Is there still Competition in the Canadian Freight Transportation Industry?

Last week I wrote about the consolidation that is taking place in the freight transportation industry in Canada. Thank you for the many positive comments and feedback. I hope the blog has stimulated some thought about the level of competition in the industry, in view of its domination by some very large players.

One of my longstanding colleagues in the industry, who runs an independent transportation operation in Canada, reminded me that there are a range of very fine companies that compete with the industry giants. As a follow-up to last week’s blog, I thought I would provide an overview of the competition in each sector.

As a starting point, I went back over the top 100 for hire fleets in 2016 as published in Today’s Trucking. They range from Canada’s largest trucking fleet, TFI (TransForce International) with over 26,000 pieces of equipment and almost 25,000 employees to the 100th largest company, Transport Matte, with 321 pieces of equipment and 135 employees. It should be noted that there is a steep falloff after you go from TFI to even the second-place carrier, Mullen Group, that has 13, 645 pieces of equipment and 4410 employees. Clearly, TFI is in a class by itself with not just the most trucks but with by far the largest number of fleets under one roof.

The other big fleets highlighted in the previous blog (i.e. Manitoulin, Day & Ross, Mullen) have also grown disproportionately large through a combination of organic growth and/or acquisition. A glance through the top 100 list displays a range of companies, large and small. So let’s take a look at the major freight transport sectors in Canada.

Small Parcel

The small parcel freight market is an asset-heavy business. National service providers in this sector require terminal networks and sorting machines. As a result, this sector is dominated by the big guys (i.e. TFI, Purolator, FedEx, UPS, DHL and of course, the Post Office). There are some quality regional players (i.e. Midland Courier in eastern Canada) but small parcel distribution over a large geographic area is a “big boys” game and the number of competitors that compete on a national scale is limited.

LTL

The LTL sector is also asset-heavy. Companies in this sector require terminal networks to cross-dock their freight. In addition to the major players highlighted in the previous blog (i.e. TFI, Manitoulin, Day & Ross), there are other national and regional carriers that appear in the top 100 hundred list. The Armour Transportation Systems, Midland Transport, a division of the giant Irving Corporation, Fastfrate and Maritime-Ontario Freightworks offer service within the Atlantic provinces and between Central Canada and Atlantic Canada.

Outside of TFI’s stable of LTL carriers in Quebec and Ontario and those mentioned above, there are a limited number of options, specifically for shippers looking for full coverage of these provinces. Groupe Robert has a fairly good terminal network in Quebec and Ontario; Speedy Transport offers LTL service between Windsor and Quebec City. Groupe Guilbault also offers LTL service in these two provinces.

There is still a set of independent companies that supply east-west and intra-west LTL service and compete with the large consolidators, offering an over-the-road and/or intermodal option. The list includes TransX, M-O, Kindersley Transport, YRC Reimer, Western Canada Express, Fastfrate, Apps Transport Group, Landtran Systems and Rosenau Transport. With so much consolidation over the last few years, there are a limited number of independent regional LTL carriers in the western provinces.

Truckload

While TFI has made dozens of acquisitions in the truckload space, this sector remains highly competitive. The vast majority of trucking companies in Canada are small truckload carriers with less than 10 trucks. Most companies on the top 100 list are truckload carriers. The list includes some large independents (i.e. Challenger Motor Freight, Bison Transport, Kriska Transportation, XTL) and numerous others. Some of the large LTL players identified above also have extensive truckload operations.

Logistics

Logistics service providers can do some or all of the above, including specialized haulage. Shippers need to remember that they are paying a double markup when they use an LSP since the LSP is subcontracting out their shipping requirements to many of the companies highlighted in this blog. There are numerous small freight brokers and larger freight management companies (i.e. CH Robinson, Hub Group) to choose from. They are able to mix and match carriers to provide their clients with a comprehensive service.

Is Canada still competitive in freight transportation?

Canada’s large geography and small population provide challenges for carriers trying to run a profitable business and for shippers seeking competitive freight rates. Thus, shippers need market knowledge and negotiating skills to achieve success in this area.

The best way to respond to the above question is to examine if the forces of supply and demand are working. The answer to this question is a qualified yes. Data from the Nulogx rate index suggests that in a soft year (2016), shippers had enough leverage to drive freight rates down. The published operating ratios of many over-the road carriers suggest that the dynamics of the market are constraining their profits. In years when the economy is stronger, freight rates tend to go up a few percentage points.

Certainly in the truckload sector, there is considerable competition. For some markets (i.e. northern Ontario) and certain services (i.e. LTL), there is limited competition. This is to be expected since these are small markets that are costly to serve, particularly on a stand-alone basis.

Since the Freight Recession is the late 2000s, LTL carriers right-sized their networks. This brought supply more into line with demand. Very large participants dominate the national small parcel and LTL sectors. At this point in time, there is ample competition in some sectors and not so much in others. It is not quite time to call in the Competition Bureau but shippers need to be alert to the competitive factors in each market and search out the available options (i.e. modes and carriers), to keep their freight costs in line with market levels.

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