14
PRICE, PRODUCTIVITY AND FINANCIAL PERFORMANCE IN THE
TRANSPORTATION SECTOR
Trucking Industry
The focus for the trucking industry is on the performance of
for-hire trucking firms with annual sales equal to or greater
than $1 million. The following analysis excludes individual carriers
whose main activity is the movement of household goods (four per
cent of larger carrier revenues).
Price and Output Indicators
From 1991 to 1998, trucking industry revenues increased by
8.8 per cent a year. This growth came from an increased level
of activity and not an increase in prices, which were declining
marginally at 0.5 per cent a year. In real terms, the price decline
was actually 2.1 per cent a year. Since 1991, price increases
for trucking services were observed in only two years. The price
reductions observed in the for-hire trucking activity since 1991
allowed a reduction in shippers' trucking costs by $1.8 billion
(12 per cent) by 1998.
Preliminary results for the first half of 1999 show that revenue
growth continued to be strong with trucking prices firming up.
There has been little significant difference in the price changes
of domestic intraprovincial versus interprovincial trucking services
over the 1991 -1998 period. The prices for transborder trucking
services, however, have shown a nominal increase of 0.7 per
cent a year since 1991.
The growth of transborder trucking activities by Canadian-based
carriers has been remarkable, with output growth averaging 15
per cent a year. This is the result of three factors: the growth
of transborder trade, which reached eight per cent a year; the
deeper penetration of the US market (measured by the longer
distance travelled by goods transported by road between Canada
and the US), which rose by two per cent a year; and market share
gains by Canadian-based carriers in transborder activities, as
indicated by the increased share of Canadian licenced commercial
road vehicles crossing the Canada-US border. This third factor
would have contributed to about one quarter of the growth
of Canadian trucking firms in transborder operations.
Output growth from domestic markets has been about half the
growth of transborder output over the 1991 - 1998 period. In 1998
and 1999, however, the domestic activity of the trucking industry
surpassed that of transborder markets, reflecting the increasing
strength of domestic markets.
Cost Structure
As with VIA Rail, the variable factors of production in the
trucking industry (i.e. labour, fuel, purchased transport services
and other materials and services) have been grouped to avoid measurement
problems arising, for instance, from potential substitution
between internal labour versus outsourcing. In 1998, variable
costs accounted for 89 per cent of industry costs; capital cost,
which is all capital goods used by trucking firms whether owned
or leased, made up the remaining 11 per cent. In 1991, capital
costs accounted for 14 per cent of total costs.
Among variable factors, labour accounts for 46 per cent of
total costs, down from 48 per cent. The fuel cost share increased
from 12 to 13 per cent between 1991 and 1998.
Productivity and Unit Cost Indicators
Total factor productivity in the trucking industry increased
by 2.1 per cent a year between 1991 and 1998. Trucking unit costs
in 1998 were seven per cent lower than in 1991. In more recent
years, industry performance in terms of productivity and
unit costs has exceeded the longer-term trends. Since 1991, this
cost performance allowed the trucking industry to reduce its costs
by $2.2 billion in 1998, or 15 per cent of its cost base.
Since the prices attached to the variable factors of production
used in trucking operations follow the price trends in the economy,
the source of cost reduction in trucking came from productivity
improvement in the use of these variable factors of production.
This productivity growth of the variable factors of production
is not the result of capital substitution, since capital productivity
also grew. While this is indicative of a more efficient use
of assets, it may also be partly the reflection of the average
age of the capital stock used in the industry. The reduction of
the cost of capital from lower interest and tax rates is also
a contributing factor.
Capital contributed to 27 per cent of the cost reduction of trucking
firms, which is more than twice its importance in the total costs
of the industry.
Financial Performance
Trucking is an industry whose viability can be achieved with
an operating margin equal to about four per cent of its revenues.
Other transport industries, such as rail, require higher
operating margins, as more assets are needed to generate each
dollar of revenue.
Between 1991 and 1996, the financial performance of the trucking
industry was relatively stable, with 95 per cent of its cost reduction
returned to users as lower prices. Since 1996, the industry
has been able to retain more than half of its cost reductions.
The improvement of the financial situation in the last two years
may appear modest, when measured by the reduction in operating
ratios of 2.2 percentage points, as shown in Table 14-5.
This contributed to a 57 per cent increase in return on assets.
Based on the performance of large trucking carriers in the
first three quarters of 1999, profitability should have improved
in 1999. The operating ratio of the larger carriers fell by one
percentage point, however, from 95.8 to 94.8 per cent.
Trucking Industry
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