2.0 COST TRENDS

2.1 Cost Component Trends

2.2 Resulting Over-All Truck Operating Costs

2.3 Cost Proportions By Component

2.0 COST TRENDS

As noted previously, since this study has been repeated frequently since 1972, key component costs for wages, fuel, and equipment purchase, together with over-all truck operating cost results, can be compared for trends over time.

When making these historic comparisons, some care must be exercised with older data because of the evolution of larger vehicle sizes and weights that took place between 1972 and the late 1980's / early 1990's when Canadian vehicle sizes and dimensions were adjusted (increased) following the extensive RTAC studies. These operational changes were reflected in Operating Costs of Trucks in Canada, which thus saw several adjustments to specific equipment and commodity case studies, prior to 1993.

Since 1993, there has been relative stability in permitted Canadian trucking industry weights and dimensions. Consequently, the study's equipment, commodity and case study configurations have remained uniform over that time. This permits cost trending against a relatively uniform operational base, since that year -- by comparing inputs and the cost results from the study series.

The cost trends in Sections 2.1 and 2.2 have been developed using 1993 as the index base year (1993 cost index set = 100).

2.1 Cost Component Trends

Wages

Wage costs are an important component of over-all trucking costs. Furthermore, with the widely publicized driver shortage, one might expect recent trends for this cost component would exhibit some significant increase -- compared to prior year to year wage cost adjustments.

Following Figure 4 illustrates the driver wage trend comparing this study to prior recent studies of Operating Costs of Trucks in Canada. For trends prior to year 2000, please consult historic study report editions.

Figure 4: Trends in Driver Wage Levels (Operating Costs of Trucks Survey)

Between 2003 and 2005, a higher rate of increase in driver wage costs for Canadian based motor carrier fleets than for US fleets is noted. Nevertheless, when the over-all wage index level is compared to index year 1993 = 100 for both countries, this recent situation is perhaps only a slight correction from periods when moderately higher rates of wage increase had occurred in the US Comparing the graph's slope for the past two years to the 2000 to 2003 timeframe, the previously discussed driver shortage may be creating a slightly increasing wage level for drivers. This trend shows up in the cost index for both Canada and US regions. In terms of adjusting our driver wage cost base for the study, the results showed approximately a 2.65% compound annual rate of increase for US based drivers and a 4.9% compound annual rate for drivers in Canada.

Fuel

A second critical cost factor for trucking is the cost of fuel.

Figure 5: Fuel Cost Trends Comparing this Study to Prior Years

Figure 5 illustrates the composite cost trend for diesel fuel purchase by trucking fleets over the past five editions of Operating Costs of Trucks in Canada, indexed to 1993=100.

Note the significant rate of cost increase since 2002, reversing an earlier trend for this cost component. Comparing price fluctuation in Canada to the US, we note a more significant rate of increase in the cost index for the US since 2002. Annual rates of cost escalation in the index between 2003 and 2005 amount to a 12% compound annual rate of increase in Canada and a 26.2% compound annual rate of increase in the US.

Note the similarity between US costs in Figure 5 and earlier Figure 2. As diesel fuel prices in both Canada and the US tend to track world crude oil price levels, the principal reason for the apparent higher rate of cost escalation for trucker fuel in the US, when compared to Canada, seems to be the relative loss in value of the US currency, compared to Canada, since 2003 (see earlier Figure 3).

Note that in relation to the 1993 fuel cost levels for the industry, the cost index for fuel is now relatively the same for Canada and the US, at approximately double the price found in 1993 Operating Costs of Trucks In Canada (both indices just greater than 200).

Equipment Purchase

Equipment purchase costs experienced moderate change between 2003 and 2005, with the most interesting characteristic noted in Figure 6, below, comparing power unit and trailer indexed costs.

Figure 6: Index of New Equipment Purchase Costs

When compared to cost levels in the 1993 base year, we note that power unit costs have over-all escalated significantly less than trailers, and they still experienced a moderate 3.5% compound annual cost increase from 2003 to 2005.

Trailer costs, on the other hand, had escalated significantly more than power units, since 1993 -- and from 2003 to 2005 posted an annual compound cost decrease of 3.4%.

One should note that the composite cost levels in Operating Costs of Trucks In Canada are biased toward Canadian cost levels (as we evaluate more configurations for 12 Canadian regions versus only 5 US regions). In terms of trailer pricing, our discussions with truckers attributed the Canada / US currency exchange rate shift from 2003 through 2005 as having the greatest impact -- resulting in the slight over-all decrease. This has apparently impacted new trailer pricing more significantly than it has impacted new power unit pricing -- perhaps due to higher percentage US component content in trailers than for tractors.

License Costs

As illustrated in Figure 7, license cost escalation has been moderate, over the years, for truckers in both Canada and the US.

Figure 7: License Cost Trends

From 2003 to 2005, most jurisdictions did not alter their licensing fees for truckers -- however a moderate increase was noted in the Provinces of Nova Scotia and New Brunswick. Compared to the index level of 1993 = 100, one can see that over-all license registration costs have only moderately changed for truckers over the past 13 years.

