For many years, Transportation executives have had to consider a range of variables in crafting their supply chain strategies. These variables have included the economy, carrier capacity, customer demand, interest rates, inflation, climate change, technology, energy costs, Ecommerce strategy, and availability of raw materials.

While geopolitical issues such as trade policies with NAFTA countries, the European Union and China have been having impacts on supply chains in the United States and Canada for the past several decades, transportation executives have been able to largely focus on domestic matters.

This has changed dramatically over the past year. A number of geopolitical forces are shaping strategies in board rooms throughout North America and internationally. They include:

1. The War in Ukraine

These are crazy times. Wildfires in Canada produced dark skies over eastern Canada and the northeastern United States and some of the worst pollution on record. We are only in mid-July and the peak fire season hasn’t begun. Record high temperatures are being experienced in the southern United States on a daily basis. Severe rain, flooding and flight cancellations are being experienced in the northeast.

Former President Trump was indicted for a second time this year, the first time a previous President has ever faced charges after leaving office. There are possibly two more indictments to come.

The Vegas Golden Knights, in their sixth year of existence, won the Stanley Cup while the six Canadian teams in the National Hockey League, where hockey in the national sport, haven’t won the cup in 30 years. The screen actors and writers have gone on strike together for the first time in 63 years.

Looking at the broader economy, manufacturing has been contracting on a year/year basis. Retail inventories are bloated. As fears of the pandemic faded, consumers switched back to buying services. High mortgage rates are resulting is less building and less freight. According to Bob Costello, Chief Economist and Senior VP of the American Trucking Association, all freight indicators are contracting on a year/year basis. Supply is contracting; demand is contracting. There is still too much supply. The Spot Market is much worse than the Contract Market. Despite the US Federal Reserve’s aggressive monetary policy, the economy has not yet entered a recession.

The new year has started with a bang with TFII's planned purchase of the LTL Freight division of UPS.  TFII is a large Canadian freight transportation conglomerate and it's deal is unique in some ways but not in others.

The challenge for many Canadian LTL carriers has been to establish a solid arrangement with a profitable, reliable US LTL partner so they can jointly secure lucrative cross-border freight. Since the United States population is ten times the size of Canada’s, historically it has been financially difficult for a Canadian LTL carrier to purchase a major US LTL partner. Besides the cost, an acquisition of this nature only makes sense if the Canadian carrier is prepared to compete in the U.S. domestic LTL market.

As a result, most Canadian LTL carriers that have been interested in cross-border LTL freight, have formed partnerships with or more U.S. carriers. These partnerships typically last for a few years until one of the following things happen. The U.S. carrier decides to buy a Canadian carrier or cartage company in one or more Canadian cities and enter the market under their own banner. Alternatively, the one partner becomes frustrated with the other partner due to a lack of sales production. The carriers then must seek other partners or another group of partners as replacements. This partnership arrangement has been prevalent for decades.

A Brief History of Canadian Purchases of U.S. LTL Carriers

The following is my annual report on the state of the LTL Freight Industry in the United States and Canada.

The Booming Freight Market of 2018

Strong economic growth and high employment in the United States and Canada, coupled with concerns over US tariffs and trade wars, and high truck utilization rates, propelled freight demand and freight rate pricing skyward. Contract and spot LTL rates rose to record levels. These powerful forces helped make 2018 an outstanding year for many, but not all LTL truckers.

How Big is the LTL Market?

If your trucking company hasn’t been purchased or doesn’t get purchased by TransForce, will it be in business in five years?  That is the question that came up in a recent discussion with a long time industry colleague.  The response I received was that he didn’t think his company would survive.  I was a bit surprised by the response and asked him for an explanation.  This led to an interesting discussion on what it is going to take to make it in the trucking industry in 2014 and beyond.

We both agreed that while the trucking industry has changed in some ways over the past decade (e.g. more use of technology, better cost controls after the Great Recession, LNG vehicles, greater use of 3PLs as customers), the industry is not that much different from ten years ago.  The slow economic turnaround since 2008 has created a challenging environment and there is little reason to expect a major improvement in the short term.  Rate increases are hard to come by, even with a tight driver situation.  Even more of a concern is the lack of innovation in the industry and the threat that such changes could wreak on so many complacent companies.

The warning signs are there.  As a Canadian, you don’t have to look much further than Nortel and Blackberry to see what can happen to industry leaders that were not able to keep up with changing consumer needs and quality competitors.  At the same time, one can observe what companies such as Amazon and Apple have been able to do to change the paradigm of some long established industries. 

Some of the large trucking industry players are making investments in technology and people.  They are integrating back offices and focusing on achieving economies of scale.  They are thoughtfully expanding their service portfolios and geographic footprints. 

Some of the small players are offering solutions that are very tailored to certain industry verticals and geographic areas.  Companies that are focused on same day delivery, refrigerated intermodal service, pooled LTL service, energy distribution and other emerging capabilities are creating a space for themselves in the industry.