The Canadian dollar has been on a meteoric rise in recent weeks, hitting a record high of just over $1.07 U.S. on Friday, November 2. This astonishing ascent has prompted many folks to wonder how much further the Canadian dollar will rise in value. It has also triggered the question, what will happen to the U.S. dollar? I would like to thank the folks at Currencytrading.net for forwarding the attached link to me. In the article, 12 currency experts, including Alan Greenspan, weigh in with their thoughts on this topic. Enter the website below into your browser to read "How Low Can the Dollar Go" and find out what they have to say.

http://www.currencytrading.net/2007/how-low-can-the-dollar-go-thoughts-from-10-experts/

For many years, the upsurge in freight shipping during the third and fourth quarter has been one of the most dependable elements of the freight industry. As retailers stock and restock their shelves for the Christmas shopping period, transport companies have come to rely on this upswing in freight volumes to reach their financial targets. Over the past two years, the length and character of this shipping period has been changing causing many industry observers to try to explain this new phenomenon.
This begs two questions. Is the fall shipping season changing? If so, why is this happening? Here are a few observations.

Is the Fall Shipping Season Changing?

At a recent logistics conference, one industry expert explained the changes this way. He commented that a few years ago when “baby boomers” sent their kids off to university, they loaded up the SUV with their stereo equipment and desktop computers. Now the student packs his iPod and laptop computer. This attests to the efforts that have been made in recent years to miniaturize and repackage products in much smaller containers. Think about how many iPods and Blackberrys can be loaded on a 53 foot trailer. While this may explain the reduction in shipments of technology based products, this does not explain the dips in other sectors of freight shipping.
According to the National Retail Federation, U.S. retailers are shipping fewer goods through the nation’s ports and onto their store shelves. The trade group is expecting a 4 percent increase in retail sales this holiday season, below the 10-year average of 4.8 percent. That would make it the slowest holiday sales growth in five years. Looking at hard shipping data, the actual volume of TEU’s through U.S. ports was 1.46 million in August, a 1.4 percent decline from the previous year. This trend is also supported by shippers’ expectations. Case in point: nearly half—or 46 percent—of the 495 logistics, supply chain, and transportation managers that responded to a Logistics Management magazine survey said that peak season would be less active.

What are the Triggers for the Slower Holiday Season?

Erik Autor, international trade counsel for the NFR stated that “retailers have a good sense of the economy and are planning their inventories accordingly.” Autor stated that the lower volume of goods moving through major ports in Los Angeles, Seattle, New York and Savannah, among others, shows that store owners are worried about being left with unsold goods and forced markdowns.

Is the Peak Season a Thing of the Past?

Paul Bingham, an economist with Global Insight, a Boston-based research firm said retailers were reacting to growing uncertainties in the economy. “With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending,” commented Rosalind Wells, the group’s chief economist. While it is hard to gauge peak season’s future, Paul Bingham says it is premature to talk about it in the past tense.
“Peak season is not becoming a thing of the past, because underlying seasonal consumption spikes such as back-to-school and holiday shopping are still very much with us,” explains Bingham. “It is just that under current conditions, consumption, growth…and port volume is subdued. Shippers and carriers have also done a good job managing supply chains to minimize seasonal peak congestion problems this year, but the longer-term risk remains for future-year seasonal peaks to cause congestion problems again if shippers become complacent.”
Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies, says another possibility for the lack of annual growth in peak season volumes could center on that what is now occurring is a change in order patterns by shippers or a change in the capacity being routed away from the Ports of Los Angeles and Long Beach.
The year-over-year volumes at these ports are relatively flat. “The question that I don’t have an answer for,” says Regan, “is if shippers are acting intentionally with the diversion of freight [from the West coast ports]?”
This year’s peak season does not look as if it will be much different from a year ago, says John G. Larkin, Managing Director of Stifel Nicolaus’ Transportation and Logistics Group. But Larkin notes that Regan’s theory may be correct, saying that shippers are starting to change their intermodal strategy, with more containers moving through east coast ports via the Panama and Suez canals. These shifts in strategy, says Larkin, tend to take domestic transportation movements out of shippers and carriers systems, which, in turn, reduce the amount of peak season volume. “I think the industry is beginning to see now that this [lack of annual peak growth] is more than a temporary phenomenon,” adds Larkin.

