For the past decade, the Canada-U.S. model of economic integration has been deteriorating - - a victim of a border chocked with traffic, an overreaction to the 9/11 attacks, steep fees and erratic regulation.  FAST trade has become thick trade.  Canada – U.S. trade peaked in 2000 and has stagnated since.  Between 2001 and 2010, Canada’s dominant share of U.S. imports has fallen precipitously across a range of products - - from furniture and electrical equipment to printing, paper and plastics.

Market share worth billions of dollars now belongs to China.  This reduction in efficiency came during a period of expanding global trade as China in 2009 eclipsed Canada as the leading exporter to the United States. 

The new deal that was announced in December 2011 by President Obama and Prime Minister Harper addresses America’s concern with security and Canada’s need to facilitate trade.  Rather than publish a comprehensive document as was done with the North American Free Trade Agreement, this new deal basically consists of a press release and a set of good intentions.  It has been called the North American Border Security and Trade “Trust Us” Deal.  Since the United States is in the midst of an election year and since some of these initiatives will require congressional approval and funding, time will tell as to how many of these good intentions become reality.

The good news is that there seems to be a consensus that a number of these action plans will take effect over the next few years.  These are some of the specific programs that will have a direct and positive effect on trade and transportation.

Harmonize and Improve “Trusted Trader” Programs

We enter 2012 with a lot of unknowns.  Will the European debt crisis be resolved effectively and expeditiously or will it lead to another recession?  Will the American economy that is showing some signs of improvement, be able to strengthen during a U.S. election year that will likely produce more political gridlock?  Will the expected surge of foreclosed homes further depress the U.S. housing market and the economy or will the buyers of these homes create a resurgence in home renovation?  Will North American consumers drive a solid increase in the purchase of goods and services at the expense of higher debt per capita or will this be a year to pay down debt and hunker down for what is expected to be a long and slow economic recovery?  Will business leaders feel confident enough to take some of the trillions of dollars that have been parked and invest in plant, equipment and new hires or will they keep their hands in their pockets and drive the unemployment rate higher?  I wish I knew the answers to these questions since they will have a material effect on freight transportation. 

With these issues as a backdrop, here are some suggested strategies to lead your freight transportation organization in 2012.

1. Expect the Unexpected and take an “Emergent” Strategy Approach

In such a volatile climate, a “proceed with caution” approach would make good sense in 2012.  This would include everything from fleet purchases to new hires. 

Unless a clearer picture begins to appear from the shadows of 2011, it would be wise to take an “Emergent” strategy approach first suggested by Professor of Business Strategy Henry Mintzberg at McGill University in Montreal. Instead of the more commonly used deliberate approach, the emergent approach is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. It is a more grass roots, front-line oriented approach where solving real business problems lead to new strategies.  Executives should look for new business opportunities among their front-line troops and middle managers.  They should test a number of these opportunities using an approach known as Jugaad.

As we enter the New Year, it is time to reflect on the events of the past year and try to anticipate some of the drivers of the economy in the months ahead.  In this blog, I will take a look at some of the key economic trends in 2012.  In the following blog, I will share some thoughts on the major drivers of freight transportation in the coming 12 months. 

Here are some of the economic forces shaping the economies of North America in 2012.

1. North America will avoid Recession

The United States and Canada will probably avoid a recession. The good news is that domestic risks have diminished somewhat, and growth momentum has picked up modestly. Consumers seem willing to spend and businesses are more disposed to hire—albeit cautiously. The consensus among economists is that over the next year growth in the United States and Canada will average between 1.5% and 2.0%.

2. Fundamental Changes are taking place in the Housing Market

Freight Transportation Adjusts to a Resetting World Economy

The year 2011 was another momentous one that was shaped by events on all continents of the world.  Uprisings in the Middle East and the overthrow of Hosni Mubarak and Muammar Gadhafi, the European debt crisis, the Occupy Wall Street Movement, the assassination of Osama Bin Laden, the earthquake and tsunami in Japan, the wedding of Prince William to Kate Middleton, and the premature passing of Steve Jobs were just a few of the signature events of another action-packed year. 

Closer to home, the three countries in North America all faced significant challenges.  The powerful drug cartels in Mexico are threatening its very existence as a democracy as the country gears up for elections in 2012.  The untimely death of Jack Layton, the very popular leader of the New Democratic party and the demise of Michael Ignatieff and the Liberal Party have given Steven Harper a majority government and a free hand at steering the Canadian economy over the next four years.  The U.S. situation is exactly the opposite as Democrats and Republicans cannot reach agreement on almost anything and as a result the country is in gridlock on most economic initiatives to spark its economy. 

Against a background of 8.6 percent unemployment in the U.S., millions more underemployed, one in four homes is worth less than the value of the mortgage, tight credit, anxiety over job security and a possible relapse into another recession, the economy is resetting.  Americans are saving more.  As various generations of families live together to better withstand the current economic uncertainties, home builders are erecting homes with two master bedrooms to address the social consequences of these challenging times.   Smartphones, tablets and the internet are reshaping so many of our day to day activities.  The economies of North America and around the world are being reset by this confluence of forces and by the rise of China and other developing nations around the world.

Today we received some unexpected good news in the United States as the unemployment rate fell to 8.6%.  In Canada the news wasn’t as good as the unemployment rate increased to 7.4 percent.  Without counting those people who have given up looking for work or who are underemployed (e.g. performing a job below their level of expertise and education at a wage inferior to what they should be earning), there are about 14 million people unemployed in North America (e.g. 13.3 million in the United States and 1.3 million in Canada). 

FTR Associates estimated that there was a shortage of 200,000 drivers in the United States in the first quarter of 2011.  How does one explain the fact that out of a pool of 13.3 million unemployed people (plus millions more if you include those who are underemployed), we cannot find 100,000 to 200,000 individuals to fill these jobs?

Here are some thoughts on this apparent anomaly.  There were 3.2 million commercial drivers in the United States in 2008, including 1.8 million heavy haul or tractor-trailer drivers, according to the U.S. Labor Department.  By May 2010, the number of big rig drivers had dropped 18.4 percent to about 1.5 million.  In other words, there are 300,000 drivers that left the labour force that should be available to fill the available jobs.  Why is it so hard to convince them to come back to work?

One of the most frequently mentioned reasons is compensation.  In the United States, experienced truck drivers can make $50,000 a year at some truckload carriers.  According to a BLS survey, the average wage was $39,450 in 2010 while the median wage was $37,770.  The survey indicated that 75% earn less than $47,000 per annum. 

The trucking industry has a long term practice of paying its drivers by the mile.  While there is certain fairness to this approach since it correlates directly with the amount of miles driven and hours worked, it also injects a level of uncertainty into the driver’s weekly pay package.  Inconsistent load availability translates into inconsistent pay.