11. Trucking

A review of the Motor Vehicle Transport Act was initiated. Despite an increase in trucking bankruptcies, the industry's financial performance remained positive, driven by traffic increases mostly in transborder activities.

All Canadians encounter trucking in their daily lives in one way or another. Trucking accounts for significant revenues and jobs across Canada. Estimates suggest trucking is a $31 billion industry and the for-hire sector accounts for nearly half of it. For-hire trucking activities produce approximately 158,000 jobs. Virtually every product a consumer purchases has been transported by truck at least part of the way, sometimes several times before reaching a final destination.

Trucking is popular because it is a flexible mode of transport, constrained only by the extent of the road network. Because of this flexibility, trucking can provide the kind of service required by even the most demanding shippers.

Approximately 118,000 large trucks in Canada haul freight commercially in for-hire operations. Non-commercial trucking operations use farm, utility and service trucks. The courier business that transports mail and small packages also uses trucks.

Figure 11-1 shows the industry structure and its revenues.

Major Events in 1997

Review of the Motor Vehicle Transport Act, 1987

Transport Canada started a review of the Motor Vehicle Transport Act, 1987 in 1996. The Act allows the provinces to regulate extra-provincial motor carrier (bus and truck) activities that are under federal jurisdiction.

During consultations in 1996, the provinces and industry associations agreed that government should focus on regulating carrier safety and eliminating the last traces of economic regulation in the industry.

The department released a discussion paper in April 1997 that evaluated the results of these consultations and suggested areas requiring changes in the Act.

NAFTA

Two NAFTA groups, the Land Transportation Standards Subcommittee and the Transportation Consultative Group, continued to work toward compatible technical standards and to eliminate barriers to efficient cross-border truck traffic in Canada, Mexico and the US.

To date, the groups have arrived at compatible North American standards for driver age, language and medical requirements; issued a trilingual North American emergency response guide and a trilingual guide to traffic control devices; and published a report on North American vehicle weight and dimension compatibility.

The groups are now focusing on the motor carrier safety assessment process, exchanging motor carrier data, agreeing on vehicle weight and dimension compatibility, and developing a North American dangerous goods code.

Amendments to Cabotage Rules

Following several years of discussion, Canadian and US government and industry representatives liberalized customs rules governing equipment cabotage, or point-to-point movements in a foreign country, giving trucking companies freedom to use equipment more efficiently and to reduce the number of "empty miles" driven.

Under the new rules, as long as the cargo is international, the equipment will also be considered international and free from cabotage restrictions. Cabotage restrictions on equipment moving without payload will also be ended.

In addition, the US is considering liberalizing its rules on "incidental" movements - the pickup and delivery of domestic cargo during an international movement - to bring them into line with Canada's rules. Canada currently permits domestic pickup and drop-off, provided that the domestic shipment is secondary to the international shipment, and that the route taken for the domestic load does not deviate substantially from the route for the international cargo.

Existing immigration rules governing drivers are not affected by these changes.

Canada's Internal Trade and National Harmonization

The transportation chapter in the agreement on Internal Trade, which came into force in 1995, contains a general commitment to harmonize both standards and regulations, as well as specific commitments to implement national motor carrier safety standards, set uniform vehicle weight and dimension limits, and complete the deregulation of the trucking industry, among other issues.

Second Annual Report

In 1997, federal and provincial transportation ministers fulfilled their commitment under the agreement by submitting their second annual report on the implementation of commitments in the Internal Trade Agreement's transportation chapter.

In the report, they noted several highlights for the year. A memorandum of understanding was signed, for example, containing nine recommended changes in national standards to make vehicle weights and dimensions more uniform. The proposals reflected current usage - conditions and changes that jurisdictions are willing to make. Work also started on an initiative to implement the new National Safety Code Compliance Review - Safety Rating Standard (Standard 14) in 1998, which will be the key component of proposed new federal motor carrier legislation in an amended Motor Vehicle Transport Act (MVTA).

