The Canadian economy has struggled with supply chain challenges since the beginning of the COVID-19 (coronavirus) pandemic. As consumers shifted their spending habits toward goods instead of services during the pandemic, imbalances across supply chains arose, leading to bottlenecks and rising shipping costs. These higher costs have contributed to price increases across the board, including durable goods such as home appliances and passenger vehicles.
Trucking industries have also played a central role in supply chains. While trucking industries have performed notably well in recent years due to steadily recovering consumer spending, numerous challenges have been present and are likely to pose potential threats in 2022.
Labour market trouble
Strong household balance sheets have kept demand for consumer goods elevated. As the Canadian economy continues to recover, the need for freight transport will likely follow. As a result, trucking operators will require new drivers. Unprecedented shipping demand has led to labour disputes in the trucking sector, resulting in driver shortages.
Employment in truck transportation fell 7.1% to 193,800 workers amid pandemic-related disruptions to transport operations in 2020. As restrictions eased and the economy recovered, employment rose an estimated 5.9% to 204,600 in 2021.
However, this has not prevented driver vacancy rates from rising. An increase of aging drivers reaching retirement in addition to the long hours and considerable time away from home place constraints on the labour market for drivers. Moreover, trucking schools closed early during the pandemic, limiting the number of potential new applicants.
Rising rates
Trucking industries are highly cyclical. Low barriers to entry enable new operators to join when economic growth and strong demand offer expanding opportunities to carry freight. However, as fuel and labour costs rise and demand tapers off, many smaller operators may become unprofitable while freight volumes decline. As excess trucking capacity grows, many operators may go bankrupt and exit the industry.
The current cycle will continue to be positively affected by an ongoing demand boom. However, trucking freight rates have increased as fuel costs have risen and capacity pressures have set in. The average price of diesel has risen to more than CAD $1.60 per litre in recent weeks, and carriers' average fuel surcharges have risen as a result. Additionally, wages have been boosted to attract new drivers. As the Canada Emergency Wage Subsidy (CEWS) ends, higher payroll expenses have also led operators raising freight rates.
Inflation outlook
While elevated consumer spending on groceries in Canada has contributed to growing prices of food and beverages, cross-border freight costs for US-sourced produce have also played a role. Similar dynamics are likely to play out across other industries, including auto manufacturing.
As imbalances across supply chains persist, trucking freight rates are expected to continue rising as operators seek to maintain profit despite rising operating costs. While higher prices will likely dampen some demand, trucking freight costs and capacity shortfalls will continue to shape inflation dynamics in 2022.
