I remember driving back home late one night around this time of year. It was a dark, cloudy night with a cold rain coming down. The weather outside my car seemed an all too accurate reflection of the mood at the time. I was listening to an all-business channel about the collapse of the US and global economies. I remember hearing interviews being conducted with one prominent business leader after another. You could hear the bewilderment and the fear in all of their voices. They just could not believe what was happening. Speaker after speaker made reference to the Great Depression of the 1930s. Fear dominated the minds of individuals and businesses alike.
Fortunately, our worst fears were not realized, but significant damage has been done, nonetheless. Consider: Canada, a nation that relies on exports, has suffered a 25% drop in exports. Corporate profits have dropped 45%. The value of publically traded transportation companies has dropped by 45%, perhaps more. And those are the ones fortunate enough to still be in business. As you will read in our annual Outlook 2010 section, the worst recession of the post-War era has shut down more than 3,000 transportation companies in North America. Our marine transport specialist, Leo Ryan, reports that conditions in the container shipping sector have deteriorated to the point where losses for a single vessel are soaring to as much as US$10,000 a DAY -a frightening figure if multiplied by 365 and any given company's total fleet.
No doubt, the nation's supply chains, and the carriers who serve them, have been through some very tough adjustments during the toughest economic recession of the post-War era.
And they are about to go through some more. During the downturn, supply chain managers were expected to contribute to company cost reduction targets, a task made all that much easier by the definite drop in freight rates. The Canadian General Freight Index, a great new tool measuring ground freight costs, has fallen 16% from its peak in July of 2008.
But a recovery is on its way and it will carry with it a new set of challenges, foremost among them managing costs in a transportation market where capacity becomes tight once again.
David Newman of NB Financial is one of the better known transportation industry analysts in Canada, and at the recent CITT conference in Niagara-on-the-Lake, he pointed to several positive signs -"green shoots" as he calls them -that things are about to turn around. Newman, who has won numerous awards for his market forecasting abilities, believes the ISM New Orders Index, which is produced by the Institute of Supply Chain Management and measures new manufacturing orders in the US, is the best indicator for freight volumes. And that index started showing first recovery and then improvement earlier this year. Looking specifically at the ISM New Orders Index back in September, Newman was convinced things were about to improve, and two months later, he remains convinced he is right about improvement by end of this year and early in 2010.
What's interesting is that his biggest doubters may be the very people who sincerely wish he is right: the carrier community itself. A recently-released country-wide survey that NB Financial conducted with CITT found transportation service providers, and trucking in particular, are uncertain about the rebound in industry volumes next year. Yet shippers responding to the same survey appear to be more confident that the industry may witness improvement in 2010. A much greater percentage of trucking executives responding to the survey believed freight volumes would either remain flat or actually decrease further next year.
Shippers on the other hand proved less uncertain with respect to freight volume growth and projected a slight improvement next year, with 29% projecting a 5-10% increase. And a sizeable number of shippers responded to the "exact volume projection" question, with a median projection of +8%.
Our own research of both carriers and shippers shows similar discrepancies when it comes to freight volume growth projections for 2010.
So as the economy is set to improve, carriers appear to have a very cautious approach to adding capacity. The fact many economists now forecast a slow, weaker-than-normal and more volatile recovery than usual, is making carriers even more skittish about capacity. The combination is certain to lead to some tough decisions regarding negotiations over pricing and length of contracts over the months to come.
If thought 2009 was a rough ride, don't unbuckle your seatbelts just yet.