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Canada’s Economic Outlook:  Opportunity on the Western Front?

Posted by TMW Systems on Jan 10, 2019

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Local and regional freight haulers cannot afford to bet their business success on forecasts about national economic activity. Despite rosy forecasts for the Canadian economy, transporters of oil and lumber in western provinces are dealing with falling volumes driven by North American and international factors.

What's ahead for Canada's economy?

The Conference Board of Canada, a not-for-profit, independent research organization, has published its Autumn 2018 Outlook. It expects growth of the Canadian economy to slow for the balance of this year and into 2019. The board and other economists predicted a 2.0% growth rate for 2018, with 2019’s growth slowing to 1.8%.

While the short-term outlook may appear less than positive, the regional trucking association sees opportunities now and in the near future for continued high levels of freight demand.

BCTA_LogoSlowing freight in one sector—building materials—is being offset by strength in others for members of the British Columbia Trucking Association, according to Dave Earle, President and CEO.

Underlying causes in the drop in lumber shipments are recently enacted tariffs levied on Canadian lumber exports to the United States and slowing US new-home construction.

“You need look no further than the drop in lumber prices to illustrate the drop in demand—20 to 50% since late spring, depending on type. Anecdotally, members are experiencing similar drops (in freight).”

Even though transporters have experienced lower demand, Earle is not convinced the drop is a big issue at this point.

“There has been minimal, if any, slack in the supply chain for many quarters and so far the drop in this type of freight has been mitigated,” he said. “While building materials may be slowing, other areas remain strong and continue to grow.

“Our members reported that on average they had a truck sit for a month in 2017 with a load ready to go, but no driver,” Earle said. “This accelerated in 2018. Considering most of our members have fewer than ten trucks, this is a significant demand that could not be met. We’re still looking for 4,000+ operators in BC today.”

The drop in some types of freight will let companies move the freight that is available, Earle added. On balance, he doubts the slight weakness will have major implications in the short term.

How will oil regulations impact the Canadian economy in 2019?

Diagram of an oil field.In oil-sands-rich western Canada, oil shipments are expected to fall due to new regulations in 2020 lowering the sulfur content of fuel used by maritime shippers. Analysts forecast 20% of Canadian oil will be “uneconomical to produce” once the rules take effect. That inevitability and recent drops in crude prices have begun curtailing shipments of oil and related chemicals.

But the apparent near-term sluggishness in lumber and oil commodities should evaporate as the largest private-sector investment project in Canadian history begins ramping up in British Columbia. The $40 billion (CAD) project will build a liquefied natural gas export terminal on the Pacific Coast in Kitimat and a 670-kilometer LNG pipeline from Dawson Creek, British Columbia.

LNG Canada joint venture participants—Shell, PETRONAS, PetroChina, Mitsubishi Corporation and KOGAS—announced the go-ahead for the project in early October 2018. They anticipate construction will take five years to complete.

Earle expects a significant increase in freight moving north in British Columbia to support LNG Canada. “The impact of the project and related activity should not be underestimated; heavy moves, consumer goods, and industrial supplies are all going to move into the north central (British Columbia) coast area,” he said.

Falling demand for some commodities may make national headlines in Canada. But truckers hauling freight in western Canada know the reality that slight shifts in the type of freight are to be expected and in this case are welcome.

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Topics: Transport Economy, Transportation Technology