For many years, industry experts have been predicting a consolidation in the Canadian freight industry. During and after the Great Recession, the decibel level of these warnings increased as most trucking companies faced the challenges of reduced freight volumes, sinking rates and the difficulty of managing a business during recessionary times. In fact, the industry did shrink by an estimated fifteen percent during the downturn, not through acquisition, but through companies closing their doors or parking equipment.

As one looks back over the past five years, the Canadian economy has been recovering, albeit painfully slowly. There has been some growth in GDP and in jobs, largely in the west. During this same period, the Canadian freight industry has been consolidating and continues to consolidate. This has been driven by a host of factors.

There were and still are willing sellers. Many trucking company owners, particularly those in the baby boomer generation, without a succession plan, or with poor prospects for survival, saw the sale of their business as the most logical business option. For some, the challenge of hanging on during the Great Recession, took some of the appeal out of the business. That coupled with the option of creating a retirement fund was a desirable route to follow.

The post-recession business climate brought a host of challenges. Just as trucking company owners are getting older, so are truck drivers. Young men and women are not interested in becoming long haul truck drivers, dealing with crossing the Canada – US border, spending weeks away from their families, for $40,000 to $50,000 per year. The driver shortage, coupled with rising costs of fuel and equipment, low margins, increasing technological sophistication and regulatory changes, have made life much more difficult, particularly for small fleets with limited access to capital.

In addition, there were and still are willing buyers. Some of the larger trucking companies and conglomerates have been active buyers. Take a look at the websites of the large truckers to see the list of companies that have been acquired. The larger fleets have seized the opportunity to increase market share, to enter new markets, and/or to acquire new drivers, equipment and management talent. With TransForce’s acquisition of Contrans, we are now seeing a very large conglomerate devour a large conglomerate. What does this all mean for the Canadian freight industry?

Two developments over the past five years have reshaped the Canadian Freight Industry. The Great Recession in the late 2000s caused many Canadian trucking companies to shrink in size or leave the freight industry. During the past couple of years, there has been considerable consolidation in the small parcel, domestic LTL over the road and Intermodal segments of the Canadian freight industry. Shippers looking for a national courier or LTL carrier now see many familiar brands in the hands of a small group of companies.

Shippers worrying about whether there will full and fair competition in the Canadian freight industry in the years ahead can take solace from what is happening south of the border. Our American friends experienced the same economic downturn in 2007. Some experts believe that as much as fifteen percent of the freight capacity in the United States left the market during the Great Recession.

The good news is that as this capacity left the market, several emerging trends suggest that new strategies and business models are providing increased competition in the LTL sector.

Build a Carrier Partnership Network

Some significant carrier partnerships and alliances have been formed to provide more competition on the national and regional level. In an effort to compete with the national LTL players (e.g. YRCW, FedEx Freight, Old Dominion etc.), The Reliance Network was formed. It brings together:

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.

Companies typically call us in when they are having a problem and they are not able to solve it themselves.  For shippers, the problem is usually that they are spending too much money on freight and are seeking solutions to bring these costs under control.  For carriers, the problem is that they are not achieving a satisfactory profit.

In our work we have observed a number of variables that play a key role in determining whether the problem or problems get solved or not.  Here is what we have learned.

It takes a multi-disciplinary effort to solve these problems

While one might think that freight transportation is a small element of a company’s operation (and often less that 5% of its costs), it tends to intersect with Sales, Production, Customer Service, Finance and other business functions.  The same can be said for improving the profitability of a trucking company.  Profit improvement comes from a team approach to solving the problem.  Improving one area of the company while leaving the others untouched will usually have a minimal impact on a company’s bottom line.

It starts at the top