Business sentiment is improving and the prospects for trucking are positive, according to new economic reports from The Conference Board of Canada and BMO.
“Freight demand is up, with understandable spikes for consumer goods and foodstuffs,” Paul DeMarchi, managing director, transportation finance, reported in the late BMO Blue Book, which provides an economic outlook for six sectors including transportation.
“Insurance will also continue to be a difficult variable for profitability; we expect to see a persistent escalation in insurance costs over the next couple of years.”
Paul DeMarchi, BMO
“Meanwhile, freight rates have risen as not enough trucks are available to move product – a problem exacerbated by Covd-19 with a reduction in drivers. With more goods to be moved combined with some capacity constraints, the economics for trucking companies have all trended very positive; carriers are well positioned, and our clients in the space are feeling very bullish for the upcoming year.”
BMO’s Blue Book acknowledged transportation’s role in keeping people supplied in the worst days of the crisis, and indicated the sector has had “a fantastic tail wind over the last six months.”
However, it also warned of uncertainty related to the ongoing pandemic.
“We need to keep in mind the unknowns of operating in the latest stage of the pandemic; the vaccine will no doubt alter the business with changes to demand and driver capacity,” wrote DeMarchi. “Insurance will also continue to be a difficult variable for profitability; we expect to see a persistent escalation in insurance costs over the next couple of years. Meanwhile, we’re also seeing the likelihood of more consolidation; medium-sized firms are likely to be acquired, leading to larger, more robust and stable operators going forward.”
He also wrote that large carriers are better positioned to adapt to Canada’s electronic logging device (ELD) mandate coming June 12.
“In the end, all the fundamentals are there for a decent runway as the economy stabilizes and re-opens. The transportation industry is well-positioned, and we look forward to a solid year ahead,” DeMarchie concluded.
Business confidence improving
The Conference Board of Canada, meanwhile, released results of its latest survey of business leaders, concluding business confidence has reached its highest level in two years.
“This is encouraging news, considering business sentiment was at historic lows throughout 2020. Effective Covid-19 vaccines are rolling out both globally and nationally, and our survey results indicate that businesses hope the uncertainty surrounding the pandemic will subside in the short term,” senior economist Richard Forbes concluded in the Index of Business Confidence report.
The Conference Board of Canada says the report is a reliable leading indicator of investment spending.
“When businesses were optimistic in the past, there was greater spending on machinery and equipment, which has a lasting impact on the country’s potential economic growth,” Forbes wrote.
The Index has returned to pre-pandemic levels, after hitting an all-time low in April 2020. The survey was conducted between Jan. 13 and Jan. 27. Thirty-eight per cent of respondents felt economic conditions will be better in six months, while 29% believe they will be worse, an improvement from the previous quarter when only 31% of respondents anticipated an improvement.
“Respondents were also more positive when asked about their own firms. The share of respondents that stated they expect their firm’s financial position to improve in the next six months was 46% (up from 32%),” Forbes wrote. “Seventeen per cent thought their firm’s financial position would deteriorate, which is well below the 29% from our previous survey.”
GDP expected to bounce back
BMO is projecting the Canadian economy to rebound 5% this year, largely undoing the damage done in 2020.
“This year’s growth will largely reverse the 5.4% decline seen in 2020, leaving output roughly at pre-Covid levels by the end of this year,” said Doug Porter, chief economist, BMO Financial Group. However, the “first quarter lull” will dampen the recovery early in the year.
After the early stages of the pandemic and the uncertainty it created, BMP says businesses pivoted to adapt to the changes they faced.
“While our clients recognize that challenges still exist, we see an underlying optimism for 2021,” BMO reported, adding coming vaccinations should carry that sentiment forward through the year. “We saw supply chains pivoting to divert supplies to retail channels early on in the pandemic, and the back-end work that has already been established will carry forward well.”