Base Rates, which exclude the impact of Fuel Surcharges assessed by carriers, also increased by 2.1% with average Fuel Surcharges increasing 1.6% from the prior month; both balancing similar declines during the prior month.

“February’s results are essentially at the same level as the last quarter of 2009 with less than a 0.5% overall variance“says Dr. Alan Saipe, President of Supply Chain Surveys Inc.

“These results confirm our opinion that rates are stabilizing within the marketplace as both shippers and carriers adjust to the current economic situation,” says Doug Payne, President of Nulogx.  “We expect that cost reductions resulting from market factors will become more elusive for shippers in the coming months” continues Mr. Payne.

Overall freight costs fell by 1.2% in January when compared to December.   Base Rates, which exclude the impact of Fuel Surcharges assessed by carriers, fell 1.4% from December.   Average Fuel Surcharges also fell .5% from 14.20% in December to 13.70% of Base Freight costs in January.   Offsetting these declines were slight increases in Other Accessorial charges assessed by carriers.

To view the results, sign up online at http://www.cgfi.ca to receive the results to your inbox the last Wednesday of every month,

From December 2008 to December 2009, Base Rates, which exclude the impact of Fuel Surcharges assessed by carriers, fell 7.8% and Average Fuel Surcharges also fell by a total 13.1%, resulting in an overall decrease of 9.6%.

“During the first 8 months of 2009 there was significant volatility in freight costs, however it appears that the index has begun to stabilize” says Dr. Alan Saipe, President, Supply Chain Surveys Inc. “While there are slight pressures in Base Rates, these are being offset by modest increases fuel surcharges”

In December 2009, overall freight costs rose by .2% when compared to November. Base Rates, which exclude the impact of Fuel Surcharges assessed by carriers, fell .1%. This small reduction was offset by a 3.7% increase in Average Fuel Surcharges when compared to the prior month. December’s stabilization has been consistent since September of 2009 with freight costs having varied by only .4% in total.

“This data correlates well with the prevailing opinion that our economy is slowly starting to recover from the recession that started more than 18 months ago.” says Doug Payne, President for Nulogx, “The continuous flat-line performance over the past few months suggests that carriers have adjusted their operations to match changing market demands, and that we will continue to see stable freight prices in the near future.”

The CGFI is sponsored by Nulogx, a leading Transportation Management Solutions provider, and is used by shippers and carriers to benchmark performance, develop business plans, and secure competitive agreements. It was developed with the assistance of Dr. Alan Saipe. The most recent results are available at the CGFI website: www.cgfi.ca.

Nulogx, a leading transportation management solutions company, launched the Canadian General Freight Index (CGFI) in September. The index gives us a clear picture of how average Canadian over-the-road freight costs change from month to month. With such a good picture of what has actually happened in the marketplace, it is possible to make a reasoned forecast of where costs are likely to go in the months ahead. We expect that average ground freight costs will be 6.2% higher in 2010 than they were in 2009, and that average fuel surcharges will finish 2010 at 20.6% of base freight costs.

Looking Backward
Ground freight costs rode along with the economy in 2008 and 2009. Figure 1 shows the Canadian General Freight Index from July ’08 through to August of this year. In the last six months of2008, freight costs peaked and began to decline. In the first eight months of 2009, that decline continued – the index has fallen15.8% from its peak in July ’08, and 10.0% from its value in December ’08.

Two main factors have brought freight costs down. First, crude oil prices have fallen sharply from their peak in mid-2008, which produced a corresponding sharp decline in fuel surcharges. Figure 2 shows fuel surcharges as a percent of base freight costs. Note the smooth decline through March, the level stretch through May, and the start of an uptrend in June.

Secondly, freight rates have also come down. Figure 3 shows that overall average rates in Canadian dollars grew in the last half of 2008, and have fallen in the first eight months of this year. You can see that domestic rates and cross border rates have behaved differently. Domestic rates came down sooner than cross border rates which didn’t start their decline until the spring of 2009. Note that cross border rates in Canadian dollars are impactedby the Canadian/US exchange rate.

Looking Forward
Forecasting is always difficult – and forecasting 2010 freight costs at this time is particularly treacherous for several reasons.

• The global economy is still coming out of recession. Although good progress is being reported, no one really knows precisely when the world economy will be firing on all cylinders again.

• Significant uncertainty exists about both the future price of crude oil and also the Canadian/US exchange rate – two critical variables that have a large impact on Canadian freight costs.

• The Canadian General Freight Index has only been in place for several months, so we are still learning how to make the best use of this new microscope on over-the-road freight costs.

Nonetheless, we have developed a forecast for 2010 which we present below. We have based our projections on three scenarios: slower growth, expected growth, and faster growth. Each scenario makes somewhat different assumptions about what lies ahead. See Figure 4 for the detailed assumptions in each scenario.

Looking forward, we expect Canadian ground freight costs to hit bottom in the fall of 2009 and then grow through to the end of 2010. The Canadian General Freight Index which stood at 834.2 at the end of August is expected to close the year at about 883 and then to grow to the 950 range by the end of next year. Figure 5 provides a more detailed look at the results in each of the three scenarios. We expect the actual results to fall somewhere within the bounds of these three scenarios.

