLOOK 2014 The road ahead for transportation purchasers

OUTLOOK 2014

21

KLA_2013

OUTLOOK 2014

marine carriers Canadian shipping lines pursue expansion amidst challenging cargo trends

By Leo Ryan

CSL’s Trillium Class self-unloader.

I

n looking at developments in 2013 and the outlook for 2014, certainly the financial results of some global carriers merit mention for showing improvement despite mounting capacity and still volatile ocean freight issues. However, closer to home, the limelight justifiably belongs to Canadian shipping firms accelerating their biggest fleet renewal in three decades to compete not only in international trades and the domestic trades on the Great Lakes/St. Lawrence waterway but also to bolster the coastal trades in the Arctic region.

As an example of a leap of faith and taking the long-term approach, total investments well exceeding $1 billion are all the more striking in light of lacklustre cargo activity in recent years on the St. Lawrence Seaway. Throughput has fallen to below 40 million tonnes as opposed to 45mt in 1992, 50 million mt in 1989 and 68 mt in 1982 – the main contributing factors involving a combination of increased competition from the Mississippi route, strengthened rail services to US east coast ports, and a historic shift in large volume grain exports from Europe to Asia via the West Coast.

Up to the end of September, total traffic on the Seaway was down over 10% at 22.8 mt. A record grain crop was expected to generate a strong surge in shipments in the closing weeks of the 2013 season.

“We expect to finish 2013 at or slightly below our forecast of 39mt,” states Bruce Hodgson, director, market development, St. Lawrence Seaway Management Corporation.

“Europe has started to show some signs of recovery, although this is being offset by weaker than anticipated performance within the Canadian and US economies.”

With a similar economic outlook foreseen in 2014, Hodgson sees 22 OUTLOOK 2014

Seaway volume hovering between 38mt and 39mt in 2014.

Iron ore cargo in 2014 is expected to remain steady, while grain cargo through the Seaway should increase somewhat.

In the project cargo sector, Hodgson says wind turbine volumes should rebound from the low levels experienced in 2013 as a result of the US tax credit for renewable energy now being in place.

In the Great Lakes region, project cargo has become a growing area of business for such ports as Thunder Bay on the tip of Lake Superior, thanks in part to rapid direct CN rail service to Fort McMurray and the Alberta oil sands. In this regard, Tim Heney, president and CEO of the Thunder Bay Port Authority, forecasts a resurgence – “with recent inquiries pointing to a pick-up in wind farms and oil sands-related activity.”

Among the shipping lines, Wayne Smith, senior vp, commercial for Algoma Central Corporation, which operates the largest Canadian-flag fleet of dry-bulk carriers and product tankers, sees encouraging trends in grain, construction materials as well as steel products thanks to a more robust North American auto industry.

Greener and more capacity Otherwise, Algoma’s management is looking forward to reaping the benefits of its Equinox Class ships being built in China as part of a new era of shipping in Canada. The latter was kick-started for Canadian-flag vessel operators in particular by the federal government removal in October 2010 of a longstanding, controversial 25% import duty on ships built outside Canada.

A gearless bulker, the Algoma Equinox, was the first in a series of eight Equinox Class fuel-efficient ‘green’ vessels to arrive in Canada in the late fall of this year. The other seven are slated to be delivered in approximate three-month intervals starting in 2014. All told, the fleet expansion comprises four gearless bulk carriers and four self-unloaders.

These ships have been designed to optimize fuel efficiency and operating performance. They offer additional cargo space and a 45% improvement in energy efficiency from the current fleet.

And regarded as “a game-changer” by industry observers is the fact they are fitted with exhaust gas scrubbers that remove 97% of all suphur oxides from shipboard emissions. They represent the first application of such scrubbers on a Great Lakes vessel approved by the International Maritime Organization (IMO), a UN agency based in London.

When CSL’s Trillium Class self-unloader Baie St. Paul arrived in Montreal in December 2012, it marked the beginning of the biggest ship renewal in the history of Canada Steamship Lines. Then, over the next 11 months, six other vessels built in China joined her, totaling more than 350,000 DWT. Marine – continued on page 24

KLA_2013_All-Around_CanadianTransport

3/21/13

4:57 PM

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OUTLOOK 2014

CSL’s Thunder Bay in Montreal.

Marine – continued from page 22

Today, four Trillium Class Lakers ply the Great Lakes/St. Lawrence waterway and three Trillium Panamaxes are in operation on ocean routes for CSL Americas.

Along with a more efficient hull shape, propeller design and anti-fouling paint, the Trillium Class vessels use variable frequency drives so that fewer generators need to be on line to start machinery, thereby reducing fuel consumption. Other environmental features include emissions-reducing technology and the replacement of stern tube oil with a water-based lubricant.

