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Key Takeaways From Our Canada Freight Market Dynamics Webinar

02 Apr 2024
Category: Blog
Author: David Vidri

The freight market is slowly but surely shifting back into balance. As always, that comes with increased vulnerability to seasonal fluctuations, so tracking trends as they unfold is critical to success.

To help keep Canadian and cross-border shippers ahead of the curve, the Canadian Institute of Traffic and Transportation (CITT) hosted a webinar featuring Arrive VP of Market Intelligence David Spencer and General Manager of Canada Sales & Operations (CAN) Noah Sidenberg for a discussion about the state of the freight market today and what to expect in 2024. 

Read on for the key takeaways, or watch the full webinar for a more detailed dive!

Play Video

Demand to Remain Steady in 2024

Video Timecode: 9:09 - 14:25

Arrive’s Market Intelligence team is forecasting fairly consistent shipment volumes with a potential upside on the heels of a strong labor market and wage growth that should support consumer spending and drive freight demand. The Bank of Canada may also cut interest rates over the next 18 months, which could stimulate additional demand. Still, Canadian shippers should remain pragmatic, as issues like housing affordability could impact discretionary spending in certain market segments.

  • Spot: Loadlink data shows a roughly 23% year-over-year decline in spot activity for February. Though significant, it’s still stronger than most of the latter half of 2023 and previous down markets. In fact, the current levels are only surpassed by those in 2018 and 2022, when capacity was tight and spot activity was high. So, despite this downturn, overall spot market demand remains robust relative to prior cycles.
  • Contract: FreightWaves data is trending towards stabilization in tender volume activity, especially outbound from Canada. After a significant decline from pandemic peaks, 2024 levels are reaching above pre-pandemic baselines. This similarity between spot and contract activity suggests that while the market is down from the pandemic and subsequent stimulus-driven surges, demand remains relatively strong overall.
  • Imports: Imports were slow for most of 2023 due to overstocked retail inventories following the pandemic years. Most retailers have completed destocking or will soon, paving the way for returning to more normal ordering patterns. This shift toward just-in-time ordering will likely contribute to growth and stronger imports into the Canadian market, a trend we’re also observing in the United States.
  • Trade: Overall, Canadian trade has remained relatively steady, particularly with the United States — which represents over 70% of total trade, with more than 60% being over-the-road truckload freight. One area worth highlighting is the border crossing between Ontario and the states of New York and Michigan. Despite overall low freight volumes in the last twelve months, this lane continues to grow year-over-year, even amidst challenges like the UAW strike.

The Capacity Correction Continues

Video Timecode: 14:45 - 22:38

Challenging conditions over the last 18 months have driven many carriers out of the market, but not enough to cause the sustained tightness necessary for an inflationary flip. However, winter weather in early 2024 revealed increased sensitivity to demand fluctuations, and the upcoming produce season and the 100 Days of Summer will likely test the market again in the months ahead.

  • Tender Rejection Rates: Recent Loadlink data showed record numbers of available trucks in the market. However, tender rejection rates, which measure how often carriers reject contractual loads, have dropped below 3%, indicating strong routing guide compliance and a stable contract freight market despite the overall high levels of truck availability.
  • Trucking Employment: Employment has normalized since the pandemic surge, with levels regressing but still above the 10-year average. This shift aligns with the cooling job vacancy rate, indicating fewer opportunities for skilled drivers to move within the space. Voluntary turnover rates have significantly decreased, especially in the long-haul sector, suggesting that companies are retaining drivers more effectively than in previous years. However, the environment has not been so favorable for smaller fleets and owner-operators that primarily operate in the spot market, as low rates and high operating costs have made it challenging to stay afloat.

Economic Indicators are Looking Up

Video Timecode: 22:46 - 29:20

Arrive’s Market Intelligence team is monitoring a number of broader economic factors and how they’re influencing the market.

  • Diesel Prices: Diesel prices have been volatile in recent years, with sudden surges putting a heavy financial burden on smaller operators who are already facing low rates and high operating costs. If volatility persists or prices remain elevated, it will force more carriers to close and move the market toward inflation.
  • GDP and Truckload Demand: A historically strong correlation exists between Canadian GDP and truckload demand. Despite shifts in consumer spending patterns, the Canadian GDP remains robust, even when adjusted for inflation. This strength is partly due to population growth and a shift towards services spending. However, while there’s GDP growth from services, declines in the goods-producing sector are impacting truckload demand.
  • Inflation and Interest Rates: Inflation rates have started to ease. However, the consumer price index remains above the Bank of Canada’s 2% target, suggesting we’re still far from seeing significant interest rate declines. As inflation continues to fall, the Bank of Canada’s policy adjustments will likely lead to lower interest rates, potentially fueling growth in truckload demand.
  • Housing Market: There’s typically a strong link between housing activity and truckload demand, not just because of the materials needed for construction but also due to the goods purchased when people move into new homes. As inflation decreases and interest rates potentially drop, we anticipate an uptick in housing activity, which could further boost trucking demand.
  • Consumer Spending Trends: We’re witnessing a shift in consumer spending towards services and experiences, which don’t directly impact truckload volume as goods do. While essential purchases continue to see stable growth, discretionary goods spending has been relatively flat, with slight pullbacks when adjusted for inflation. We are monitoring this trend closely because it reflects broader economic conditions, including the effects of tightening policies on household debt and purchasing power.
  • Labor Market: Despite a slight uptick in unemployment, wage growth has been healthy, although signs of cooling are appearing. The labor market should remain relatively stable this year, and we don’t anticipate any meaningful changes that would significantly alter consumer spending behaviors or overall freight market demand.

