2017 Brings Higher Costs for Carriers
Transportation costs are on the rise – and by a lot. Rising insurance premiums, higher maintenance costs, foreign exchange rates, inflation, tire prices, and industry mandates are all contributing to serious strategic discussions among carriers and private fleet owners on how to maintain a viable business. For some smaller companies, it could even become cost prohibitive to run their own fleet of trucks.
Insurance – Insurance premiums are expected to rise again in 2017 – increasing annual payments significantly for some carriers. These hikes are due to several factors including large claims in the industry and some big insurance carriers getting out of the trucking industry altogether. “With trucking insurance firms hiking premiums 10% to 30% in the wake of big claims, and with major companies such as Zurich Insurance Group AG and American International Group Inc. (AIG) exiting the for-hire insurance market, it’s suddenly much tougher – and much more expensive – for truckers to obtain adequate coverage.” said Sean Kilcarr, Executive Editor at Fleet Owner.
Maintenance – Maintenance costs are increasing, in many ways as a result of new truck technology. Technology designed to reduce emissions and make heavy-duty truck engines compliant with the 2010 Environmental Protection Agency (EPA) regulations is resulting in more heavy-duty truck owners experiencing problems with the engine. “At the industry level, the new, more complex engines designed to meet EPA regulations are resulting in additional problems and downtime, which also has a financial impact on owners because they’re not making money when their truck is down for service,” said Brent Gruber, Director of the Commercial Vehicle Practice at J.D. Power and Associates. Qualified technicians who are trained on the new technology are also in high demand – resulting in increased wages and costs to carriers.
Foreign exchange – Carriers and Owner-Operators looking to replace aging equipment will be adversely affected again this year by the weak Canadian dollar. Since Canadian truck dealers purchase equipment from U.S. manufacturers, truck prices are heavily impacted by the currency rate. 5 years ago, the Canadian dollar was at par with the U.S. greenback, so a $100,000 USD truck back then would cost you $100,000 CD. Today, that same $100,000 USD truck would cost you $130,930 CD, or approximately 30% more than what you are currently paying for essentially the same truck. According to James Menzies, editor of Truck News, “…not only does it add tens of thousands of dollars to the cost of a new truck, it has an effect on just about anything else you need to buy to support your business,” including replacement parts and consumables.
Inflation – The Inflation Rate in Canada is expected to be 1.70 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, they estimate the inflation rate in Canada to stand at 2 percent in 12 months’ time. While these inflation rates aren’t considered “high” by many experts, it continues to drive the price of goods and services up for Canadian consumers and businesses in 2017.
Industry mandates – Government changes will also have a large impact on trucking companies. Electronic logging devices (ELDs) will be mandatory for carriers in the U.S. on December 18, 2017, including Canadian drivers operating into and out of the U.S. The costs range from an annualized price of $165 to $832 per truck, plus “back-end” IT costs to integrate the ELD data. The mandatory use of ELDs in Canada is expected as early as 2018. These regulatory changes will drive operating costs even higher for fleet operators.
Tire prices – Michelin North America and Yokohama recently announced heavy truck tire prices are set to go up by as much as 7 or 8%. This price increase is due to a combination of raw material prices, technology enhancements, innovations, and market conditions.
Rising insurance premiums, higher maintenance costs, foreign exchange rates, inflation, tire prices, and industry mandates are increasing costs at a staggering rate for companies operating a fleet of trucks. While all carriers are feeling the pain of increasing costs, some smaller carriers and private fleet owners could decide that the costs of running a fleet outweigh the benefits.
If you are interested in better understanding your private fleet’s Total Cost of Ownership, or learning more about Canada Cartage’s unique fleet outsourcing model, email us at info@canadacartage.com.