For its part, Montreal-based Fednav Ltd., the largest ocean-going user of the Seaway, currently has16 vessels on order from a Japanese shipyard for delivery in 2015-2016 as part of a major renewal program entailing investments surpassing $500 million. Twelve of these ships will be Great Lakes-suitable Handysize bulkers that are highly flexible for international trades and specially equipped for navigating in ice. They are built with “box” holds ideally suited for breakbulk and project cargo. They will also use 28% less fuel and

Inside the numbers

transportation buying trends survey

Changes in use of mode 2014

marine freight shippers

produce 33% fewer nitrogen oxide emissions than an earlier generation of ships purchased a decade ago from the Oshima shipyard.

A pioneer in Arctic shipping for more than five decades, participating in every major mining project in the region, Fednav will be marking a new chapter in its Arctic operations in Q1 2014 when a new Polar Class bulk carrier, the MV Nunavik, is scheduled to make its first winter voyage – transporting nickel and copper concentrates from northern Quebec to customers in Europe. The MV Nunavik will thus be joining the Umiak I and MV Arctic long in service in Fednav’s Arctic operations.

Last July, the MV Mitiq was added to the Arctic sealift operations during the summer months of Nunavut Eastern Arctic Shipping. Montreal’s Logistec Corporation is a shareholder in the Inuitcontrolled company.

Meanwhile, the Oceanex Connaigra, the largest Canadian-flag container/roro ship, built in Germany at a cost of more than $100 million, began its regular service for the Oceanex group in late NoCT&L vember between Montreal and St. John’s.

EXPECTED RATE INCREASES 2014

Not sure 11%

Size of Increase

% of Respondents

Down 5%+

0%

Down 2-5%

5%

Down 0-2%

Increase 35% Stay the same 50% Decrease 4%

0%

Flat

28%

Up 0-2%

19%

Up 2-5%

19%

Up 5%+

5%

Not sure

26%

% expect this mode to have highest pricing power 2014

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency

7%

Detention 3% Border Delay 9%

CAPACITY CONCERN

Border Security

95% 3% 20% 3% 20%

4.44 0 excess capacity

24 OUTLOOK 2014

5 balanced capacity

10 very tight capacity

air carriers

OUTLOOK 2014

Pressure on yields, rates, continues

By Ian Putzger

P

arked freighter aircraft and failed all-cargo airlines were the starkest manifestations of a tough business climate for operators in the air cargo industry in 2013. After two years of negative growth, global volumes appeared to show some modest gains, but the pressure on yield remained strong.

“Since 2008 we have been fumbling along as an industry,” comments Lise-Marie Turpin, vice president of cargo at Air Canada.

“We have been in the doldrums for the past five years. We have had no growth, but capacity has increased.”

Howard Jones, president of airline general sales agent Network Cargo Systems, whose client list includes Etihad Cargo, United Cargo and Thai Cargo, likens the past year to 2009, when the global crisis began to bite. “2009 was worse, as demand dropped sharply, but the rates were not too bad then. Now the rates are bad,” he remarks.

Airlines have been struggling with a toxic combination of slow demand, overcapacity and high operating costs with high fuel prices, which has crippled yields. Freighter operators have been Air – continued on page 26

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OUTLOOK 2014

25

Air – continued from page 25

particularly hard hit. Unlike passenger airlines, they had to shoulder the full brunt of this perfect storm, unable to mitigate some of it with revenues from passenger operations. Older, fuelOUTLOOK 2014 thirsty freighters have been taken out of service, but the arrival of large new freighters with significantly more capacity and the steep growth in bellyhold capacity from passenger carriers have ensured that on most sectors the available lift exceeds demand. The situation has been exacerbated by shippers’ efforts to curb logistics costs by shifting as much traffic as possible to slower, less expensive alternative modes of transportation, especially ocean cargo.

Bob Imbriani, vice president of corporate development at forwarder Team Worldwide, reckons that this shift has largely run its course. “Companies are still looking to shift some traffic from air to ocean, but it is not as large a shift as before. Most of this has already been done,” he says.

Freighters may have been hurt the most by the situation, but passenger carriers also feel the pain. Low-cost airline Frontier announced earlier in the year that it would abandon the cargo business. Jones reckons that larger carriers are unlikely to follow suit, though.

“No mainline carrier has done that yet. Cargo is 7-15 percent of the total revenue for belly carriers. You can’t throw away 15 percent of your bottom line,” he comments.

He adds that more airlines are interested in using sales agents like Network Cargo Systems. “GSAs are more cost-effective for airlines in a tight market. We are getting more enquiries and have meetings with airlines that are interested,” he says.

