14

PRICE, PRODUCTIVITY AND FINANCIAL PERFORMNCE IN THE TRANSPORTATION SECTOR

The Trucking Industry

This section focuses on the performance of for-hire trucking firms with annual revenues equal to or greater than $1 million.Note 9 Individual carriers whose main activity is the movement of household goods (four per cent of larger carrier revenues) have been excluded.

Price and Output Indicators

From 1994 to 1999, the revenues of the trucking industry as a whole increased by eight per cent a year. This growth came from an increased level of activity and not increased prices, since prices in 1999 were below their 1994 levels. In real terms, the price decline was 1.1 per cent a year. By 1999, the price reductions observed in for-hire trucking activity since 1994 had allowed a reduction of shippers' costs in the order of $750 million.

While the prices dropped in real terms, they continued to increase at a greater rate than did rail prices.Yet, the trucking industry has continued to make market gains, after the price effect of the growth observed in both the rail and trucking modes has been eliminated. Since 1994, the trucking industry has gained 7.6 percentage points in market share.

The prices of domestic intraprovincial trucking services and interprovincial trucking services fell slightly between 1994 and 1999, and the prices for transborder trucking services increased by only 0.8 per cent a year during that period.

Canadian-based transborder trucking operations, in particular, have increased remarkably, with output growth averaging 12 per cent a year. The sources of growth are increased Canada-US trade, deeper penetration of the US market by Canadian-based carriers, and gains by Canadian-based carriers' market share in transborder activities. The latter gains can be explained in part by the low value of the Canadian dollar. From 1994 to 1999, the growth of transborder output was about double the output growth from domestic markets.

Preliminary results for 2000 show that revenue growth was still robust at 9.4 per cent.

Cost Structure

In the second half of the 1990s, the industry exhibited a stable cost structure. The variable portion averaged 87 per cent, and the capital cost share was 13 per cent. Among variable costs, labour accounted for 45 per cent of total cost, and fuel represented 13 per cent. In 1999, the leasing share in capital and total costs was higher than the 1994-1999 averages for leasing. The proportion of leasing in total cost represented only 3.6 per cent, but 27 per cent of total capital costs.

Productivity and Unit Cost Indicators

Total factor productivity in the trucking industry increased by two per cent annually between 1994 and 1999, and the productivity of the variable factors of production grew by 2.5 per cent a year. A decline in capital productivity reversed previous trends.

Trucking unit costs in 1999 were one per cent lower than in 1994. After the effects of general inflation are removed, this translates into a cost reduction that had reached $725 million by 1999, 4.6 per cent of the industry cost base. From 1994 to 1999, trucking cost reductions came from lowering variable costs, since capital costs per unit of production increased during that period.

Financial Performance

The trucking industry can be viable with an operating margin of about four per cent of revenues. Other transport industries, such as rail, require higher operating margins, as more assets are needed to generate each dollar of revenue.

Between 1994 and 1999, the financial performance of the trucking industry weakened marginally, with prices falling slightly more rapidly than unit costs. In 1999, prices fell more rapidly than costs did. This led to a slight deterioration in operating ratios, which exceeded 95 per cent, as shown in Table 14-5. Still, the financial returns of the trucking industry, as measured by the rate of returns on fixed assets, remain on average, high enough to ensure the long-term viability of the industry.

Based on the performance of large trucking carriers, profitability should have declined slightly in 2000. The operating ratio of the larger carriers rose from 93.9 per cent to 94.5 per cent.

Effects of Higher Fuel Prices

Before the 1999-2000 fuel price increases, the trucking industry was paying an average of 49 cents a litre for fuel. This analysis assumed that, during the past year, diesel prices increased by 15 cents a litre to 63 cents a litre. This corresponds to diesel prices reported by Statistics Canada, less the Goods and Services Tax (GST) and applicable provincial sales taxes. Such an increase would translate into fuel costs that are 25 per cent higher contributing to an increase in total costs of 3.4 per cent. If the higher fuel costs had been passed on to shippers in 2000, without any offsetting factor, transport prices would have had to go up by 3.5 per cent.

Preliminary data for the first half of 2000 indicates that the fuel price surge increases fuel costs by about 25 per cent, confirming the above estimates Transport price increased by 4.3 per cent, corresponding to a 3.5 per cent increase in transport prices since 1997.

PRICE, PRODUCTIVITY AND FINANCIAL PERFORMNCE IN THE TRANSPORTATION SECTOR

Rail Industry

Trucking Industry

Bus Industry

Air Transport Industry

CHAPTER 13	TABLE OF CONTENTS	END
LIST OF TABLES	LIST OF FIGURES	LIST OF ANNEXES

NOTES:

9 Main changes from the material presented in earlier annual reports include: the addition of non-transportation revenues and expenses, which improve industry operating ratios; revised estimates of the revenue split between transborder and domestic revenues; and revision of fuel prices and capital stock data.