The year 2023 was a challenging one for those involved in the freight transportation industry. Here are some of the major forces shaping 2024.

Supply and Demand are Moving Toward Equilibrium

Many industry experts used the term Freight Recession to describe the state of the industry in 2023. There is no doubt that there was excess truck capacity in 2023, a carryover from the freight boom during the early stages of the pandemic. As consumers shifted their financial resources in 2023 from buying goods to purchasing travel and services, trucking companies expanded their fleets, creating the disconnect.

It is also clear that an uptick in inflation, caused by higher interest rates and a rise in the prices of food, gasoline and other products put a damper on demand. However, many citizens experienced an increase in compensation. Consumer spending remained solid and consumer confidence is high at the beginning of the New Year. The Freight Recession was really a Carrier Capacity Surplus, too many trucks chasing too little freight.

 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

Shippers across North America are in the process of conducting their annual or mini freight bid exercises. What is in store for shippers and carriers this year?

This is a unique year. The supply/demand curve shifted during the early stages of Covid. Consumers transitioned to working from home, cut back on travel and dining out, spent their disposable dollars on durable goods and some moved away from their city residences. To meet the demand for increased freight transportation services, to move the increase in durable goods purchases, carriers boosted their purchases of fleet equipment. As this process was unfolding, governments sent out cheques to support citizens who lost their jobs during this period and kept interest rates low to stimulate the economy.

As Covid dissipated, consumers cut back on durable goods purchases and shifted some of their discretionary dollars back to travel, dining out, and entertainment. The net result of these market forces was surging inflation. Prices for food, gasoline, travel, dining out, mortgages and many other goods and services escalated. While the economy is not technically in a recession, rising prices created limitations on spending, as discretionary dollars were reduced. The bottom line for the Transportation Industry: There is now too much fleet capacity chasing too few shipments.

The so-called “freight recession” is manifesting itself in the financial results of publicly traded carriers and in the number of carrier failures. The demise of Yellow Freight, a major LTL carrier that has been in business for many decades and Convoy, a much talked about, digital freight broker, are among the thousands of companies that have left the industry this year.

These are crazy times. Wildfires in Canada produced dark skies over eastern Canada and the northeastern United States and some of the worst pollution on record. We are only in mid-July and the peak fire season hasn’t begun. Record high temperatures are being experienced in the southern United States on a daily basis. Severe rain, flooding and flight cancellations are being experienced in the northeast.

Former President Trump was indicted for a second time this year, the first time a previous President has ever faced charges after leaving office. There are possibly two more indictments to come.

The Vegas Golden Knights, in their sixth year of existence, won the Stanley Cup while the six Canadian teams in the National Hockey League, where hockey in the national sport, haven’t won the cup in 30 years. The screen actors and writers have gone on strike together for the first time in 63 years.

Looking at the broader economy, manufacturing has been contracting on a year/year basis. Retail inventories are bloated. As fears of the pandemic faded, consumers switched back to buying services. High mortgage rates are resulting is less building and less freight. According to Bob Costello, Chief Economist and Senior VP of the American Trucking Association, all freight indicators are contracting on a year/year basis. Supply is contracting; demand is contracting. There is still too much supply. The Spot Market is much worse than the Contract Market. Despite the US Federal Reserve’s aggressive monetary policy, the economy has not yet entered a recession.

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.

In my last blog post, I highlighted the need for a compelling value proposition as a starting point in launching a company’s sales effort. Whether you are selling a car, real estate, clothes, or freight transportation services, having a strong and differentiated value proposition helps get the attention of prospective buyers and creates a sales opportunity for you and your company. If you don’t have a solid value proposition, I urge you to make this a priority before you move forward. In this blog I will discuss four other key elements of the sales process.

P for Passion

I have written about the importance of having a passion for your company and its products or services in the past. If you don’t have a strong belief in the company you work for, this inhibits sales success. In fact, if you don’t have this conviction, and you cannot fix this situation, you should probably be thinking of working for another organization. Passion gives you the energy and motivation you need to drive your sales effort.