Like several other passenger airlines, Air Canada has added

Inside the numbers

capacity on the strength of its passenger business. Three Boeing 777s joined its fleet in 2013, with two more to follow in the first quarter of 2014. These can carry up to 40 tons, the equivalent of a mid-sized freighter. Halfway through the coming year Air Canada will take delivery of its first B787 Dreamliner, an aircraft that offers 15 percent more cargo capacity than the B767-300 that it replaces.

The 777s and 787s are mostly for international routes with good cargo demand. Despite the challenge of having to find more freight, Turpin welcomes them, as they enable Air Canada to offer steady lift on routes where the 767s have faced payload restrictions.

In Air Canada’s case the new aircraft joining the fleet do not mean incremental capacity increases over the planes they replace, as the latter continue in service, just in different colours. They are shifted over to offshoot low-cost carrier Rouge, which took off this past summer with two B767s. Some of the tourist destinations served by the new carrier, such as Edinburgh, have little cargo demand, but others work well for freight, says Turpin. She points to the Venice route, which has allowed Air Canada Cargo to tap into traffic from northern Italy.

“With Rouge we can tap into new markets. It helps us build our network out of Canada,” she remarks. Jones agrees that airlines with larger route networks have an advantage in the existing market conditions.

The market has not been entirely grim for freighter operators.

Cargojet, which makes most of its money hauling traffic for the express industry overnight on trunk routes across Canada, has enjoyed 5-7 percent growth in the domestic arena in 2013, according to Jamie Porteous, executive vice president of sales and service.

The freighter airline is about to boost its capacity, as manage-

transportation buying trends survey

Changes in use of mode 2014 EXPECTED RATE INCREASES 2014

air freight shippers

Not sure 10%

Size of Increase

Increase 23%

Stay the same 60%

% of Respondents

Down 5%+

0%

Down 2-5%

2%

Down 0-2%

Decrease 8%

7%

Flat

27%

Up 0-2%

16%

Up 2-5%

11%

Up 5%+

11%

Not sure

25%

% expect this mode to have highest pricing power 2014

SURCHARGES

% RESPONDENTS PAYING

Fuel

1%

Currency Detention 3% Border Delay 9%

CAPACITY CONCERN

Border Security

93% 10% 7% 7% 31%

3.47 0 excess capacity

26 OUTLOOK 2014

5 balanced capacity

10 very tight capacity

ment has decided to start replacing its B727 fleet with larger B757 cargo planes. Such a step was on the horizon for some time but gained stronger momentum after FedEx retired the last 727 from its fleet. With the largest operator of the type out of the picture, most maintenance firms will scale down their service program for the aircraft, making it harder and more expensive to keep the planes in good shape.

“The 757 fits all our routes. It also gives us some room for growth,” says Porteous.

Besides the integrator traffic, Cargojet has enjoyed growth in interline business with Asian carriers hauling in freight across the Pacific. Its departures from Vancouver are usually full, so some of this cargo is trucked to Calgary or Edmonton for lift from these points, says Porteous.

Flights between Canada and China stand to increase as a result of the new bilateral aviation agreement between the two nations that was signed in July. It allows for a threefold increase in passenger and cargo flights. Turpin is delighted with this, even more so because westbound loads have grown well and are now almost level with eastbound traffic, she reports.

Across the Atlantic airlines and forwarders look forward to the free trade agreement with the European Union to come into effect. “I am not sure where exactly this stands at the moment, but it should boost some commodity flows,” remarks Bill Gottlieb, president of David Kirsch Forwarders and a director of the Canadian International Freight Forwarders Association (CIFFA).

While operators anticipate some improvement in demand in 2014, cost containment will remain a major focus for most of them. “The overcapacity forces us to be very disciplined in our approach to the market,” comments Turpin.

Automation plays a key role in this space, with the data flow

between forwarders and airlines one prime target. The establishment of a multilateral electronic air waybill last summer should be a major catalyst in pushing this effort forward. “Finally we OUTLOOK 2014 start to see some traction with the e-air waybill.

The absence of a multilateral agreement has been one of the roadblocks. This will allow us to move forward,” says Jeff Cullen, CEO of the Rodair Group and president of CIFFA. Security requirements, notably the push for transmission of manifest information ahead of departure, has been a major catalyst for the advance of e-freight. Gottlieb points out that more developments are afoot in that area but it remains unclear when they will materialise.

“We’ve got people in Canada who have invested in expensive equipment for scanning and find they don’t use it much because the implementation keeps being pushed back,” he notes.

“Security is still a moving target. This has been one of the frustrations. What is needed is clear directions and a mandate,” agrees Cullen.