Repeal of Part III of the Motor Vehicle Transport Act, 1987

The repeal of Part III of the Motor Vehicle Transport Act was scheduled for early 1998 as part of the overall agreement to eliminate the last pockets of economic regulation in trucking. Negotiations on the repeal constituted the major internal trade-related initiative affecting trucking in 1997.

When the Agreement was signed, four provinces maintained some degree of economic regulation in trucking: British Columbia, Saskatchewan, Manitoba and Quebec. Most of this regulation has been or was slated to be eliminated by
January 1, 1998. British Columbia and Quebec, however, requested a delay in implementing the Part III repeal to allow their dump trucking and logging transport industries time for transition. These sectors represent less than two per cent of the industry nationally. The two provinces negotiated with the other provinces and territories on this issue. The majority of the other provinces agreed to the delay.

On December 21, 1997, the Minister of Transport agreed to postpone the repeal of Part III until January 1, 2000, as long as British Columbia and Quebec continued to regulate only dump trucking and logging transport.

Vehicle Weights and Dimensions

Vehicle weights and dimensions have a profound effect on trucking cost, productivity and competitiveness. Because of this importance, an interjurisdictional task force, the Task Force on Vehicle Weights and Dimensions, co-ordinates policy through collective action and acts as a forum for the exchange of ideas on provincial initiatives.

In 1997, the task force consulted with industry stakeholders to assess whether greater national uniformity in vehicle weight and dimension regulations would be feasible. They came up with 16 recommendations, nine of which were approved by the Council of Deputy Ministers Responsible for Transportation and Highway Safety, to which the task force is accountable. Provincial officials are still analysing the remaining seven recommendations.

The approved recommendations standardize dimensions for box length, tractor-trailer connections, spacing between axles and axle load limits. Some reflect current usage and conditions, while others represent changes that jurisdictions are willing to make to promote uniformity.

On the North American front, a trilateral working group is examining the standards governing the weights and dimensions of vehicles in Canada, the US and Mexico. Compatibility of vehicle-size characteristics presents a major challenge given the wide range of technical, economic and policy issues that underlie regulations in each country. The group has exchanged information on existing federal, state and provincial restrictions; discussed safety; and reviewed applicable compliance, enforcement and administrative procedures. It issued a report in September 1997 that outlines the issues involved in compatibility and presents options to explore in the future.

Trucking Services

The trucking industry can be divided into two major components: private trucking and for-hire trucking. Private trucking companies maintain a fleet of trucks and trailers to haul their own goods, occasionally using their fleets to haul goods for others. For-hire trucking companies carry freight for a fee under various service types, principally truckload and less-than-truckload.

In addition to servicing domestic and international demand, for-hire carriers can be further differentiated according to where they work in Canada. Intra-provincial for-hire carriers operate within a province and under provincial jurisdiction. Extra-provincial for-hire carriers operate beyond provincial and national boundaries under federal jurisdiction. Extra-provincial carriers derive a significant portion of their income from intra-provincial operations. In 1996, extra-provincial carriers generated over $12 billion, which accounts for 81 per cent of total for-hire trucking revenues. Intra-provincial carriers accounted for the remaining 19 per cent, estimated at $2.8 billion.

Owner-operators and couriers are also important components of the trucking industry. Owner-operators work under contract for either for-hire or private carriers, customarily using their own trucks. Couriers specialize in the delivery of mail and small packages, often enlisting other transporters, including inter-city bus companies, air cargo operators and less-than-truckload truck operators. Most of this chapter is devoted to for-hire trucking, as there is only limited information available on private trucking, owner-operators and couriers.

All carriers, whatever their category, differ according to operating characteristics, such as size, specialty equipment, geography, services and alliances. Companies range, for example, from the single unit owner-operator to large firms operating several thousand power units.

Some carriers use specialized equipment, such as logging trucks, hopper-bottom grain trailers and cement mixers, while others use general purpose vans or flat-deck trailers. Some carriers operate locally within a province, while others cross borders into other provinces and other countries. And some carriers handle general freight in one region only, while others "inter-line" with carriers in other regions.

