Canadian freight claws out from ‘deep hole’

A tractor-trailer of Canadian carrier Challenger Motor Freight

Canadian freight appears to have turned a corner — at least as far as truckload volumes are concerned.

At Challenger Motor Freight, one of Canada’s largest carriers, the change took shape after volumes bottomed out about two weeks ago.

“It’s coming back,” Challenger President Dan Einwechter told FreightWaves. “But we have a long way to go. It’s a deep hole.”

A key measure of Canadian truckload volumes, the Outbound Tender Volume Index-Canada (OTVI.CAN) on FreightWaves’ SONAR platform, had climbed nearly 37% off its April low as of Wednesday. While the trend has been volatile, over the past three weeks it looks solidly upward. 

The Outbound Tender Volume Index – Canada (OTVI.CAN) on FreightWaves’ SONAR platform. (Image: FreightWaves)

The gains extend beyond Canada’s largest freight market, Toronto. Calgary, Ottawa and Montreal have surged upward. The rebound comes as Canada’s provinces begin taking steps to reopen their economies and billions of dollars of federal aid flow to regular Canadians and companies.

About 7.5 million Canadians are receiving a C$2,000 (about US$1,400) per-month emergency federal benefit for COVID-19, while 110,000 businesses have applied for the wage subsidy program that covers up to 75% of employees’ pay. Prime Minister Justin Trudeau’s government has said the measures are intended to ensure Canadians can afford the necessities.

Canadian freight volumes also have moved upward alongside those in the U.S, according to SONAR data. But in an unusual twist, the Canadian freight recovery appears stronger.

The outlook for Canadian freight depends a lot on what happens in the United States. Cross-border trade dominates Canadian trucking. While U.S.-to-Canada truck traffic continues to be down more than 30% year-over-year, recent weekly statistics from the Canada Border Services Agency point to a stabilization.

A roller coaster for cross-border freight

Matt Silver, CEO of Chicago-based cross-border digital freight marketplace Forager, said the recent uptick U.S.-Canada freight appears to be connected to a spike in demand for those basic consumer goods. 

“We’re seeing a roller coaster-style graph of demand over the past month and a half and will likely keep seeing that over the next quarter or so,” Silver told FreightWaves.

But beneath the recovery in freight volumes, Canada’s trucking industry remains in peril.  Lane imbalances continue to lead to trucks running empty while spot rates fetch below C$1 per mile. Meanwhile, carriers are reporting a troubling rise in unpaid invoices.

The Canadian Trucking Alliance took its case to Parliament on Tuesday for additional financial relief beyond the wage subsidy. CTA President Steve Laskowski highlighted the CTA’s proposal of a three-month deferral of payroll taxes to preserve cash flow

“Simply put, our sector needs additional focused assistance above what the Canadian Emergency Wage Subsidy provides,” Laskowski told a House of Commons committee.

Sounding the alarm on low rates

Nurfad Nadarevic, a Windsor-based broker with Venus Logistics and operations manager with his family’s five-truck Korona Express, pointed to spot rates with alarm.

“Brokers need to think about the true operating costs of running a truck,” Nadarevic said. “Even with cheap freight right now, brokers can still make money while leaving something for the carrier. But that’s not happening now.”

Canada has thousands of carriers like Korona. Their operating costs typically run around C$2 per mile.

Nadarevic said the situation with rates is particularly bad for carriers and owner-operations waiting for freight in smaller, peripheral markets. 

“If a carrier has a truck stuck in Winnipeg and they wanted to get back to Toronto, you have brokers that will come and offer a buck, take it or leave it,” said Nadarevic, who also recently started a logistics consulting business. “We need to get rid of that mentality.”

The Outbound Tender Reject Index – Canada (OTRI.CAN) on FreightWaves’ SONAR platform. (Image: FreightWaves)

Reflecting that desperation for loads, the Outbound Tender Reject Index-Canada (OTRI.CAN) for FreightWaves’ SONAR platform hit 0.67 on Wednesday. The index indicates the percent of tendered truckloads that carriers reject.

But Nadarevic also is cautiously hopeful that rates will start to come back in Canada and the United States. 

“I do think we’ve hit a bottom for rates,” he said. 

The return of auto plants

A large missing piece of the U.S.-Canada cross-border freight: auto plants. Major U.S. automakers are hoping to resume North American plant operations on May 18.

Forager’s Silver predicted that the return of the auto sector will help improve rates.

“There were a few thousand carriers who were exclusively hauling automotive freight and all their freight evaporated all of a sudden,” Silver said. “This capacity flooded the market and resulted in a ton of excess capacity, which resulted in lower rates. As we see some of the OEMs slowly start back up again, we’re going to see capacity tighten up a bit.”

Challenger’s Einwechter said while he welcomes the return of his automotive customers, he also is bracing for more muted output.

“At what pace will they want to produce new vehicles? Einwechter said.