How Your Canada US Freight Costs are Affected by the Decline in Canadian Manufacturing

The Change in the Canadian Economy

Canadian Manufacturing has been declining for over a decade.  Jobs have switched to service industries or resource based production.  Meanwhile, the imports from China have increased.  If you’re in the freight business you should care about these trends because they affect your Canada US freight costs and availability.

Employment in Manufacturing (000’s) in Canada

Source: Stats Canada CANSIM table 282-0008

Everyone knows the significant change the Canadian Economy has gone through in the last decade.  The shift away from a manufacturing base to a resource and service base has affected millions of people employed directly or indirectly in the manufacturing industry.  The shift in the Canadian Economy has also had a great impact on trucking and transportation.

How the Decline in Manufacturing Affects Freight Patterns.

At one time, Canada was a significant provider of manufactured goods to the US.  While Canada still exports a lot of what it manufactures to the US, in comparison to what is imported from China to the US, and also in relation to what used to be imported from Canada, the current situation can be described as “smaller”.  When more goods were shipped to the US, Canadian carriers had much more predictability in their pricing and profitability.  Because there were much more goods leaving Canada on truck than coming in, the carriers could demand a high price for shipments heading south.  They took a gamble each time that they might find a shipment coming back to Canada and also a gamble at what rate the shipment would pay.  This was a calculated gamble because they knew how much the majority of the revenue was going to be on the shipment because the southbound head haul rate was significantly higher than the northbound back haul rate.  The carriers were used to this situation and rates were fairly stable and predictable.

Then, when the Canadian Dollar started to rise, more goods were imported from China, and Canadian manufacturing plants started to close, the situation reversed.  There weren’t as many southbound shipments to the US and there was still a strong demand for northbound shipments to Canada.  The carriers had no choice but to change their strategy.  Southbound rates fell dramatically.  Carriers sometimes send empty trucks to the US just to get northbound freight.  The gamble a carrier has to take has increased in risk dramatically.  Now, they have to send a truck to the US at a loss, hoping to make a profit on a shipment coming back to Canada.

The Effect on Canada US Freight Costs.

The effect of the changing shipment patterns on rates has been dramatic.  Southbound rates have decreased by about 50% over the last decade on many laneways while northbound rates have doubled.  This situation has had a huge impact on Canada US freight costs.

The Future Balance of Trade?

It’s always difficult to predict the future; many predict that as energy costs rise in the future, the benefit of manufacturing in low labour cost countries like China will be outweighed by the cost of energy to transport the manufactured goods.  Others predict Canada’s resource economy will keep our dollar strong and limit the growth of our manufacturing sector further.  However, the future economy shapes up, the balance of trade between Canada and the US for finished goods has a strong correlation to the movement of transportation costs between the two countries.  This is something to watch when trying to budget your future freight costs.

If you’d like a review of your current freight rates and service levels, DSN Chemical Transportation is an expert in Transborder Transportation between Canada and the US and have been moving freight between the two countries for over 25 years.  Contact us for a free review of your current situation and one of our logistics experts will surely find ways for you to increase service levels and reduce costs.