For many years, Transportation executives have had to consider a range of variables in crafting their supply chain strategies. These variables have included the economy, carrier capacity, customer demand, interest rates, inflation, climate change, technology, energy costs, Ecommerce strategy, and availability of raw materials.

While geopolitical issues such as trade policies with NAFTA countries, the European Union and China have been having impacts on supply chains in the United States and Canada for the past several decades, transportation executives have been able to largely focus on domestic matters.

This has changed dramatically over the past year. A number of geopolitical forces are shaping strategies in board rooms throughout North America and internationally. They include:

1. The War in Ukraine

Friday’s surprising U.S. January jobs number raised multiple questions about the status of the American and Canadian economies and the prospects for a recession in 2023. The figure of 517,000 non-farm jobs created in January was significantly higher than the market estimate of 187,000, and the job creation figures for the previous five months. Despite the ongoing series of Fed rate increases, unemployment fell to 3.4%, the lowest figure in 50 years. “Today’s jobs report is almost too good to be true,” wrote Julia Pollak, chief economist at ZipRecruiter. “Like $20 bills on the sidewalk and free lunches, falling inflation paired with falling unemployment is the stuff of economics fiction.”

Growth across a multitude of sectors helped propel the massive beat against the estimate. Leisure and hospitality added 128,000 jobs to lead all sectors. Other significant gainers were professional and business services (82,000), government (74,000) and health care (58,000). Retail was up 30,000 and construction added 25,000.

Reorganization of the New Economy

In a Sunday interview with Margaret Brennan, host of Face the Nation, Gary Cohen, Vice Chair of IBM, and former chief economic advisor to President Donald Trump, stated that these statistics point to a “reorganization of the new economy.” He expressed the view that the “service economy is regaining strength.” He noted that “the occupancy rate in offices in major cities is over fifty percent.” Service sector employees (parking attendants, restaurant workers) are needed to support workers in offices. Even though many employees are not returning to the office, 5 days a week, there is still a need for service industry employees to support them as they, and their colleagues, move from their dens to their offices, several days a week. It appears that as many people try to normalize their lives, as the pandemic crisis subsides, more hotel and airline personnel are also being hired.

As 2022 comes to a close, there is much concern that world economies may experience a recession in 2023. There are a host of worrisome economic indicators that appear to be trending in this direction.

Inflationary Forces

The large government Covid relief payments created inflationary effects. The shift from on-site to stay-at-home workers triggered a transition to buying goods versus services. It also produced supply chain disruptions and more inflationary pressure. The war in Ukraine and Russia’s use of food and energy as economic levers, have precipitated spikes in the cost of these essential goods. Consumers have been feeling the effects for months of high prices for food and energy. Food banks are receiving record numbers of visits, a clear sign that many consumers are having trouble making ends meet.

 The White House and the media are touting the tentative agreement reached last night between the major U.S. rails and their unions to avert a strike. The agreement, if ratified by union members, would help avert a work stoppage that would have crippled supply chains and passenger trains and would have restricted the movement of essential goods to distribution centers and consumers. A rail strike could severely impact a range of industries, from the autos to agriculture to retail, as about 40% of goods that are shipped long distance in the U.S. rely on the nation's rail system. It could also cause disruptions to the energy industry in ways that may lead consumers to pay more for gasoline, natural gas, and electricity. A shortage of essential goods would precipitate price increases, inflation, and significant economic damage if it persisted for an extended period.

Averting a rail strike comes at a price, a 24% compound wage increase over its five-year term, as well as an annual lump-sum bonus payment totaling $5,000. One should not overlook the fact that these wages increases will create more inflationary pressure. Rail freight transportation remains an important part of North American economies. These wage increases will trigger increases in the cost of rail freight transportation. This is not to say that rail workers are not deserving of an increase in wages and benefits. The point is that these increases contribute to the challenges we are all experiencing with inflation and will make it more difficult for central banks to bring down inflation.

The Wall Street Journal reported that “the U.S. consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and 9.1% in June, the Labor Department said Tuesday. The slower rate of increase reflected falling gasoline prices last month.

Core prices, which exclude volatile food and energy items and are seen as a better gauge of underlying price pressures, rose a notable 0.6% in August from July—double their 0.3% increase in July from June. The core CPI rose 6.3% in August from a year earlier, up from 5.9% in both June and July, reflecting higher prices for housing, medical care and college tuition.

Fifty-one days after taking office, President Biden signed into law the $1.9 trillion American Rescue Relief Bill, one of the most important pieces of legislation in the past 50 years. The bill is significant in many ways.