T for Trust

I have had multiple sales careers during my many years in the business world. As a teenager, I sold men’s clothing for a high-end retail chain in Montreal. For many years I sold or managed sales teams that offered freight transportation services to shippers across North America. My most challenging sales assignment has taken place over the past 18 years as I developed my consulting practice. When I started, I had a to build a business from scratch. We had no customers, just some ideas on the services we wished to market. During this same period, I also helped successfully grow an annual freight transportation conference and sustained this business over an 11-year period.

I learned many valuable sales lessons from these various sales assignments. I will share a few tips in this blog, and the subsequent blogs in this series.

Value Proposition

One of the starting points for success in sales comes from an understanding of customers’ needs. What is motivating the potential purchaser of a suit or sport coat and slacks? What type of freight transportation service does the customer need to satisfy the requirements of their end users? Why is a prospective attendee contemplating going to a business conference? When I received a call from a President or VP, Finance of a company seeking consulting services, what is the primary problem that they were seeking to address?

Canada has just gone through its own version of the insurrection that took place in Washington, DC. on January 6, 2021. Unlike the one-day invasion of the U.S. Capitol building, the Canadian protests were extended over 23 days, in multiple locations, and may not be over. The Protest label is truly not correct; the more appropriate label is an Occupation. Here are a few personal reflections.

Why did these protests take place?

The U.S. protest was intended to overturn the November 2020 election. Canada’s protests were initially directed at the country’s vaccine policies, specifically the vaccine and masking mandates.

The motivation of the so-called “Freedom Convoy” was a piece of federal regulation that requires unvaccinated Canadian truckers to isolate for fourteen days upon returning to Canada from the United States. Unvaccinated foreign truckers, however, are not allowed into the country. Despite 90 percent of Canadian truckers being vaccinated, the support of the Teamsters union and the Canadian Trucking Alliance, this policy energized a vocal minority on the Right.

As 2021 draws to a close, many pundits are providing their forecasts for 2022. As I reflect on the past two years, and look ahead to 2022, it is difficult to predict, with certainty, how the New Year is likely to unfold. In fact, unlike prior years, there are more questions than answers. Here are a few items to consider.

Covid-19

Over 200 million Americans and over 20 million Canadians have received their Covid vaccine. Booster shots are now widely available and the eligibility for these shots will be expanded in the days ahead. Vaccines are now available for children. With vaccine, masks and social distancing mandates, many businesses and schools are now open.

Just looking at the traffic on the roads today, as compared to six months or a year ago, life for many is returning to normal, or at least a new and improved state of normal. Early reports on the Omicron virus are suggesting that this mutation may be less dangerous to our health as compared to previous versions. This signals to many that the worst of Covid is behind us.

Ransomware is a computer virus that takes over the target device, restricts the owner’s access, and demands the victim to pay a ransom to get their device back. Modern ransomware can steal files, target locally-stored backups, spread through the network, and even bring large organizations to a standstill.

The device can get infected through a malicious email, a spoofed website, or in many other ways. Then, the attackers may scan the device for something valuable or, if pressed for time, start encrypting everything at once. After encrypting the data, the ransomware will display a ransomware note with detailed instructions on how to create a cryptocurrency wallet and send Bitcoin to the attackers’ address.

In Canada, two of the most recent high profile ransomware attacks have been to the Toronto Transit Commission (the largest public transportation network in Canada’s largest city) that knocked down some of its communications system and a provincewide disruption of health-care services in Newfoundland and Labrador that affected thousands of appointments and procedures, including those involving COVID-19 testing. The annual Canadian Internet Registration Authority (CIRA) Cybersecurity Survey says nearly 70 per cent of Canadian organizations facing a ransomware attack last year paid the demands to avoid downtime, reputational damage, and other costs.

In 2021, ransomware has increased to thousands of attacks per day and is predicted to cost businesses over $20 billion. Many successful attacks may be left undisclosed.

