Understanding the Canadian Freight Market

While much of the world’s attention has been focused on the “wedding of the century” in London this week, history is about to be made in one of the British Commonwealth’s largest and oldest countries, Canada. If the polls are correct, the National Democratic Party or NDP is expected to finish second, ahead of the Liberal Party (for the first time) and possibly rob the Conservatives of a majority government. We will have to wait until Monday night to see how the vote plays out.

While much of the world’s attention has been focused on the “wedding of the century” in London this week, history is about to be made in one of the British Commonwealth’s largest and oldest countries, Canada. If the polls are correct, the National Democratic Party or NDP is expected to finish second, ahead of the Liberal Party (for the first time) and possibly rob the Conservatives of a majority government. We will have to wait until Monday night to see how the vote plays out.

With the focus about to shift to Canada, I thought it was time to write a blog on what makes Canada unique from a freight perspective. As one drives along the highways of Canada and watches the Schneider, FedEx, YRC and Landstar trailers go by, one may be lulled into thinking that the Canadian freight scene is simply an extension of the United States market. It isn’t. While some American carriers have established a solid foothold in Canada, (and others have not), the Canadian freight market has some unique characteristics.

Canada’s distinct geography, population size, climate and culture make its freight market quite distinct. With a population about one tenth the size of the United States, mostly spread out over a vast distance along the Canada/U.S. border, the Canadian market poses some significant challenges.

The lack of freight density makes a long haul hub and spoke approach impractical for an LTL operation. The country has four distinct markets - - Atlantic Canada, Quebec, Ontario and Western Canada. These markets are not homogeneous. For example, Newfoundland is an island off the coast of Atlantic Canada and British Columbia is on the other side of the Rocky Mountains. Most large cities are within a 200 mile radius of the U.S. border but many of the country’s raw material exports (e.g. pulp and paper) come from plants in the northern part of particular provinces.

Unlike the United States, Canada has no truly national LTL carriers. It has mostly regional LTL carriers that service specific niche markets, domestic and/or cross-border. To obtain complete coverage of Canada, one must align with certain transportation companies, large or small, that in turn partner with designated interline carriers. There are carriers that provide good coverage of Atlantic Canada, for example, but have limited networks in Ontario, Quebec and elsewhere. Other carriers have western networks but do not have good coverage of Quebec and/or Ontario.

LTL Distribution from Central Canada to Western Canada typically involves shipping to key deconsolidation terminals such as Winnipeg, Calgary or Vancouver and then using a “beyond carrier” or carriers to serve other markets in the province. Unlike the United States, there are three modes of LTL transport to the west - - intermodal, over the road and expedited (e.g. team drivers). Each mode has its own set of transit times and price points. Intermodal transportation of LTL freight to the west has been well accepted for many decades. With so much of the country’s manufacturing done in central Canada, back haul freight is an issue that must be addressed by each carrier contemplating a western service.

There are a variety of truckload and intermodal operators in Canada, each one specializing in specific regional, short haul or long haul markets. While there are number of large Canadian (e.g. Challenger, Bison) and U.S. (e.g. Werner, Schneider) truckload players, the majority of the carriers have smaller operations (e.g. less than 50 trucks). Similarly, there are a range of freight management companies, American (e.g. Hub Group, CH Robinson) and Canadian (e.g. Axsun Logistics, Lakeside Logistics) that participate in this sector.

While domestic and cross-border truckload shipments are priced in a manner very similar to U.S. truckload traffic, domestic LTL freight is priced differently. One does not find discounts off a NMFC tariff. This freight is usually priced on a commodity specific rate (cents per hundred pounds) structure, based on the density of the freight.

The cross-border LTL freight market has some unique aspects. There are no American or Canadian carriers that have a complete North American LTL network. Some U.S. (e.g. YRC, FedEx) and Canadian carriers (e.g. Vitran) have extensive but partial networks while others work on a partnership basis (e.g. Estes/TST Overland Express, Reliance Network). Some companies employ a discounted NMFC pricing structure for cross-border LTL freight while others employ a per pallet/multi pallet, quarter load, half load approach. Some companies offer both types of pricing.

CN and CP Rail are the two class 1 railways in Canada. CP essentially runs a rail service between central Canada and Western Canada. It also covers certain markets in the U.S. Midwest and northeast. CN Rail has rail service between Central Canada, Atlantic Canada and Western Canada. They also serve northern areas in Quebec, Ontario, Manitoba and other provinces. Their facility in Prince Rupert, BC is the shortest gateway to Asia. With their purchase of the Illinois Central several years ago, they provide service through Chicago down to New Orleans. Canada also has a thriving small parcel industry with the major U.S. players (e.g. UPS, FedEx) battling a host of Canadian companies (e.g. Purolator, Canpar, Midland Courier et al.).

Canadian regulations are set by the federal, provincial and municipal governments. It is extremely important for any company contemplating doing in business in Canada (or the U.S.) be fully informed on all of the relevant laws and practices. This includes such bread and butter items as hours of service and allowable tractor types and trailer lengths on specific highways. Since new customs related processes (e-manifests) are introduced on an annual or even more frequent basis, it is essential for transportation company management teams to be fully conversant on the latest regulations.

Canada has two official languages, English and French. About 80% of the population in Quebec is of francophone origin. Companies will likely be more successful selling freight services in the Quebec market if they employ people who are local, have a following of accounts and are actively engaged in the freight community. To airlift English speaking sales personnel into Quebec from another province or state will likely produce disappointing results.

Then you have the issue of currency. The Canadian dollar has appreciated by 70 percent as compared to the American dollar since 2001! The change in currency value has reversed the head haul and back haul pricing dynamic on cross-border freight. This dramatic change is having a major impact on specific industries and on the financial viability of sourcing some products from Canada. Motor carriers must be very prudent in selecting one way movements from specific locations since back haul freight, or at least back haul freight that makes an adequate contribution to the profitability of the round trip, may be a challenge to secure.

If the Canadian election results play out as the pollsters are predicting, the country will likely embark on some further changes that may have an impact on the freight transportation landscape. As an example, the leader of the NDP has spoken extensively about investing in infrastructure during the election campaign. If he becomes leader of the opposition, will he press the government to spend money on these types of initiatives? Check out the Canadian election results on Monday night. They will certainly be interesting and possibly historic.