Private equity firm Fenway Partners said yesterday it has signed a definitive agreement to acquire a majority interest in Fastfrate Inc., a large Canadian transportation company whose principal businesses are Consolidated Fastfrate, Canada Drayage Inc., and Koch Transport. Fenway had made more than 20 acquisitions in the transportation and logistics sector since 2000.

Fastfrate has more than 1,500 employees and transports more than 2 billion pounds of freight on an annual basis, according to a Fenway statement. It was founded in 1966 by Don Freeman, and it offers various service offerings, including point to point less-than-truckload (LTL) and truckload haulage within Canada and the Northwest and Midwest United States. Other services offered include national drayage and cartage, warehousing, east coast and west coast transloading, special operational direct ship programs for retailers, third-party logistics, and LTL intermodal services. It also has an established 40-year relationship with Canadian Pacific Railway (CP), with co-located facilities with CP in every intermodal yard in Canada except for Edmonton, which is in development. Fastfrate has 17 operating terminals across Canada and a Shanghai-based sales office, noted the Fenway statement. The company handles more than 25,000 maritime containers from China per year.

Fenway Partners Managing Director and Co-Head of its Transportation/Logistics practice Marc Kramer stated that Fastfrate’s attractive market position in Canada was a main catalyst for this acquisition. “While Fenway has extensive investments in the transportation and logistics in the United States, we saw Fastfrate as a great opportunity to develop a strong foothold in Canada as well,” said Kramer. “Additionally, we believe that our expertise and experience in the United States can be translated into growing Fastfrate’s business in Canada. Likewise, Fastfrate’s senior management team has unique experience and insight that will help Fenway run all of our businesses better.”

In terms of what made Fastfrate a strong investment opportunity for Fenway, John Q. Anderson, Fenway Partners managing director and co-Head of its Transportation/Logistics practice, stated that Fenway was attracted to Fastfrate’s demonstrated success in growing and diversifying its business to meet the demands of its customers. “Fenway has no plans to change Fastfrate’s existing service offerings, only add to them as we help accelerate its growth plans and meet the demands of its expanding customer base.”

There is an incredible amount of doom and gloom these days in the LTL trucking industry as companies try to cope with an economic slowdown brought on by the softening housing market, the credit crunch and the high cost of fuel. Looking ahead to 2008 and even 2009, there is great concern about tonnage levels and a deteriorating pricing environment.

Operaing Ratios are Still Respectable

However, when you look at the financial results reported by a number of the major regional LTL trucking firms, with the exception of the YRC regional group, some major players are down but certainly not out. For the first six months of the year, Old Dominion's operating ratio dropped slightly to 90.3 percent, Con-Way Freight's dropped from 86.7 to 90.5 and FedEx Freight's OR dropped from 85.4 to 90.0. Saia reported a 94.2 OR. These are all very respectable operating ratios and suggest that these companies are coping well with the economic downturn. The YRC Regional Group's OR of 99.2 is certainly a concern and reflects more than just the economic decline. In fact, in a recent interview, Bill Zollars, the Chairman and CEO of YRC said that pricing at the regional operations of the LTL carrier has caused some "self-inflicted wounds" and YRC is rectifying this by "firing some customers."