Gottlieb adds that customs had intended to roll out the e-manifest in June. “Are we going to see another 6-month or 12-month delay in implementation?” he wonders.

The commercial outlook for the year ahead seems similarly hazy. “I can’t predict anything for 2014. I think about next week, net year I can’t even take a guess at,” says Jones, adding that the oil price will have a huge bearing on how the market develops.

“I don’t think we’re back on terra firma. That seems to be the new normal with demand and capacity. There does not seem to be predictability any more,” reflects Cullen. “It’s still very much a CT&L spot price market. It’s the grand bazaar.”

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OUTLOOK 2014

27

rail carriers

OUTLOOK 2014

Rail industry faces heightened safety, regulatory activity

By Carroll McCormick

W

ith a horrific blast, the downtown core of Lac Mégantic, Quebec was flattened and 47 people died after a runaway Montreal Maine & Atlantic (MMA) rail car carrying crude oil crashed and burned last July.

MMA declared bankruptcy and its Canadian operating licence hangs by a thread even as the Canadian Transportation Agency (CTA) has thrice extended the suspension of its licence, most recently to February 1, 2014.

The downtown track is being repaired and service to the city’s industrial park may be restored by the end of 2013. When rail service will otherwise return to its pre-acci-

dent levels is an open question. “The city is pushing to have a track go around the city.

But this is a huge project, a long-term project,” says Christine Couture, supply chain manager, Tafisa. Tafisa is North America’s largest manufacturer of particleboard and a Lac Mégantic industrial park tenant.

The tragedy will have enduring consequences for rail companies and suppliers.

For instance, the Transportation Safety Board of Canada (TSB) wants Transport Canada and the United States Pipeline and Hazardous Materials Safety Administration (PHMSA) “to review the processes for suppliers and companies transporting or importing dangerous goods to ensure the

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properties of the goods are accurately determined and documented for safe transportation.”

The TSB discovered that crude oil in nine intact tank cars in that MMA train was inaccurately labeled as Class 3, PG III hazardous product instead of what it actually was – a Class 3, PG II dangerous good. So are such tank cars adequate for transporting crude oil?

In 2012 the U.S. National Transportation Safety Board put forward recommendations regarding the safety of DOT-111 tank cars.

PHMSA is currently considering amendments to regulations to enhance tank cars and rail safety.

“There are approximately 250,000 DOT-111 tank cars in North America,” says Michael Bourque, president and CEO, Railway Association of Canada. “The United States government issued an advance notice of regulation, aimed at taking legacy tank cars out of service over an accelerated period. A related issue is the supply of tank cars. I believe there is a two-year waiting list for them. This will be a big story for customers going into next year. It will have a significant impact on them. We don’t want to see business curtailed in any way. There is a great deal of urgency to it. While we don’t know exactly when regulations would come into effect, it is an area of focus for all parties.”

This issue has come under the microscope as the movement of crude by rail skyrockets. Canadian railways carried less than 10,000 barrels per day (bpd) of crude oil in 2009. By October 2013 this had risen to 175,000 bpd carried by the mainlines and a dozen short line railways. This is expected to top 200,000 bpd by year’s end, according to the Canadian Association of Petroleum Producers.

The Lac Mégantic explosion has also drawn attention to liability coverage after it became clear that MMA’s insurance would barely begin to cover the costs that will come out of the disaster. In its

October 16 speech from the throne, the Federal Conservative government announced, “… railway companies must be able to bear the cost of their actions. Our Government will require shippers OUTLOOK 2014 and railways to carry additional insurance so they are held accountable.”

“It remains to be seen how this will play out.

There are significant concerns about what changes to safety regulations will impact shippers, and [the] third-party liability insurance that will be borne by the shipping community,” says Bob Ballantyne, chairman, Coalition of Rail Shippers.

On another regulatory front, the rail and shipping communities may have the opportunity next year to test the strength of Bill C-52, the Fair Rail Freight Service Act, which received Royal Assent on June 26, 2013. This addition to the Canada Transportation Act governs the commercial activities of airlines and federally regulated railways.

It legally entitles shippers to a service agreement and an arbitration process to obtain one, if necessary, and fines for railways that breach service agreements. CN is on record as not seeing the need for Bill C-52. Ballantyne sees it as a coup for shippers, but with caveats: “For the first time in Canadian law, shippers have the right to some definition of the service railways will provide. But there is a gap in how precise and specific that definition will be.

“Going to arbitration to obtain a service agreement will be breaking new ground. No one knows how this will turn out; for example, how expensive it will be, the outcome, how will the [CTA] monitor service agreements in place and when rail lines will pay fines for non-performance.”

