Overall Freight Costs increased by 1.5% in August compared to July, while Base Rates which exclude the impact of Fuel Surcharges assessed by carriers also increased by 1.7%. Average Fuel Surcharges remain unchanged after decreases in June and July.  This is the fourth consecutive monthly increase since the index reached a low point in April 2010.

“Increases in overall freight costs for Canadian shippers continue to be driven by the Domestic Truckload sector,” comments Doug Payne, President Nulogx.  “While Truckload is leading the way, we also now see a strengthening of the LTL and Transborder rates,” adds Payne.

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.

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.”

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.

At the same time Fuel Surcharge as a percentage of Base Freight Costs is trending upwards, increasing 2.8% month over month, and 17.1% in the last three months, though still 55.1% less than one year ago. The Base Freight Index was also down month over month with the 4 month moving average showing a small 1.5% decline in August.

The most recent results are available at the CGFI website: http://www.cgfi.ca/

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, President, Supply Chain Surveys, Inc., a long-time analyst and observer of the transportation and logistics industry.

According to Saipe, “Freight rates were only down slightly in August, while fuel costs and surcharges continued to rise. We may be near the end of the decline in general freight costs, which have fallen 15.8% since July 2008. We expect that as the economy strengthens, the costs of ground transportation will start to increase again.”

About Nulogx;

Nulogx provides technology and services to improve the transportation process and reduce costs. With an ability to offer the combined value of a best-in-class TMS Application, expert Managed Services, and the largest Freight Audit and Payment service in Canada, Nulogx can provide unprecedented value to North American shippers by improving freight planning and management processes, delivering robust business intelligence in actionable management reporting formats, and providing cost effective alternatives to managing transportation tasks.

About Dr. Alan Saipe

Dr. Alan L. Saipe is the President of Supply Chain Surveys, Inc a provider of management surveys and consulting services. He held academic appointments at York University, and the University of Toronto. He led the supply chain logistics consulting practice at KPMG Consulting. Today, his consulting services include Management Surveys & Benchmarking, Improving Operating Results, Senior Advisory Services and Mediation & Conflict Resolution.

For more information, please visit:

www.nulogx.com
www.cgfi.ca

The year-to-date reduction in costs is the result of the combined impact of declining Fuel Surcharges and reduced Base Rates charged by carriers. In July, Base Rates had fallen 5.9% when compared to the end of last year, and 2.7% versus the prior month. The reduction in costs would have been even greater if Fuel Surcharges hadn’t continued their recent upward movement, increasing by 10.5% in July to an average of 12.4% of Base Freight Costs. This level however is
still lower than the 16.3% average experienced by Canadian shippers at the end of 2008.

The most recent results are available at the CGFI website: www.cgfi.ca

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, President, Supply Chain Surveys, Inc., a long-time analyst and observer of the transportation and logistics industry.

According to Saipe, “Cross border TL and LTL rates declined sharply in July, while domestic rates were more stable. The combined result maintained the downward trend in both rates and costs into July. Rate declines of this magnitude are not likely to continue. We expect freight costs will find a bottom in the fall of 2009 as the economy works its way out of recession.”