Other distinctions in the industry differentiate carriers by the category of freight they carry:

• general freight carriers handle many different kinds of freight in vans and general-freight trailers;
• household goods carriers use specialized trailers to transport furniture and other personal household possessions;
• liquid bulk carriers use tanker trucks to transport liquids, such as milk, petroleum and chemicals;
• dry bulk carriers use dump or hopper-bottom trailers to haul goods, such as grain, fertilizer and gravel;
• forest products carriers use special logging trucks to transport logs from forests to mills;
• auto haulers use special trailers to transport cars and trucks from factories to car dealerships; and
• couriers use a variety of transportation modes to transport mail and small parcels.

General-freight carriers are by far the most numerous, accounting for approximately 50 per cent of the carriers.

Grain Transportation

The elimination of rail transportation subsidies and the consolidation of elevator and rail branch-line services have increased the use of trucks to haul grain in Western Canada. The expansion of secondary processing activities, such as milling, meat processing and canola crushing, and the increase in market opportunities in the US and the Asia Pacific region are also factors.

A study by Trimac Consulting Services Ltd. (Review of Grain Transportation by Truck in Western Canada), looked at the 48 million tonnes of grain produced in Western Canada during the 1995/96 crop year. Local trucking over short distances from farms to nearby elevators, inland terminals and rail sidings for local seeding or animal feeding requirements moved approximately 43.5 million tonnes, or 90.5 per cent of total grain production in that year.

Trucking is also used to carry grain from farms, primary elevators and inland terminals to other inland terminals and a variety of processing locations. Approximately 8.1 million tonnes of grain, or 17 per cent of 1995/96 grain production total, was shipped over intermediate distances of less than 800 kilometres. Such intermediate distance trucking tends to be in larger combination trucks and on a for-hire basis. The Trimac study also projected significant growth in intermediate trucking on the assumptions of more secondary processing activity in Western Canada and greater access to US markets.

Long-distance grain trucking over distances greater than 800 kilometres is rare because it is prohibitively expensive.

Traffic

Domestic vs. International

Truck traffic, as measured by the number of tonne-kilometres, has increased steadily since 1992 in both the domestic and international markets. Domestically, tonne-kilometres have increased by approximately 50 per cent, while internationally, they have almost doubled, increasing by 98 per cent. As a result of these increases, the relative traffic share between domestic and international markets has been shifting. Since 1989, the domestic share of tonne-kilometres has decreased by more than 11 per cent, while the international share has increased by a corresponding amount. Table 11-1 shows the distribution of tonne-kilometres by sector from 1990 to 1996.

Truck Traffic by Commodity Group

In 1996, general freight, which consists primarily of manufactured products and fabricated materials, accounted for the majority of truck traffic, domestically and internationally, with 41 per cent of all domestic and 46 per cent of all international freight transported. The next most important commodities were food products, followed closely by forest products. Table 11-2 shows the revenues that Canadian for-hire carriers generated by commodity in 1996.

General freight, food products and forest products also accounted collectively for over 70 per cent of the carriers' total tonne-kilometres in 1996. Table 11-3 gives the distribution of tonne-kilometres by commodity.

1995 Roadside Survey Results

In fall 1997, federal and provincial transportation officials released the National Roadside Survey, a new profile of truck traffic in Canada. The survey describes heavy-truck activity during one week in 1995 on Canada's National Highway System, as well as an additional 1,100 kilometres of other roads significant to truck traffic in individual provinces and territories. An analysis of one million truck movements and 36,000 driver interviews recorded at 148 survey sites across Canada formed the basis of the survey.

The survey gathered information on truck, carrier, driver, trip and cargo characteristics, as well as measures of trucking activity, including the number of trips, distance traveled, cargo tonnage transported, cargo tonne-kilometres of transportation, gross vehicle weight moved, and vehicle tonne-kilometres of movement.

Tables 11-4 through 11-7 show samples of the information gathered about truck travel, carriers, drivers and vehicles. Complete results are available using the data analysis package that can be downloaded from the Internet at Transport Canada's Web site at http://www.tc.gc.ca or the Web site of the Canadian Council of Motor Transport Administrators at http://www.ccmta.ca.