Rail – continued on page 30

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29

frac sand terminal north of Grande Prairie, Alberta.

The Hudson Bay Railway (HBRY), owned by OmniTRAX, expects to move some 600,000 tonnes of wheat to the Port of Churchill this season – up 100,000 tonnes from last season. But with no more Canada Wheat Board monopoly and the resulting implications for shipping schedules and export routes, OmniTRAX is pursuing a Port Storage Program.

“To maintain long-term sustainability for both the Port and the railroad we must diversify to maximize the shipping season,” says Darcy Brede, president and chief operating officer, OmniTRAX. Sinclair Harrison, president, Hudson Bay Route Association adds, “There was talk of OmniTRAX setting up a grain company to collect grain, that they say that in 2014 they will put in a transloading facility in Le Pas.” There is also a desire to extend Churchill’s shipping season, which currently ends on October 31. “With climate change the Bay has been ice-free into November. We are trying to get that season extended. If we could extend it three weeks into November, we could ship another 100,000 – 150,000 tonnes of wheat,” Harrison says.

OmniTRAX also wants to moving crude through the Port and around 25 potential customers have expressed interest in the plan.

OmniTRAX had planned a test run of crude on the HBRY this year, but delayed it to 2014.

“We anticipate that the test shipment would involve approximately 330,000 barrels of light sweet crude shipped in unit trains of 80 railcars. It will take approximately six trains for the vessel,” Brede says. ‘Following our test shipment, we will be able to provide more definitive information on plans to run regular shipments of light sweet crude along the Hudson Bay Railway and CT&L through the Port of Churchill.”

intermodal freight shippers

On the capital-spending front, CP had planned to spend some $1.1 billion in 2013. However, higher than expected cash flow projections inspired CP to add up to $100 million to its 2013 OUTLOOK 2014 capital investments, advancing some projects originally scheduled for 2014.

Shippers will benefit from the new intermodal terminal CP opened in Regina this year.

Other projects include renewing its track infrastructure on its Winnipeg-Edmonton main line and otherwise spending around $865 million replacing or renewing older assets.

One of CP’s key investments – combing through its schedules for improvements - will improve services with its suppliers in 2014.

CP says, “In “white-boarding” sessions, we found key efficiencies.

For example, this summer we were able to remove 20 hours from our Toronto-Calgary intermodal schedules, giving us a 64-hour total run time. We are providing increased reliability and the most efficient route to get from Toronto to Calgary by offering faster transits, later cut-offs and more capacity.”

CN budgeted $1.9 billion in spending this year. Among the projects planned is work on its extended siding program in northern Ontario, Alberta and northern British Columbia, double tracking some of its mainline in Saskatchewan and investments that will increase the efficiency of transferring freight between rail and truck.

Its $200 million in planned equipment purchases include intermodal equipment, car refurbishments and the acquisition of 77 new and used locomotives by roughly the end of 2014.

CN is also investing in its frac sand business; e.g., a US$33 million upgrade of a 74-mile rail line between Wisconsin Rapids and Blair, Wisconsin. This November it expected to begin serving a new

rail freight shippers

Rail – continued from page 29

30 OUTLOOK 2014

Inside the numbers

transportation buying trends survey

Changes in use of mode 2014 EXPECTED RATE INCREASES 2014

rail freight shippers

Not sure 11%

Size of Increase

Decrease 3%

Increase 16%

% of Respondents

Down 5%+

0%

Down 2-5%

0%

Down 0-2%

Stay the same 69%

2%

Flat

30%

Up 0-2%

15%

Up 2-5%

15%

Up 5%+

6%

Not sure

32%

% expect this mode to have highest pricing power 2014

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency

8%

83% 9%

Detention 3% Border Delay 9%

CAPACITY CONCERN

30% 17%

Border Security

26%

4.26 0 excess capacity

Inside the numbers

5 balanced capacity

10 very tight capacity

transportation buying trends survey

intermodal freight shippers

Changes in use of mode 2014 EXPECTED RATE INCREASES 2014

Not sure 11%

Size of Increase

Increase 26% Stay the same 58%

% of Respondents

Down 5%+

0%

Down 2-5%

0%

Down 0-2%

Decrease 5%

0%

Flat

32%

Up 0-2%

22%

Up 2-5%

12%

Up 5%+

6%

Not sure

28%

% expect this mode to have highest pricing power 2014

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency

8%

Detention 3% Border Delay 9%

CAPACITY CONCERN

Border Security

92% 5% 16% 5% 14%

3.71 0 excess capacity

5 balanced capacity

10 very tight capacity

OUTLOOK 2014

31

OUTLOOK 2014

courier & express The bigger get bigger, with service expansions

T

he big bang never happened. The past year was supposed to witness the merger of global powerhouses UPS and TNT, but the deal got derailed by the European Commission.