It will put money directly into the hands of lower- and middle-income Americans, those most in need of support. The bill directs $1,400 payouts to millions of Americans and continues unemployment checks for millions more as the country pulls itself out of the economic devastation of a pandemic that has killed more than 530,000 of its citizens. As itemized by Eric Levitz in New York magazine, the bill will have a broad range of impacts.

• A family of four with one working parent and one unemployed one will have $12,460 more in government benefits to help them make ends meet.

• The poorest single mothers in America will receive at least $3,000 more per child in government support, along with $1,400 for themselves and additional funds for nutritional assistance and rental aid.

The Covid-19 pandemic, and the response of the Canadian and U.S. governments and citizens to the virus, is clearly the major story of 2020. The pandemic did not just have impacts on the health of many Americans (i.e. over 11 million cases, 250,000 deaths) and Canadians (i.e. over 306,000 cases, 11,000 deaths); it also had significant impacts on our personal lives, business operations, and freight transportation. This blog will highlight the huge effect of Covid-19 on so many aspects of our lives; an upcoming blog will capture some of the other top freight stories of the past year.

1. Covid-19 – The Impact on our Health and Personal Lives

Millions of Americans and Canadians have been infected and continue to be infected at an escalating rate. Personal reactions have ranged from mild flu-like symptoms to significant health issues to death. To protect oneself from contracting the virus, many citizens have begun wearing masks and other PPE, limiting the size of groups with whom they interact and trying to maintain six feet or more of distance between themselves and others.

The lack of national strategies in Canada and the USA on testing, tracing, and quarantining have resulted in a protracted and extensive virus spread. Varying guidelines on mask utilization, industry sector lockdowns and re-openings, and varying leadership approaches have created confusion, fragmented responses, and disappointing results. Many citizens must stay home if they tested positive, if they had symptoms, or if they had to be quarantined. Many primary, secondary and university students are now participating in online learning rather than attending schools. The year is ending with at least two potentially effective vaccines, which will likely be distributed during the first six months of 2021.

The recovery of the North American transportation industry is contingent upon the revival of the economies of the United States and Canada. The movement of auto parts, housing supplies, manufactured goods, food stuffs. and a host of other products drive the economy. If there are any impediments to the smooth operation of North American supply chains, this has a direct impact on the Transportation industry. This blog will focus on the forces shaping the revival of the two economies. Part 2 will focus on what the freight transportation industry will look like after the recovery.

Since the beginning of the Covid-19 crisis, Canada has lost about 3 million jobs while the U.S. has lost about 40 million jobs. Many of the unemployed have been forced to stay at home due to the contagious nature of the virus. For the past week, the United States has also been rocked by protests in over 75 major cities because of the killing in Minneapolis, Minnesota of an African American man, George Floyd, by a white police officer.

Most U.S. states and Canadian provinces are in “the restart” period. With no vaccine for probably nine months or more, companies need to generate revenue and profits during the “next normal” phase. Businesses and consumers are having to learn to adapt to the public health guidelines in each jurisdiction (i.e. social distancing, handwashing, mask wearing, drive to work rather than take public transportation etc.) and the new operating procedures (i.e. curbside pickup, controlled entry to stores and businesses, working from home etc.).

In the space of a few months, we have discovered that jobs that no one thought could be done remotely can be handled very effectively with a laptop computer and video conferencing. Cash-strapped businesses are learning that they can cut costs through the reduction or elimination of office space and its attendant costs. Teleconferencing reduces the need for business travel, another cost saver. Commuting costs can be cut – a walk to the home office beats hours in a car or on public transit. Of course, not everyone can work from home.

Coronaviruses are a group of viruses that cause diseases in mammals and birds. In humans, coronaviruses cause respiratory tract infections that are typically mild, such as the common cold, though rarer forms such as SARS, MERS and COVID-19 can be lethal. Most coronaviruses aren't dangerous. But In early 2020, after a December 2019 outbreak in China, the World Health Organization (WHO) identified a new type, 2019 novel coronavirus (2019-nCoV), which can be fatal. The organization named the disease it causes COVID-19.

