MISSISSAUGA, Ont. -- Freight volumes are higher than they’ve been in “many, many” years, but there remains excess capacity in the marketplace and continued downward pressure on rates.
Doug Munro, president of Maritime-Ontario Freight Lines, told a packed Surface Transportation Summit here today that strong freight demand isn’t yet translating into stronger rates. In fact, he said it’s quite the opposite, as there continues to be pressure to reduce trucking prices.
“There is a lot of overcapacity, so though there’s been an improvement in freight volumes, it’s very hard to get rate increases,” Munro said. “Margins are under pressure. We see that on a lot of freight quotes.”
Munro said many shippers are continuing to issue RFPs in a bid to reduce their transportation costs.
“It’s very difficult to get rate increases in this environment,” Munro said. “The volumes are there, but it’s hard to get the margins on it.”
Maritime-Ontario is taking advantage of low interest rates to refresh its fleet, but isn’t adding capacity.
“We’re using this time to get new equipment and fund it at very reasonable rates,” he said.
Asked what signals Munro is looking for before adding capacity, he responded it would take real demand and healthy rates - not outlooks or forecasts - before shifting into growth mode.
“We respond to demand, rather than looking at outlooks that are hard to predict. We look at actual demand. If demand is growing, we add accordingly. Without demand, we don’t add (trucks),” Munro said. “We would like to see continuing growth in freight volumes and freight rates to justify those capital expenditures.”
Asked by moderator Lou Smyrlis what it would take to bring capacity back in line with demand, Munro said it could be a combination of mergers and acquisitions and insolvencies.
“But until now, we haven’t seen a lot of M&A or insolvencies, so it’s hard to say,” he added.
Looking ahead to 2014, Munro remains cautious. He characterized the US financial situation as “very fragile” and worries about what will happen when the Federal Reserve begins weaning the economy off life support.
“I think things will work their way through, but we can see how it would be a difficult time for the next couple of years, especially if the US doesn’t sort through these problems,” he said.