TNT has never had a large footprint in Canada, so the ruling from Brussels had scant impact on this market, although it would have given the US company a stronger hand in the Canada-Europe sector, says Mike Tierney, president of UPS Canada. He sees no significant change in the competitive landscape in Canada but raises a question over Canada Post’s growing push into the B2C market.

“With a government-granted monopoly, there is concern that costs and revenues are allocated appropriately,” he remarks.

Gary Breininger, president of BGR Coaching & Strategic Solutions, agrees that there has not been a major change on the provider scene recently. The seven largest players together commanded 86 percent of the market in 2012, unchanged from 2007, he notes. However, the picture does look different at the top of the field. FedEx, UPS and Purolator have increased their combined market share from 55.9 percent in 2007 to 58.1 percent in 2012.

“The bigger are getting bigger,” he remarks, a trend reinforced by several developments that characterised 2013, notably the rise in e-commerce and a growing focus on the healthcare market among the leading players. They also stand to benefit the most from growth in international shipping.

“One big aspect this past year has been service expansion, with new service offerings coming on, and the cold chain has been a particular focus,” observes Breininger. “Last year DHL, FedEx and UPS all launched temperature-controlled products, which aim at the healthcare industry.”

UPS added 200,000 sq ft of healthcare space in Canada over the past year and now runs 11 dedicated facilities in this countries.

“We are going to position ourselves as a global leader in healthcare,” says Tierney, adding that Canada is one of five key markets in this segment for UPS. Purolator also has this business in its sights, confirms compa32 OUTLOOK 2014

ny president and CEO Patrick Nangle. “Healthcare as a sector for us continues to grow. We see an evolution at the end point.

There is a trend to administer it at home as opposed to at the clinic,” he remarks.

Cold chain services require adequate infrastructure. Historically the integrated express carriers have steered clear of markets with such requirements. Airlines and forwarders that were watching how these rivals wrested the lucrative express parcel business from them used to console themselves that the integrators’ systems were inflexible and could not accommodate cargo with special handling requirements, but developments like the push into the healthcare sector show that this assumption no longer holds true.

“We see companies move more and more beyond small packages,” notes Breininger. “I don’t think there are any barriers that would prevent them from going after new segments. This industry has a well established track record of being quite adaptable at innovation.”

Some of the impetus there will likely come from the e-commerce sector, with goods like high-end food becoming available to consumers to order over the internet. Besides the focus on healthcare traffic, e-commerce has been the other main driver of growth in the express sector over the past year, Breininger points out. As retailers experiment with on-line sales and delivery channels, many new opportunities are opening up for the express industry, agrees Nangle.

A growing number of retailers are trumpeting free delivery for their wares ordered on-line. “The notion of free shipping for internet shopping is a good marketing tool. It is going to be part of our world going forward,” says Tierney.

This brings or reinforces particular pressures on logistics providers. On the one hand, it weighs on margins, which are already stretched by the characteristics of this market - lower traffic density than in the B2B segment and the need to offer multiple delivery channels as well as reverse logistics options. On the other hand, the delivery is a key element in the customer experience, which has elevated the logistics aspect on the radar of retailers.

“We become a proxy for the retailer,” remarks Nangle.

“The customer experience is first and foremost with clients, more than cheap rates,” says Tierney. “The need to balance good customer experience and cost reduction is still there. You have got to be productive, not spend a penny more than needed. If you are a high cost provider in this space, you are not competitive.”

Mindful of the rising tide of e-commerce shipments flowing from the US into Canada, Purolator has boosted its footprint south of the border to a total of 30 stations (up from four offices in 2005) and launched its PuroPost product in the summer. According to

courier freight shippers

By Ian Putzger

OUTLOOK 2014

Nangle, this has been met with much interest in the US. Beyond the increasing flows between Canada and the US, the international arena offers good chances for growth, remarks Breininger. “The global market offers a strong opportunity,” he says. “International growth is stronger than in the domestic business. It is not going to be 10 percent growth a year – the rate of growth is slowing – but it is faster than domestic growth.”

Overall, BGR projects 2-3 percent growth in volume in 2014 - “probably a bit better than the overall economy,” Breininger says.

In light of signs of economic improvement, Nangle reckons that the manufacturing sector will see better fortunes in the coming year, which should lead to a rise in volume.

Neither he nor Tierney equate growth in traffic with a corresponding rise in margins. Shippers remain focused on trying to keep costs down, they note. On the other hand, they are unlikely to lurch violently in that direction, according to Breininger. He thinks that most of this trend to ‘de-speeding’ played out as the recession unfolded. “It will still happen incrementally, but the big shifts are over,” he says.