Pricing Discipline and Sound Management are the Keys

As a result, it is regrettable that at these operating ratios, there is so much talk about a lack of pricing discipline. Long haul carriers are going after short haul business and regional carriers are going after longer haul business. FedEx Freight lowered its fuel surcharge by 25% in a very public move to gain market share. This is particularly surprising when you relate them to comments made by its CFO. FedEx said recently it expects a lower peak shipping season, but that fuel costs were its biggest concern going forward. "Since September, our fuel costs have increased more than 8%, or $85 million," said Alan Graf, FedEx Corp.’s CFO. "While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices.” If that is the case, why lower your fuel surcharge by 25% at a time when fuel costs are going up?

Certainly this is a time to continue to provide a high level of service, to keep a tight rein on costs, to replace customers with low operating ratios with better peforming freight and to maintain a strong sales effort. The well managed LTL companies will come through this period if they maintain pricing discipline and keep "self inflcited wounds" to a minimum.

Over the past few days I have had an opportunity to speak with several Canadian truckload carriers. The combined impacts of the increase in the Canadian dollar, the slumping U.S. economy and high fuel costs are taking their toll. It is clear that a number of trucking companies are “living in a world of pain.”

As an example, one trucker mentioned that their business has dropped by over fifty percent in the past few months. With the escalation in value of the Canadian dollar, southbound business from Canada to the United States has declined significantly. Rates per mile in the range of $0.90 to $1.25 are being quoted. While northbound rates ($2.15 to $2.75) are significantly higher, the round trip rates are often below breakeven levels. With so many truckload carriers focusing on domestic Canada traffic, this “feeding frenzy” is resulting rate cannibalization. As one trucker stated to me this afternoon, it is like “crows feasting on a carcass.”

At difficult times like this, there is much talk in the industry, talk about which companies are slashing rates to take on low margin business, talk about specific companies that are about to be acquired, talk of companies parking trucks. Fact and fiction mix with rumour and speculation.

My discussion with several truckers has elicited these conclusions. Only the strong and well managed will make it through the coming year. This is the time to “hunker down,” cut costs, park trucks, focus on those segments of the business with profit potential, maintain pricing discipline and “stay low to the ground”. The sun will rise again and improved profits will return as they always do. But the sun will not rise for every trucking company.

There are a number of Canadian trucking companies that are not going to make it through 2008. However, some will make it by going down a new path, by joining forces with other trucking companies. They will lower their centre of gravity by reducing overhead costs. They will stretch the workload of their dispatchers over a larger number of drivers and trucks. They will share facilities and focus on complementary businesses. In other words, they will change their business model to achieve and maintain profitability through this challenging period.

For many trucking companies, particularly those owned and managed by their founders, it becomes difficult to view the current situation with complete objectivity. A false sense of optimism takes hold which prevents one from dealing with the reality of the situation. As a result, some folks are inhibited from taking a bold step into new territory, of exploring other scenarios, whether they are an acquisition, a merger or partnership with a competitor or company in a complementary business.

So what can you do if you are in this situation? Feel free to contact me directly by phone or e mail. I would be happy to facilitate a dialog with other transportation companies that respond to this blog, if both parties express an interest.

The opening of the port of Prince Rupert is a milestone event. It is not every day that a major new port begins operations in Canada or anywhere else in North America for that matter. The port is significant for several reasons.

It offers the shortest route between Asia and a west coast port, saving 58 hours of sailing. It has North America’s deepest harbour and is accessible to double stack on-dock rail. It provides a viable option from the congestion in Vancouver and other west coast ports. The launch of the port is the result of a team effort among its key stakeholders. The $170 million terminal project with a design capacity of 500,000 TEU’s (20 foot equivalent units) has been funded by five partners:

Maher Terminals, $60 million, including three super post-panamax cranes
Government of Canada, Western Economic Diversification Canada, $30 million
Province of British Columbia, $30 million
CN Rail, $25 million towards the terminal’s rail related infrastructure and
Prince Rupert Port Authority, $25 million

In addition, under the Asia Pacific Gateway and Corridor Initiative, the Canada Border Services Agency will invest $28 million to establish a state-of-the-art container-screening program at the facility.