The outbreak quickly moved from China around the world. It spreads the same way other coronaviruses do - - - through person-to-person contact. Symptoms can show up anywhere from 2 to 14 days after exposure. Early on, they're a lot like the common cold. You might notice:

• Fever

• Cough

2019 in Review

After the hot freight market and record profits of 2018, many trucking companies added trucks and drivers to keep up with the expected shippers’ capacity demands in 2019. An index published by the Institute for Supply Management dropped to 47.2 in December, the lowest reading since June 2009 and the fifth straight month of contraction. A reading below 50 indicates the manufacturing sector is contracting. In 2019, excess truck capacity was met with a “manufacturing recession.”

One key trade flow indicator that maritime experts and world economists examine, is the volume of the eastbound trans-Pacific trade lane — the regional trade lane for ocean containers that originate in East Asia and end in the United States. This trade lane accounts for 40% of the world’s gross domestic product (GDP).

The flow of containers in this trade lane has marked a plunge in weakening relations. U.S. exports out of the Port of Los Angeles (the end of the lane) is down 12 consecutive months. China imports have dropped significantly. The ripple effect of this change not only hit the maritime system but the trucking and rail systems as well since there was less freight to move.

Here is my annual recap of the major trends that shaped the Surface Transportation industry during the past year.

1. The Reboot – The Trucking Industry goes into a Freight Recession in 2019

After a booming first three quarters of 2018, the trucking industry contracted in the fourth quarter; by mid-April of 2019, it became apparent (https://www.barrons.com/articles/trucking-industry-is-in-a-recession-will-economy-follow-51565880739) that the trucking industry was in a “freight recession.” In a “strange inversion of market dynamics,” truckload rates dipped below intermodal rates in some lanes. By mid-year, the Cass Freight Shipper Expenditure Index turned negative year / year signaling that shippers were paying less for freight and moving fewer loads than the previous year.

The correction seemed to be a result of several factors. Slower industrial production was evidenced by the dip below 50 in the ISM Production Index. Trade tensions and tariff wars with China reduced demand. On the supply side, many truckers added to their fleets to address the capacity shortages in 2018. This coupled with higher pay to attract drivers and increasing insurance costs, drove up expenses as freight rates were falling. Softening demand, coupled with excess capacity, produced the Freight Recession of 2019.

The 2019 Surface Transportation Summit will take place at the International Centre in Toronto on October 16. Canada’s leading freight conference will try to make sense of the roller coaster that Canadian shippers and carriers have experienced over the past couple of years.

Josh Nye, Senior Economist, Royal Bank of Canada, will kick off the conference with his assessment of the current state of the Canadian and U.S. economies and share his insights on where they are headed in 2020. Two other panelists, David Ross, Managing Director, Global Transportation & Logistics, Stifel Financial Corp. and Stephen Laskowski, President, Canadian Trucking Alliance & Ontario Trucking Association, will provide their outlook on the state of the freight transportation industry in the U.S. and Canada. Following these presentations, Scott Tilley, President, Tandet Group and Anna Petrova, Supply Chain Director, Canada, Conagra Brands, representatives of a leading shipper and trucking organization, will share their perspectives on where the industry is going.

The next panel will include business leaders from five segments of the Canadian freight industry: small parcel and last mile delivery, LTL and truckload transportation, shipping by rail, fleet equipment leasing and real estate. Lucas Murua, Senior VP of Sales and Marketing, Dicom Transportation Group, Doug Munro, President and owner, M-O Freightworks, Al Boughton, Co-Founder, Trailcon Leasing, Tim Roulston, Director of Sales and Truckload Operations, Intermodal, CN Rail and Mark Cascagnette, President, Managing Partner, Lee & Associates, Toronto will share their thoughts on where their segment of the industry is going.

The always popular Shipper / Carrier Roundtable will feature Taimy Cruz, Director of Logistics, Broadgrain Commodities, Sylvie Messier, Corporate Transportation and Customs Manager, Ipex, Rob Nichols, Managing Director of Domestic Intermodal, CP Rail, Norm Sneyd, Vice President, Business Development, Bison Transport, Imtiaz Kermali, Vice President, eShipper and Joe Lombardo, Director or Freight, Transportation and Logistics, Purolator who will debate some of the most important issues facing transportation professionals in the Canadian freight industry.

Whether you obtain your news from TV, newspapers or social media, it is hard to escape the drumbeat of downbeat updates about the North American and global economies. The negative news is puzzling to those people who monitor some of the leading, and still positive, economic indicators.

As noted in a recent paper by Jim Allworth, Co-Chair of the RBC Global Portfolio Committee, 5 of the 6 most commonly tracked economic indices on the bank’s Recession Scorecard are still positive. These include:

Unemployment claims

These are the major developments shaping the freight transportation industry in North America in the second half of 2019.