These are challenging times for shippers. Driver, labor and truck shortages, port congestion, escalating freight and fuel costs, coupled with the lingering effects of Covid are making life difficult for shippers across the world. Here are a few coping strategies

1. Work in Partnership with Procurement to Create Alternate Sourcing Strategies for both Raw Materials and Transportation

Every day we read and see images in the media of containers sitting at ports, or offshore, waiting to dock at a port. We also read about embargoes and about carriers refusing to pick up or deliver to certain markets.

This is a time when Purchasing and Transportation must work together. It is no longer just a question of finding reliable sources of supply; it is also a question of whether goods can be picked up from or delivered to selected markets. Procurement and Transportation must communicate about alternate sources of supply, particularly about finding vendors in North America to mitigate supply chain bottlenecks and satisfy customer requirements.

The Covid-19 pandemic has expedited the growth of online shopping. After months of lockdown and quarantine measures, people have revised some of their perceptions about shopping.

• A new survey (source: July 23, 2021, issue of Qvalon) shows that 49% of people are mostly focused on product availability—well ahead of price (36%) and quality (34%), which were the top 2 concerns before the pandemic.

• Brick and mortar shops turned digital to keep their businesses afloat. In fact, global e-commerce has become a $26.7 trillion industry because of Covid-19.

• An omnichannel commerce trend, Buy Online, Pick up in Store (BOPIS) paved the way for 195% year-on-year growth, with 60% of US retailers quickly adopting this strategy.

This has clearly been the year of the large M & A deal in the freight industry with TFII’s purchase of UPS’ LTL business (https://www.dantranscon.com/index.php/blog/entry/the-first-big-transportation-deal-of-the-year-tfii-s-purchase-of-ups-freight ) followed by Knight Swift’s acquisition of LTL operator AAA Cooper Transportation (https://www.dantranscon.com/index.php/blog/entry/why-are-large-ltl-trucking-companies-such-attractive-m-a-targets ). The Uber Freight purchase of Transplace for $2.25 billion is different from the other two acquisitions.

Unlike the prior mergers that combined two asset-based trucking companies, this merger blends two non-asset-based technology-driven freight brokerage operations. Uber Freight supplies shippers with real-time quoting and booking, using their freight management platform; it provides access to a network of US and Canadian-based carriers. Their focus has been on a transactional, instant gratification shipper-carrier load matching services. While still unprofitable, they have been achieving rapid growth in this segment of the freight brokerage market.

Transplace, while also in the freight brokerage space, has focused on large shippers with consistent freight volumes. Their technology is designed to marry this class of shipper with carriers that have the capacity and coverage to handle recurring traffic in designated areas. This is much more of a contracted business rather than a transactional business model. Transplace states on its website that it counts 62,000 unique users and has $11 billion of freight under management.

So, what made Transplace attractive to Uber Freight? Uber Freight is paying 22 .5 times EBITDA to acquire a company that has a current EBITDA run rate of over $100 million. This is a steep multiple, but Transplace’s earnings will improve the financials of the merged Uber Freight.

In the first seven months of this year, we have witnessed two of the largest acquisitions in the LTL trucking sector in many years. In January we observed the acquisition of UPS’s LTL division by TFII, the large Canada-based transportation conglomerate. Last week the nation’s largest TL carrier, Knight-Swift Transportation (NYSE: KNX,) acquired AAA Cooper Transportation in a $1.35 billion deal. AAA Cooper runs a regional network of 70 facilities and 3,400 doors spanning from El Paso, Texas, to the Southern East Coast, along with multiple locations in the Midwest. Knight-Swift purchased a company with a fleet of 3,000 tractors and 7,000 trailers for less than 10x EBITDA.

At $43 billion in revenue, the US LTL sector is approximately one tenth the size of the truckload industry. For many years this was a highly competitive low margin business. What is driving these large M & A activities in the LTL sector by predominantly truckload carriers?

Continued Strength in Manufacturing

Manufacturing and industrial activity, which can account for up to 85% of LTL tonnage for some carriers, has been strong during the pandemic. The Manufacturing PMI (Purchasing Manager’s Index) was 60.7% in June. The overall US economy has expanded for eleven consecutive months.