Strategic Insights and Recommendations

Video Timecode: 29:27 - 38:12

Though there is still significant uncertainty surrounding the year ahead, strategic planning today can fortify your business against surprises down the road — here are a few key insights from Arrive’s Market Intelligence team to help you do just that.

  • The Market Will Only Become More Vulnerable to Disruption: As capacity shrinks and demand remains steady, the market should become more vulnerable to disruption (.e.g., severe weather, regulatory changes, etc.) later this year.
  • Use Historical Data to Plan for Volatility: Though the exact timing is difficult to determine, shippers and carriers should prepare for major routing guide disruptions as the market moves toward equilibrium and, eventually, inflation. Rather than trying to plan for unforeseeable events, study how the market historically responds to various disruptions and plan accordingly.
  • Contract Strategically: Shippers should consider negotiating contract lengths of at least a year to secure responsible pricing and ensure carrier viability and consistent service levels. Shippers should also consider dynamic pricing options, as tying pricing to an index for potential renegotiation if conditions significantly diverge from contract start can help ensure fair rates and service quality.
  • Fortify Carrier Relationships: Build and maintain strong relationships with financially secure carriers to minimize exposure to volatility and unnecessary disruptions to your operations.
  • Partner With Experienced Cross-Border Carriers: Be aware of the susceptibility of the Canadian and cross-border market to disruptions and work with carriers that can effectively manage border delays.
  • Balance Operational Priorities and Risk Tolerance: Shippers with low-risk tolerance should consider locking in contract rates and diversifying carrier networks; those with higher risk tolerance could leverage current market conditions to find cost savings and efficiencies.

Expert Answers to Audience Questions

Video Timecode: 41:16 - 52:55

The webinar wrapped up with David and Noah fielding questions from participants — read on to see the questions and responses.

How might elevated interest rates impact the freight market in the next 3-5 years? What if there are cuts?
  • The Bank of Canada’s monetary policy plays a crucial role in managing economic health, influencing consumer behavior and sector-specific investments, particularly housing.
  • Housing activity and truckload demand are strongly correlated; lower interest rates could stimulate housing activity, boosting freight demand for construction materials and household goods. Lowering interest rates alone won’t solve complex issues like housing affordability and consumer spending power, which are critical to long-term freight demand trends.
  • Still, our short-term outlook for the freight market is cautiously optimistic, with no significant demand downturns expected despite economic uncertainties.
  • As for the next few years, nothing is certain, but the freight market’s foundational role in the economy provides resilience against fluctuations, ensuring some demand stability.
Why are truck markets suffering so much after the pandemic?
  • High rates during the pandemic attracted many new entrants, leading to a capacity surge as companies invested in equipment and expanded fleets.
  • As a result, the market is now oversupplied, with truck availability reaching an all-time high earlier this year.
  • Demand must outweigh supply to create the vulnerability necessary for an inflationary rate environment.
  • That process is underway: Inflationary conditions during the pandemic raised the costs of entering the market, including higher prices for trucks, trailers and driver wages.
  • New entrants that operated with a higher cost structure back then are at a disadvantage today as rates normalize.
  • Many of these carriers relied heavily on the spot market; they now face challenges without consistent spot demand and are adopting aggressive pricing strategies to secure freight.
How might Canada’s new carbon tax affect the freight market?
  • Preliminary estimates indicate that the carbon tax could cause freight rates to rise by 10–30%, primarily due to its direct effect on fuel prices, a major component of carrier operating costs.
  • For carriers operating on thin margins, the additional financial burden could exacerbate the post-pandemic inflated cost structure they are already facing.
  • Ocean carriers’ adoption of carbon pricing mechanisms aims to promote sustainable practices but adds financial complexity, requiring a balance between greener operations and cost management.
  • The carbon tax may also have broader economic impacts, potentially increasing import costs by 1–4%, which could dampen consumer spending and impact freight demand — this would leave carriers with the dual challenge of managing increased operational costs while facing demand contraction.
How can shippers mitigate risk in today’s market?
  • Stay in compliance with environmental regulations when operating across borders to avoid fines and delays.
  • Beyond focusing on electric vehicles (EVs) and carbon tax rebates, businesses should optimize operations to reduce deadhead miles — this will reduce fuel consumption and emissions while increasing efficiency and cost savings.
  • Consider contracting freight to achieve greater cost stability, especially on higher volume lanes, to secure savings and buffer against market volatility.
  • Incorporate dynamic pricing models in contracts to protect against inflationary pressures.
  • Choose carriers who align with your operational goals and risk tolerance to mitigate the risk of disruption from market exits.
  • Diversify your transportation strategy by balancing spot market opportunities with longer-term contracts, focusing on rates and terms that allow for adaptability to market conditions to maintain stability.

Keep Up With Freight Market Changes

As Canada’s Logistics Association, the CITT provides a community for everyone in and around the industry to network, learn and do business. Visit their website to learn more.

Arrive Logistics publishes several freight market resources that are available at no cost to you. Check out our quarterly Canada Freight Market Update to stay up to speed on domestic and cross-border trends. For more on what’s happening in the U.S. market, see our 2024 Truckload Freight Rates Forecast, and keep up with monthly demand, capacity, rates, economic trends and more by getting the Arrive Market Update and Carrier Outlook delivered directly to your inbox every month.

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