1. We are entering a period of Economic Uncertainty

Despite a climate of record low unemployment levels, low inflation, a positive ISM manufacturing index and other encouraging economic indicators, the US Federal Reserve cut interest rates on July 31 by a quarter point, the first such rate reduction since 2008. This action is being framed as a precautionary measure to protect the United States from slowing growth in China and Europe, and from uncertainty over President Trump’s trade war. The fact is that this unpredictability is beginning to weigh on business investment in the United States and abroad. Shippers and carriers should closely monitor the key economic indicators to assess whether this and possible other rate cuts will sustain the decade long economic expansion or ease the impact of an approaching downturn or recession.

 Global Economic Outlook

Early this month, the International Monetary Fund downgraded its outlook for growth in the United States, Europe, Japan and the overall global economy and pointed to heightened trade tensions as a key reason. U.S. trade talks with China continue without resolution, and there are indications that the rate of Chinese economic growth is slowing. The IMF expects the world economy to grow 3.3% this year, down from 3.6% in 2018. That would match 2016 for the weakest year since 2009. In its previous forecast in January, the IMF had predicted that international growth would reach 3.5% this year.

U.S. Economic Outlook

Economists expect U.S. first-quarter growth to decelerate less than previously thought even as they cut forecasts for the rest of the year, projecting a second-quarter rebound will fade as the effects of tax cuts wane. The median estimate for growth in the first three months of the year increased to 1.6% from 1.5% seen last month, according to an April 5-10 Bloomberg News survey. At the same time, forecasts for the second quarter held at 2.6% while those for the third edged down to 2.2% and were lower for the fourth, at 2%.

This has been a remarkable year in history and in the world of Freight Transportation. Here are some observations on the major developments that will shape 2019.

1. The Coming Economic Downturn and Recession

The looming emerging markets credit crisis is expected to grow in both scale and scope. Some emerging markets have come under serious economic and financial stress as a result of foreign-denominated debt and currency depreciations. An emerging markets credit crisis will unfold in 2019.

Most economic forecasters, including various government agencies and big Wall Street banks, expect the American economy to continue growing in 2019. But there is a broad consensus that the pace will slow as the “sugar high” provided by the Trump administration’s $1.5 trillion tax cut and spending increases begin to wear off.

These are distressing times for Canadians. Despite numerous meetings between the Canadian and U.S. (and Mexican) delegations over the past year, NAFTA negotiations reached another impasse on Friday, August 31. It is not surprising.

The Americans have negotiated in bad faith. Canada was excluded from the recent negotiations between the U.S. and Mexico. Rather than just negotiate the exchange of auto parts and minimum salaries for auto workers, the two parties reached an agreement on a much more extensive range of issues. Clearly the Americans sought to and succeeded in muscling the Mexicans into agreeing to a 2-way pact with them. The Mexicans were also not forthcoming in advising their Canadian counterparts of their intention to reach a multi-faceted two-party agreement with the Americans.

President Trump is threatening to apply a 25 percent tariff on auto parts manufactured in Canada if he doesn’t receive concessions on access to Canada’s dairy market, on a dispute settlement mechanism and an increase in the level of duty-free purchases. According to a John Holmes, a Queen’s University professor emeritus and research fellow at the Automotive Policy Research Centre (https://www.macleans.ca/economy/what-will-happen-if-trump-slaps-a-25-per-cent-tariff-on-canadian-made-cars/?utm_source=nl&utm_medium=em&utm_campaign=mme_weekly&utm_content=202508&utm_term=0&sfi=df0198bed6a37f0cdd34c52c77052eef ), the impact on Canada would be “disastrous.”

The oddity in applying these tariffs is that American consumers would be the first ones to feel the impact. According to industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants, automakers would pay an extra $5,000-$7,000 for the vehicle they plan to sell. “Unless the auto companies chose to eat some of the extra costs, it would price most of those vehicles out of the marketplace,” DesRosiers says. “There’d be no choice for consumers.” Americans won’t be happy paying thousands extra for a Toyota RAV4 simply because it came from Canada—meaning the nearly 1.8 million vehicles Canada ships south of the border annually would have a much tougher time finding a home.

This week President Trump imposed a 25% tariff on imported steel and a 10% tariff on imported aluminum products from Canada, Mexico, and the European Union. The rationale was that this was done for reasons of National Security. In view of the very modest size of Canada’s military and the longstanding, peaceful relationship between the two countries, this explanation is ludicrous.