On the basis of number of trips, intra-provincial trucking accounts for two thirds of inter-city trucking activity on Canada's major highways. Table 11-4 shows that share of activity is lower when viewed using other measures because intra-provincial trips on average are shorter and use relatively smaller trucks than trips in other sectors.

As indicated in Table 11-5, for-hire truck carriers handle most inter-city trucking. Private truck carriers' share of activity falls from one third of trips to one sixth of cargo output due to shorter average trips and smaller average trucks.

Table 11-6 indicates that while owner-operators (a truck owner working for a carrier under contract) have played an increasingly significant role in trucking in recent years, the majority of activity continues to be handled by company employees.

Table 11-7 shows that semi-trailer trucks handle by far the largest share of inter-city trucking. The different roles played by truck trains and straight trucks are apparent from activity measures. Due to longer average trips and larger average capacity, the 7.1 per cent of trips by truck trains generate 18.5 per cent of the cargo output. Conversely, the shorter average trips and smaller average capacity of straight trucks indicate that their 20 per cent share of trips accounts for only 1.9 per cent of the cargo output.

International Trade

Trade has been the key driver of Canada's economic growth over the past few years. Of the total $389 billion in goods that Canada traded with its NAFTA partners, $262 billion, or 67 per cent, was transported by truck.

Exports by Truck

In 1996, Canada shipped $133 billion worth of goods by truck to the US and Mexico, an increase of 24 per cent over 1994. These shipments consisted mainly of motor vehicles and parts, fabricated materials and equipment, and accounted for 59 per cent of total exports carried. Table 11-8 shows the distribution of Canada's exports by truck in 1996.

Imports by Truck

Canada imported $129 billion in goods by truck from the US and Mexico in 1996, accounting for 80 per cent of all goods imported. Imports from Mexico increased by 32 per cent between 1994 and 1996, while imports from the US increased by 13 per cent over the same period. Motor vehicles and parts, fabricated materials and equipment accounted for the majority of Canada's imports. Table 11-9 shows the distribution of Canada's imports by truck in 1996.

Trucking Industry Structure

Number of Carriers

Estimates in 1995 by the Canadian Trucking Research Institute (Fred Nix, Trucking in Canada - A Profile), indicate that there are approximately 9,400 for-hire carriers, 39,000 owner-operators, 450 large private carriersNote 1 and 2,400 courier companies in Canada. In addition, thousands more organizations engage in some form of trucking but are not captured in Statistics Canada surveys. These include small for-hire carriers, private carriers, farmers, utility companies, municipalities that own trucks, etc. Figure 11-2 illustrates the number of for-hire carriers earning revenues of $1 million or more per year.

Since 1990, the major carriers group (carriers that earn $25 million or more per year) has represented, on average, less than four per cent of the total number of carriers in the Canadian trucking industry.

Alliances, Mergers and Acquisitions

Trucking is a very competitive industry in a perpetual state of change, with new entries, mergers, acquisitions and bankruptcies happening all the time.

Canadian carriers are joining forces to expand service both within and between provinces and territories, as well as with other regions. Many companies have strengthened their positions by forming alliances, merging with
or acquiring other carriers. Some examples in 1997 include:

• the acquisition of Thompson's Transfer Co. of Nova Scotia and Transport Super Rapide of Newfoundland by Cabano Kingsway Inc. to expand its Atlantic Canada and Quebec-based operations;
• the alliance of Ontario-based Challenger Motor Freight Inc. with Daily Motor Freight, which specializes in less-than-truckload services in Ontario and Quebec, to increase its services to the US;
• the acquisition of the Maritime bulk trucking operations of Corporation Provost ltée by Alberta-based Trimac;
• the acquisition of Brookville Group, a large independent truckload carrier in Atlantic Canada by Contrans Corporation of Ontario;
• the agreement between Check Transportation by Logistics of British Columbia and Atomic Transportation System of Manitoba for less-than-truckload service between Eastern Canada and British Columbia; and
• the acquisition of Reimer Express Lines by Roadway Express Lines of Ohio to combine Roadway's extensive network and state-of-the-art information systems with Reimer's developed operations and Canadian marketing expertise.