The numbers tell an interesting story. We project Canadian ground freight costs in 2009 will average from 7.1% to 7.4% less than they did in 2008. An economy in recession and lower crude oil costs will have brought freight costs down in 2009 to well below 2008 levels. However, these costs will increase in 2010. Just how much depends on many external factors. We expect that average ground freight costs will be about 6.2% higher in 2010 than they were in 2009. Our projections show that this year-over-year increase may be as low as 3.6% and may be as high as 9.0%, depending upon how quickly the world, US and Canadian economies grow. We have also projected that average fuel surcharges as a percent of base freight costs will finish 2009 between 17.2% and 17.8%, and will increase to between 18.9% and 22.3% by the end of 2010.

THE CANADIAN GENERAL FREIGHT INDEX – What’s it all about?
The Canadian General Freight Index is published by Nulogx and tracks actual changes in over-the-road freight costs month by month. The index is derived from a database of more than $750 million in annual freight transactions. What is in the index? Domestic and cross border truckload and LTL transactions. The index includes base freight charges, fuel surcharges and other accessorial charges. The index is sensitive to the Canadian/US exchange rate because some of the charges are in US dollars. What is not in the index? The index is restricted to general over-the-road freight. It does not include liquid bulk, dry bulk, forest products or other specialized freight. Note that the index cannot separate contract vs. spot transactions. Trends in the index are more important than any single month’s results. The index is representative of Nulogx customers which may not be the same as the market at large. How closely your over-the-road general freight costs will track the CGFI will depend upon a number of factors – especially how closely your mix of freight matches Nulogx mix.

More information is available on the Index’s Web site, www.cgfi.ca, or from Nulogx, www.nulogx.com.

Watch the Interview on BNN here.

Canada’s over-the-road transportation market became more efficient this September with the publication of the Canadian General Freight Index. The index, which is published by Nulogx, a leading transportation services company, tracks changes in over-the-road transportation costs. Now transportation managers have much more insight into how freight costs are changing from month to month.

The index in Figure 1 tells a fascinating story about how freight costs fared while the economy was working its way into recession. In the first seven months of 2008 general freight costs rose 14.4%, driven up by increases in both freight rates and fuel surcharges. From January to July rates increased 7.3% while average fuel surcharges rose by nearly 44%, as we show in Figures 2 and 3.

Then the realities of the slowing economy in both Canada and the US began to take over. In August average fuel surcharges started to fall – see Figure 3 – tracing the decline in the cost of crude oil. At the same time freight rates leveled off as the economy weakened, and then notched up for the start of 2009 – see Figure 2. The combined result brought total freight costs steadily down from their peak in mid-08 – the index has fallen 13.4% since July 08. In fact, in May ’09 ground transportation cost less than it did in January ’08.

The Canadian General Freight Index (CGFI) focuses only on truckload and less than truckload shipments, both domestic and cross border. It comes from analyzing Nulogx’s extensive data base of more than $750 million of freight transactions each year. It is published monthly and shows how general freight costs change as the result of changes in fuel costs and the ebb and flow of supply and demand for transportation. More technical information is in the sidebar.

How quickly did fuel surcharges respond to changes in crude oil costs? The answer is quite quickly. Figure 3 shows that they started down in August 2008 and fell steadily through to March 2009. Then they leveled off, even though the cost of crude bounced upwards in the spring. Technically fuel surcharges have lagged the cost of crude oil; still, they followed crude down within weeks.

And what of freight rates? Figure 2 shows base freight costs which track changes in freight rates measured in Canadian dollars. (Base freight costs change when rates change; they also change when the US exchange rate changes.) The key learning is that average freight rates have not come down during the recession – nor have they gone up by very much. On average, rates in May ’09 are up about 1% from July ’08. But the story is quite different in the different segments of the market.

Both the Canadian General Freight Index and the Base Freight Cost Index are built up from four sub indexes – one for each of Domestic TL, Domestic LTL, Cross Border TL, and Cross Border LTL – and each segment is different. Interestingly, domestic freight rates have come down in the recession, while cross border rates in Canadian dollars have increased – see Figure 4.

Most of the 6.2% Cross Border LTL rate increase came from the weaker Canadian dollar, although average underlying rates did show a small increase. Only about half of the 9% increase in Cross Border TL rates came from the weaker Canadian dollar, with higher underlying rates accounting for the rest.

The Canadian General Freight Index is based upon actual costs in the Canadian transportation marketplace – so the trends it reveals are good statistical estimates of what has really happened. Just how closely your costs will track to the CGFI will depend upon how your mix of freight compares to Nulogx mix.

Now buyers and sellers of transportation have fact-based information for their decision making, planning and contract negotiations. In addition, as a Canadian third party verifiable resource, the index should be a useful and pragmatic tool for setting budgets and explaining budget variances.

Nulogx plans to update the index each month, posting the results to their website www.nulogx.com.

Dr. Alan Saipe

President,

Supply Chain Surveys, Inc.

asaipe@sc-surveys.com

September 2009

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