The market outlook, combined with no let-up in competitive

Inside the numbers

pressure, will continue to foster innovation and drive efficiency, Nangle remarks. Purolator is about to launch a “significant investment program” aimed at making operating processes more efficient and producing benefits for customers, he says. For his part, Tierney says that UPS’s investment in the coming year will be “higher than average”.

Both UPS and Purolator are intent on developing their footprint in the SME market. “We will continue to help small businesses grow both within Canada and globally,” Tierney says.

Breininger notes that over the past year DHL put a fair bit of emphasis on its “employer of choice” program, an indicator of management’s concern about available manpower in years to come. Nangle agrees that over the mid-term, the availability of skilled office staff and truck drivers will be a challenge for the industry. One avenue that Purolator is pursuing on this front is exploring the possibility of partnering with educational institutions.

Another concern going forward that requires help from outside the industry is traffic congestion, which affects operators’ ability to deliver on time, Nangle says. “We look to government at all CT&L levels to come up with steps to deal with this.”

transportation buying trends survey

courier freight shippers

Changes in use of mode 2014 EXPECTED RATE INCREASES 2014

Not sure 3%

Stay the same 57%

Size of Increase

2%

Down 2-5%

3%

Down 0-2%

Increase 37%

% expect this mode to have highest pricing power 2014

% of Respondents

Down 5%+

Decrease 3%

5%

Flat

28%

Up 0-2%

20%

Up 2-5%

21%

Up 5%+

8%

Not sure

13%

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency 2% Detention 3%

11%

95% 23%

Border Delay 9% 0%

CAPACITY CONCERN

Border Security 0%

3.25 0 excess capacity

5 balanced capacity

10 very tight capacity

OUTLOOK 2014

33

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motor carriers

OUTLOOK 2014

Will an economic uptick lead to higher trucking rates?

By Lou Smyrlis

T

he flurry of mergers and acquisitions activity in the final quarter of the year – Celadon Canada acquiring N. Yanke Transfer and Hyndman Transport; Kenan Advantage Group purchasing RTL Westcan, one of Canada’s largest niche bulk commodity haulers; Clarke selling its freight transportation business to TransForce; to name the largest deals – is indicative of a North American trucking industry still struggling to regain the financial footing it enjoyed prior to the recession.

It points to the desire of the larger players to consolidate the industry as a way to place greater pressure on pricing and to expand into new markets.

“I think trucking companies realize that without scale and technology, it’s going to be impossible to survive,” Mike McCarron, M&A consultant with Wheels Group, and the former managing

partner of MSM Transportation, said at our recent Surface Transportation Summit, citing that as one reason he and his partner opted to sell MSM when they did.

“We knew we were too big to be small and too small to be big. We had to decide, do we want to risk everything at this stage in our lives? Do we want to go to ground zero and raise money? The people I’ve talked to in the business are thinking the same thing, ‘What am I going to do to get out?’ I think that is going to drive a lot of acquisitions, that state of mind in the industry.”

Our annual Transportation Buying Trends Survey, conducted in partnership with CITT and CITA, has shown for the last three years that shippers believe that of all the modes truckload and less-thantruckload hold the greatest pricing power.

M

14

OUTLOOK 2014

35

Motor – continued from page 35

immediate increase in freight volumes and make equipment capacity an issue.

The large motor carriers have been careful to only replace their older vehicles rather than grow their capacity during the recovery while smaller carriers are held back from purchasing new trucks by three bitter truths: the price tag for new trucks has increased by about $25,000 since prior to the Great Recession thanks to mandated changes to engine emissions; their used truck trade-in values are down considerably; and lenders are less willing to help finance new truck purchases. As a result, new Class 8 truck purchases in Canada this year will come in considerably short of the 2012 total.

Truckers are counting on the eventual capacity crisis this will cause to provide them with the market opportunity to re-frame the way they price. But in the meantime they are having to live with one of the side effects of an economy not quite firing on all cylinders: uneven and uncertain freight growth, which places a damper on their plans to raise rates.

As Doug Munro president of Maritime-Ontario Freight Lines told our Surface Transportation Summit earlier this fall, freight demand isn’t yet translating into stronger rates.

“Though there’s been an improvement in freight volumes, it’s very hard to get rate increases,” Munro said. “Margins are under pressure. We see that on a lot of freight quotes.”

Which brings us to another flashpoint between shippers and motor carriers: RFPs and their impact on truck prices.

Jacquie Meyers, president of Meyers Transportation Systems, decries the commoditization of trucking services experienced in recent years, with many shippers issuing RFPs and making decisions based solely on price.