Canadian carriers are also moving into the US market by forming partnerships with US-based carriers. These alliances not only expand the carriers' markets, they also reshape the way carriers do business by allowing them to offer more services over a much broader territory. In some cases, the companies integrate their information systems and share invoicing and inventory control. A recent example involving a large Canadian carrier is the merger of Ontario's Frederick Group with Michigan's Bill Thompson Trucking to form FTI, which will provide long-haul truckload and local service, just-in-time transportation and logistics services with a combined fleet of 800 tractors and 1,000 trailers.

Bankruptcies

Bankruptcies dropped rapidly in 1993 and 1994, leveled out in 1995, then increased significantly in 1996 and again in 1997. Table 11-10 shows the number of trucking bankruptcies across Canada from 1987 to 1997.

Competition

Concentration of Carriers

The degree of concentration between the major carriers (those that earn $25 million or more per year) and large carriers (those that earn between $12 million and $25 million) in the for-hire trucking industry is an indicator of the level of competition prevailing in the marketplace.

From 1990 to 1996, the revenues of major carriers as a percentage of total revenues decreased steadily, while the actual number of carriers in this category remained relatively stable at between 53 and 59 carriers. These numbers suggest a reduced level of concentration.

In 1995 and 1996, the number of major carriers began to increase as large carriers acquired more smaller carriers.

In the large carrier group, the proportion of revenues to total industry revenues increased significantly from a low of 12.5 per cent in 1992 to over 26 per cent in 1996.

The proportion of revenues to total industry revenues for the medium group (carriers that earn between $1 million and $12 million) also increased steadily, moving from 45 per cent in 1990 to almost 50 per cent in 1993. The proportion then declined to 44 per cent between 1994 and 1996.

Table 11-11 shows the percentage share of total for-hire revenues for each size of carrier from 1990 to 1996. Table 11-12 illustrates the average annual revenues for each size of carrier over the same period. The two tables indicate that competition within the trucking industry has not diminished from 1990 to 1996.

Output and Price Changes

Trucking revenues rebounded dramatically between 1992 and 1996, growing by more than 50 per cent after the sluggish 1989 - 1992 period during which revenues declined. This growth occurred as prices were falling by 3.8 per cent in nominal terms, or about one per cent per year. Preliminary results for the first half of 1997 indicate that trucking prices have stopped their downward trend. All in all, such a trend in prices is indicative of a mix of competitive forces and strong demand at play in the marketplace.

As previously noted, the major cause of growth in the trucking industry has been increased traffic to and from the US.

Since 1992, trucking performance in transborder markets has been remarkable with output growth reaching close to 18 per cent per year. This growth is tied closely with Canada's 14 per cent average annual increase in trade with the US over the same period. The growth of intra-provincial and inter-provincial trucking activities was also noticeable: 8.3 and 9.8 per cent per year, respectively. For 1997, output growth was estimated to exceed ten per cent led by strong growth in transborder activity.

Prices for domestic and transborder trucking services have behaved differently. Between 1991 and 1996, for example, prices for intra-provincial and inter-provincial trucking services all fell by approximately 0.9 per cent per year, while transborder prices increased by 0.3 per cent.

Prices do vary more, however, from one year to another and from one type of services to another. Prices for inter-provincial services, for instance, fell by 5.5 per cent in 1996, compared with a drop of 0.3 per cent for intra-provincial services. Transborder price changes remained in between the two, falling 3.4 per cent.

Table 11-13 shows annual price changes for intra-provincial, inter-provincial and transborder trucking services for the years 1994 to 1997.

Over a longer period, from 1986 to 1994, for example, trucking prices increased by 5.5 per cent, while rail prices decreased by more than seven per cent, representing a 14 per cent deterioration in trucking's relative position. In 1997, the gap between the two modes persisted, although it was reduced to an estimated 12 per cent, and yet the trucking industry keeps increasing its market share. This implies that the truck/rail competition is more than simply a question of relative price.