We are also being led to believe that the President apparently took these actions to protect jobs in the steel and aluminum industries, to correct what he deems as unfair trade practices by other countries and to bully Canada and Mexico into making concessions on the new NAFTA agreement that has been under negotiation for many months. Again, these are weak reasons to damage the strongest trade relationship between any two nations in the world.

In the case of NAFTA, the most recent sticking point has become the “sunset clause.” Vice President Mike Pence advised Prime Minister Trudeau last week that he'd have to accept this clause, which would make the trade agreement subject to renegotiation every five years. Trudeau said he couldn't accept the terms. The sunset clause is just one sticking point. The U.S. is also seeking changes to the "rules of origin" that govern how much of a car must be manufactured in North American to avoid import taxes in the three countries that make up NAFTA.

As a Canadian businessperson, I have two messages for Prime Minister Trudeau, push back hard against these bullying tactics and hit President Trump where it hurts. As the world has seen, persuasion, charm, diplomacy, and logical reasoning don’t work with this president. The fact is that both French President Macron and German Chancellor Merkel, two long-time allies, went to the White House in recent weeks to reason with him. Their visits appear to have had no impact.

It is still too early to make an assessment if Donald Trump will succeed or fail as leader of the free world. In the months leading up to the election, and in the short time that he has been in office, a clear profile of Donald Trump’s leadership skills and style is emerging. How he employs these leadership traits will determine his legacy. These are my observations to date on his demonstrated leadership characteristics that may serve as a predictor of his performance.

Strengths

Vision

In the months leading up to the election, Donald Trump and his close colleagues saw something that others did not fully see and appreciate. They saw millions of Americans who were left behind, who lost their jobs to automation and/or foreign countries and who were experiencing stagnant wages. They captured this vision into a clear (but questionable) vision of America.

Today, the Prime Minister of Canada met with the President of the United States (#TrudeaumeetsTrump) for the first time. For President Trump, it was one in a series of meetings and phone calls that he has had with foreign leaders. For many Canadians, the question was where Canada ranks with America’s new president on trade and NAFTA.

The NAFTA agreement that was signed in 1994 between the United States, Canada and Mexico, has helped strengthen the ties between the three countries. There are nine million Americans whose jobs rely on the movement of goods from the United States to Canada. Most Canadians know that America is the number one market for Canadians goods and that Canada is the number one market for exported goods from thirty-five states. About 74% of Canadian goods are exported to the USA; 18.3% of American made goods go to Canada. The dollar value is about same. There is almost $2 billion in Commerce that takes place between the two countries on a daily basis.

In addition to these key issues, this was also an opportunity for the two leaders to set the tone for the years to come. Canadians put a high value on their relationship with the United States. They understand that we are and have been best friends, neighbours and allies. We have worked with Americans and fought beside Americans in a variety of wars.

The headlines in the Canadian media have identified that Canadians had a certain level of “anxiety” as PM Trudeau boarded a flight to Washington. During the election campaign, Donald Trump talked about “tearing up” the “terrible” NAFTA deal. From a transportation industry perspective, “trucks haul two-thirds by value of Canada-U.S. trade; anything that might disrupt that trade – whether it’s about scrapping NAFTA, a border tax, or further layers of border security – is of a real concern to us,” says David Bradley, Chief Executive Officer of the Canadian Trucking Alliance. “Moreover, anything that thickens the border and makes supply chains less reliable and predictable would have a profound impact on the competitiveness of both countries.”

The election of Donald Trump as president of the United States will likely have a profound effect for years to come. I cannot remember another point in my lifetime where there is the possibility of so much change and disruption to established norms and principles of business. How do we prepare for what could be a roller coaster four or eight years in North America and around the world?

Knowledge is power. The intent of this blog is to propose a set of KPIs that we can all use to measure the impact of the new president and his policies. Mr. Trump has made a number of bold promises in his pre- and post-election speeches. Specifically, he has promised to “Make America Great Again,” to stem the flow of manufacturing jobs overseas and to renegotiate NAFTA. By monitoring these KPIs, they will help us determine how his presidency is impacting our countries, our companies, and our personal wealth. Here are few KPIs to consider.

1. Gross Domestic Product

GDP represents the total dollar value of all goods and services produced over a specific time period (Source: https://www.bea.gov/national/index.htm#gdp ); you can think of it as the size of the economy. The US economy advanced an annualized 3.5 percent in the three months to September of 2016. (Source: http://www.tradingeconomics.com/united-states/gdp-growth )