The beauty of the Prince Rupert operation is that there appears to be a well conceived business plan to support the launch. CN Rail is providing a 105 hour train service to Chicago. There the train can link into CN’s rail network that extends to Detroit and Memphis and all the way down to New Orleans. To improve service, CN has offered to purchase the Elgin, Joliet and Eastern Railway from United States Steel for $300 million U.S. EJ & E starts north of Chicago and circles west of the city and back to the southeast. CN plans to spend $100 million on new connections and infrastructure upgrades to the boost the capacity of this railway. CN plans to establish daily service from Prince Rupert as the volume grows. Siding lengths along its corridor from Prince Rupert to Chicago enable it to handle trains carrying the equivalent of 730 TEU’s.

The port has been added to the south loop of the Pacific North West (PNW) Butterfly service jointly operated by Cosco Container Lines and Hanjin Shipping. Hanjin is operating five vessels within the service while Cosco has four. The nine ships can each load 5500 TEU’s.

The port of Prince Rupert is off and running and with such a solid plan, it should be a great success.

In the current “freight recession” climate that has now taken hold in North America, the pendulum has clearly swung back in favour of the shipper. With declining freight volumes and excess capacity, shippers are now able to negotiate rate concessions and fuel surcharge reductions. It wasn’t that long ago that carriers were leveraging driver shortages and capacity constraints to raise rates.

The more knowledgeable shippers and carriers know that the current economic weakness will not last forever. In fact, the economic gurus are predicting a 6 to 8 quarter slowdown followed by a sharp upswing. Since many large truckers are reducing capacity by parking trucks, cutting back on truck purchases and freezing driver hires, some folks are predicting a serious capacity shortage when the “freight recession” comes to an end. This could lead to a sharp increase in rates.

What Transportation Strategy Should My Company Adopt?

For shippers, the option is certainly there now to “beat up” on your carriers and extract a “pound of flesh” in terms of rate concessions. This is a tempting strategy for shippers looking for a short term boost to their company’s bottom line. However, it is important to keep in mind that not all carriers are created equal. In many cases, the carrier offering the lowest rates is the carrier with the lowest quality service. These are often the carriers that are the most desperate and the ones that most need cash flow. Often times, these are the carriers that are most likely to cut corners, to hold LTL freight in their docks an extra day, to drop your freight when the economy picks up and higher yielding freight becomes available. The term now being used by one high profile trucking executive is “firing shippers.” Do you want to put your company in that position?

It is important to understand that not all low priced carriers are poor performers. There are some carriers that are better managed than others and do a superior job of cost control and asset management. As a shipper, this translates into superior service for your customers. The key thing to think about is have you surrounded yourself with a group of core carriers that offer consistent service at competitive, but not necessarily the lowest rates, on a long term basis? Here are few questions to ask yourself?

How did these carriers treat your company during the period of capacity constraints in the mid 2000’s?
Did they “sting” your company with heavy duty rate increases?
Do they provide consistent service year after year?
Did they de-market or “fire” your company during an economic upswing and come running back asking for your business during the “freight recession”?
Are they willing to commit to a multi year rate agreement that is fair to both parties?
Do they demonstrate through their transit times, customer service and business relationship that they are committed to your company?

Have you thought about Loyalty as a Strategy?

In essence, have your core carriers demonstrated loyalty and fair play during the good times and the bad times? Have you demonstrated loyalty to them?

We live in an era where many buzzwords such as partnership and shipper-carrier collaboration have become overused and meaningless. How about tying old fashioned loyalty? How about recognizing your true, “loyal” core carriers? How about recognizing their importance to the success of your company? How about receiving from them an acknowledgement and recognition of the importance of your business to their company. This strategy may not work with every one of your core carriers. It takes a high level of trust, maturity and commitment; call it loyalty, to make it work. However, I suggest to you that this strategy offers you a framework on which to build a long lasting and successful transportation strategy.