Financial Performance

Highlights

The financial performance of the for-hire trucking industry improved in 1997. Revenues of large trucking firms surveyed by Statistics Canada increased by nine per cent in the first three quarters of 1997, compared with the revenues reported over the same period in 1996. Their operating margin also improved, from 3.6 to 4.4 per cent. Moreover, major Canadian trucking firms such as Vitran, Cabano Kingsbury, Mullen, and Trimac, have all reported substantial increases in profits in 1997. Yet Interlink Freight Systems had to declare bankruptcy.

Revenues/Expenses

The Canadian-based for-hire trucking firms (excluding household goods carriers) with annual operating revenues equal to or greater than one million had total operating revenues of $12.6 billion in 1996, up eight per cent from a year earlier.

Trucking Industry Costs

Labour costs represented less than 28 per cent of the trucking industry's operating revenues,Note 2 excluding the costs related to hiring owner-operators under contract as shown in Table 11-14. If the owner-operator component were included, labour costs would account for 44 per cent of carriers' revenues.

After declining between 1989 and 1992, employment in the trucking industry began to increase in 1993, rising by 20 per cent between 1992 and 1996. Labour costs averaged roughly $44,600 per employee in 1996, 30 per cent above the national average for the whole economy.

Labour productivity during the same period also improved, advancing by 33 per cent in the trucking industry compared with 6.3 per cent in the general economy. Unit labour costs dropped 12 per cent over the same period.

Fuel costs in the for-hire trucking industry accounted for 9.8 per cent of the trucking industry's operating revenues in 1996. If fuel used by owner-operators is factored in, the share of fuel costs increases to about 13.3 per cent.

Fuel efficiency increased by four per cent between 1986 and 1989, but fell by 17 per cent between 1989 and 1993. Fuel efficiency improved by 13 per cent in 1995 and 1996.

Productivity

Productivity in the trucking industry increased by 14 per cent between 1992 and 1996, after a period of stagnation during the early 1990s. Input prices increased at a slower rate than prices in the overall economy. Per unit of output, trucking industry costs show a 4.8 per cent drop since 1992. This productivity gain has allowed the trucking industry to cope with the effect of lower prices without jeopardizing its financial position. In 1995 and 1996, the reduction of prices has been superior to the capacity of the industry to reduce its costs.

A major source of productivity gains has come from capital, mostly trucks. This means that the amount of capital used per dollar of output has been declining, which could be the result of a better utilization of assets, more efficient power units and changes to the fleet mix. While this decline in capital used per dollar of output may be indicative of an improved use of assets, it could also be indicative of the aging of the industry's capital stock.

Profitability

Based on large carriers' results over the first three quarters of 1997, the profitability of the Canadian for-hire trucking industry improved. After the first three quarters, the average operating margin of large carriers was 4.4 per cent, as opposed to 3.6 per cent over the same period in 1996. For the whole year 1996, the industry reported a 3.3 per cent average operating margin, a deterioration from the margin achieved in 1994 and 1995.

Table 11-15 highlights the financial results of for-hire trucking firms with annual revenues in excess of $1 million over the period 1993 to 1996. Over the four year period, the trucking industry had significant revenue growth, 12 per cent per year on average. However, these revenue increases were, in large part, offset by cost increases. Consequently, the industry's operating margin fluctuated between 3.2 and 4.7 per cent (Figure 11-3).

Table 11-15 also compares, by region, the carriers' operating ratios, which are a key indicator of industry efficiency and profitability. The lower the operating ratio, the higher the operating profit margin.

In 1996, carriers based in British Columbia, the Territories and in the Atlantic Region had the highest average operating ratios, 98 and 97.5 per cent, respectively. Carriers in Ontario had operating ratios at 97 per cent, higher than the 95.7 reported by Quebec carriers. In 1996, carriers from the Prairie region had an average operating ratio of 96.5 per cent.

Investments

At the end of 1996, the trucking industry's capital structure consisted of 56 per cent equity, 38 per cent debt and six per cent deferred taxes, although it is important to note that the capital structure varies significantly from one trucking firm to another.

Net fixed assets of carriers earning more than $1 million annually grew from $2.2 billion in 1993 to $3.2 billion in 1996, due partly to the increased number of carriers and partly to capital expansion of the existing carriers.

NOTES