Two weeks ago I posted a blog (https://www.dantranscon.com/index.php/blog/entry/leadership-lessons-from-the-habs-amazing-victory-over-the-maple-leafs) on the Habs amazing come from behind victory over the Toronto Maple Leafs. Montreal finished the regular season in 18th place. The team won only 24 of 56 games, the lowest seeded team to make it to the Stanley Cup Playoffs. This underachieving organization has now defeated three teams including one with one of the best records during the regular season. What can businesses learn from this remarkable success? Here are five lessons to be gleaned from this amazing underdog story.

1. Results Dictate whether an Organization has the Right Team in place

The Canadiens GM made some significant additions during last year’s off season. He added a top defenseman (Joel Edmonson), three top forwards (Josh Anderson, Tyler Toffoli, Corey Perry) and a high-quality goalie (Jake Allen) to back up Carey Price. The team started the year on fire and then had an uninspiring, mediocre season. A team that was constructed to make a deep run in the playoffs was on the verge of failing to qualify.

The GM then made more changes. He fired and replaced three coaches including the head coach. He went out and added another aging but quality forward (Eric Staal) and two more defensemen (Jon Merrill, Erik Gustafson, a power play specialist). Management also made some personnel changes for the Leafs playoff series. They benched the young centre, Jesperi Kotkaniemi, and made limited use of the newly recruited defensemen. The Habs fell behind 3 games to one against the Leafs.

I was born and raised in Montreal, Quebec. From a very young age, I remember how hockey was such a big part of the life of people in Quebec. Saturday night was Hockey Night in Canada and I would be glued to our grainy black and white TV to watch the hometown Montreal Canadiens play one of the original six NHL teams.

Even though I lost my dad at a young age (car accident), my mom made sure that I had a pair of skates, a hockey stick and shin pads. I would go to the local rink to play hockey after school with boys in the neighbourhood. I remember my mom taking me to the Montreal Forum to see “Rocket” Richard and some of the other stars of that era. The love of hockey and the Habs never left me, even though I have lived in Toronto since 1976.

The game and the team have changed significantly over the years. Back in the 60s and 70s, the team was known for its home grown, French Canadian stars - - - Jean Beliveau, Boom Boom Geoffrion, Jacques Plante, Patrick Roy, Jacques Lemaire and of course, the Flower, Guy Lafleur. The team was admired for its high-speed offense and for its scoring stars. Even in the late 60s, the Montreal Canadiens had a junior team in Montreal, the Montreal Junior Canadiens. The Habs could select the top 2 players from this team every year. This changed in the early 70s and it allowed the Buffalo Sabres to draft the great Gilbert Perrault, who would have been another Habs star of that era.

When you fast forward to today, the nature of the team has changed drastically. While the Habs have a French-Canadian general manager and coach, the team had only French-Canadian player on their roster for the series with the Toronto Maple Leafs, Philip Danault. Their other French Canadian player, Jonathan Drouin, was on a leave of absence.

I am a resident of Toronto, Ontario, Canada. I live in a city and province where Covid-19 is just about out of control. It did not have to be this way. The warning signs have been there for months. But the premier of this province just did not get it and still does not get it. The Covid-19 pandemic has exposed a core set of leadership skills that are determinants of how successful a politician is in managing this crisis. Premier Ford has not demonstrated that he has these key leadership attributes.

A Belief in Science

The science has helped us understand the key elements of this highly transmissible virus. The Ontario’s Covid-19 Scientific Table is composed of several very knowledgeable medical experts. They advised the politicians that the virus is spread between individuals who are in enclosed spaces and are close together. The scientists have told us for months that if we stay home, wear masks, and remain socially distant, we can greatly reduce the spread.

In Ontario, we are in the third wave of the virus. The number of new cases is rising on almost a daily basis. But Premier Ford has chosen to close parks, golf and tennis clubs but keep factories, warehouses, and places of worship open. Is there a need to manufacture ladies’ purses during a pandemic? Why place people in congregated indoor settings which increase the risk of catching the virus?

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.