2.2 Resulting Over-All Truck Operating Costs

In addition to examining critical component cost trends, repetition of this study since 1972 permits comparison of truck unit operating costs over time.

Figure 8: Comparison of Last 5 "Operating Costs of Trucks In Canada" Results

(Note US Costs graphed have been converted to Canadian $ currency, prior to indexing)

When comparing the truck cost index since 1993, results for the current study in both Canada and the US are an index value of 137 (about 36 to 38% higher than costs in 1993). The period from 2003 to 2005 saw a relative convergence in the indexed trucking cost levels for Canada and the US -- a factor we are inclined to attribute to the currency exchange rate adjustment, previously discussed.

Note that in Figure 8 we are graphing results for US trucking costs expressed in Canadian $ equivalent terms -- a factor which makes the relative comparison of Canadian and US cost levels very dependent on the exchange rate difference between the two countries.

In comparison to the 2003 study, we see that Canadian truck cost levels show a 2.8% annual compound increase in cost, yet US costs from 2003 to 2005 (in equivalent Canadian $ terms) are relatively constant. As noted in Figure 3, this time period saw a relative upward adjustment of the Canadian dollar -- compared to US -- of 13.5% over the two years (or a compound annual rate of 6.5%).

Efficiency of the Trucking Industry

The Economic Analysis Directorate of Transport Canada monitors the productivity of all transportation modes in Canada as part of that agency's annual report to parliament. The compiled statistics, based on evaluations of Statistics Canada and other available sources of information, are found in the Appendix volume to the annual report and in various other publications cited on the Transport Canada website. The information posted by Transport Canada tends to show cents per tonne-km trucking revenues (which relate directly to the rate paid by shippers) at approximately the same level in year 2005 as in 1993. If this information were indexed to a base year of 1993=100, for comparison to our study, the index would be approximately 100.

Comparing this surrogate for rates paid by truck users, to the unit per truck operating cost index of 137 shown in Figure 8, one sees a 37% efficiency increase by the trucking industry over 12 years, or roughly a compound rate of efficiency gain of 2.6 % per year.

Without making a detailed analysis, which is beyond the scope for this study, one might speculate that the gain reflects such measures as increasing vehicle payloads, greater proportional use of larger (more cost efficient) vehicle configurations and a reduced percentage of empty kilometres traveled by trucks.

2.3 Cost Proportions By Component

Inter-City Line Haul Trucks

Indexed unit cost comparisons in section 2.1 for wages, fuel, equipment purchase and license costs are placed in better context when compared to how much each represents as a relative proportion of total trucking costs. The following figures summarize these proportions from our 2005 cost investigations.

Figure 9: Component Costs For 2005 Canadian Intra Provincial Case Studies

Figure 10: Component Costs For 2005 Canadian Inter Provincial Case Studies*

Comparing the (*longer distance) Canadian East - West Corridor component costs (Figure 10) to the intra provincial cases (Figure 9), the most significant difference noted relates to the relatively smaller proportion of Equipment Ownership costs for the longer distance cases (7% of costs in Figure 10 versus 11% in Figure 9). This difference reflects generally higher average kilometres traveled per year (better equipment utilization). Other costs that increase substantially with mileage (for example fuel and repair costs) are, on the other hand, proportionately greater for the inter-provincial case.

Figure 11: Component Costs For 2005 US Intra Regional Case Studies

Preceding Figure 11 shows cost shares from the US Intra Regional Cases. When comparing to Canadian Intra Provincial Case Studies (earlier Figure 9), we note that in US, Driver Cost share is a higher proportion of over-all cost (36% versus 27% in Canada), and Administration and Interest Cost share (driven by higher US interest rates than in Canada) is slightly higher in US.

Lower US proportional costs for Fuel (18% versus 24%), Repairs (7% versus 10%) and Tires (2% versus 4%) when compared to Canada may partially reflect the use of lower gross vehicle weight truck configurations (5 axle semi trailer) in the US than the heavier Tridem (6 axle semi trailer) and Super-B Train (8 axle) configurations in Canada. This factor may also partially explain the higher proportion for US based Driver Cost share, mentioned previously, since larger configurations are more efficient with respect to labour productivity than are semi-trailer units.

Summarizing the findings concerning cost share, across all the line haul cost cases investigated for 2005, key components of truck cost are as follows:

Urban Straight Trucks

Figure 12: Component Cost Shares For Urban Straight Trucks

The cost proportions shown in Figure 12 for two axle urban straight trucks are significantly different than the preceding results for line haul combinations.

We note a high driver wage cost proportion (57%) compared to the 27 to 36% share for the larger tractor and trailer combination units. Yet equipment ownership, repairs, tires and fuel consumption show smaller proportions than for linehaul. This reflects urban conditions where the vehicles spend more of their work day parked at terminals and at various customer premises, rather than moving over the road. This reflects in a proportionally significant driver cost, yet lesser proportions of cost for repairs, tires and fuel.