“There are a lot of challenges inherent to these tenders,” Meyers said at our Surface Transportation Summit.

She added that shippers relying on a tender process to select transportation providers often focus on the line item transportation represents on their financial statements, but not all the other areas of the business that transportation affects. Lost loads, missed deliveries, unprofessional interactions with a shipper’s customers and other possible repercussions of choosing a carrier based on price can cost more to a business than what it saved in transportation costs.

Michelle Arseneau, managing partner with GX Transportation Solutions, was just as frustrated with the RFP process.

“We are always happy to have the opportunity to quote on new business. That being said, we are not fans of the bid process that has been rolling out over the past 5 to 10 years. It seems to us that it’s very price driven,” she said during a special session on RFPs at the Surface Transportation Summit. “There are shippers out there who are doing it in a proactive way that is HAVE A PROMISE THAT JUST HAS TO GET DELIVERED SOMEWHERE IN NORTH AMERICA? managed well but there is a whole lot of other shippers who are making it very difficult for carWE CAN HELP. riers to participate effectively in the process.” n North America wide Truckload service Operating from seven terminals in Canada and the USA, we Arseneau and Meyers are among a growing n One time and multiple shipment contracts offer swift and reliable truckload service to most of North group of motor carriers who are now opting not n Satellite tracking America. That, combined with our no nonsense commitment to participate in RFPs they feel have the sole n Web tracking to customer service has helped Penner become the n Imaging transportation provider of choice for Manitoba companies purpose of clawing back rates. who need to keep their promises, wherever they need to ship n CSA, PIP, C-TPAT, FAST, “If I can’t get a human to speak to me, I’m in North America.

ACE, ACI not going to be participating,” Meyers said.

“We’re asking to be a strategic partner, not just a line item on your financial statements.” CT&L

Trucking conventions these days are full of talk about the “radical need for a pricing renaissance.”

There was a unanimous nodding of heads at OUTLOOK 2014 the recent Ontario Trucking Association annual conference when Noel Perry of research firm FTR Associates said: “The pricing culture in our industry is based on fifty years of falling costs. And therefore we didn’t have to learn the art of price increase in this industry. Well them days is over.”

Yet the stark reality is that despite tightening capacity – our Transportation Buying Trends research shows Canadian shippers feel TL and LTL capacity are close to balanced with market demand – “price has been near zero for the last year and a half,” as Perry himself conceded, and carriers have so far remained shy to place a great push on pricing. In 2013 only 51% of Canadian motor carrier executives were planning to raise rates and the vast majority were planning modest increases of 4% or less to their core pricing.

Considering that TL pricing dropped around 18-23% during the recession, it’s clear motor carriers have a long way to go to regain their former financial footing.

The Nulogx Canadian General Freight Index from 2008 to August 2013 shows that pricing has only increased marginally, points out Doug Payne, president of Nulogx. “And we are still three points behind where pricing was a year ago.”

That, of course, is good news for purchasers of trucking services, particularly since many remain focused on cost control. The situation may change quickly, however, if the economic recovery kicks into a higher gear with GDP growing at better than 3%. Inventories are at low-enough levels that an economic uptick will result in an

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13-08-02 10:48 AM

Inside the numbers

transportation buying trends survey

Changes in use of mode 2014

EXPECTED RATE INCREASES 2014

TL freight shippers

Not sure 6%

Size of Increase

1%

Down 2-5%

1%

Down 0-2%

Increase 30% Stay the same 58%

Decrease 5%

3%

Flat

22%

Up 0-2%

29%

Up 2-5%

26%

Up 5%+

12%

Not sure

12%

% expect this mode to have highest pricing power 2014

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency Detention 3% Border Delay 9%

35%

CAPACITY CONCERN

Border Security

94% 8% 26% 15% 11%

4.66 0 excess capacity

Inside the numbers

5 balanced capacity

10 very tight capacity

transportation buying trends survey

Changes in use of mode 2014

EXPECTED RATE INCREASES 2014

Not sure 4%

LTL freight shippers

% of Respondents

Down 5%+

Size of Increase

3%

Down 2-5%

1%

Down 0-2%

Increase 39% Stay the same 53%

% expect this mode to have highest pricing power 2014

% of Respondents

Down 5%+

4%

Flat

18%

Up 0-2%

30%

Up 2-5%

28%

Up 5%+

7%

Not sure

8%

Decrease 4%

SURCHARGES

% RESPONDENTS PAYING

Fuel Currency Detention 3% Border Delay 9%

11%

Border Security

13%

29%

CAPACITY CONCERN

95% 8% 19%

4.76 0 excess capacity

38 OUTLOOK 2014

5 balanced capacity

10 very tight capacity

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