Lower Trade Slows Canadian Trucker: Owner of Canada’s Biggest Delivery Vehicle Fleet

TransForce has almost 14,000 employees. The Fund controls some 7,000 diesel-fuelled cab units and 13,000 trailers. The trucking giant directly serves more urban centers than any other Canadian transportation services provider. contruction materials delivery

Canadian Exports & Imports Decline

According to Statistics Canada, Canadian merchandise exports dropped 1.8% from July to C$38.5 billion in August. Only two export categories recorded monthly gains: agricultural and fishing products (up 5.4% to $2.9 billion, as well as machinery and equipment (up 5.1% to 1.8 billion).

Also in August, Canadian imports fell 3.9% to $34.4 billion from the prior month.

TransForce’s overall revenues were up 8% for the first 9 months of 2007. However, a closer look at the Fund’s financial results reveals a steady decline in shipping and delivery volumes with Canada’s global trade partners.

TransForce’s International Revenues Drop

The trucking giant’s Truckload business unit (19% of Fund revenues) provides mainly transborder shipments between Canada and the United States east of the Mississippi. Revenues from Truckload services were down 8% from 2006, principally due to decreased demand from a slowing American economy. America’s buying power was further diluted by the weakening U.S. dollar.

TransForce’s Less than Truckload (LTL) and Parcel Delivery (PD) business unit (38% of Fund revenues) achieved a respectable 9% revenue gain from 2006. TransForce owns Canpar which delivers parcels across Canada. Revenues from parcel delivery rose 5% during the first 9 months in 2007.

Excluding $55.9 million in sales from the acquisition of Edmonton’s Byers Transportation, TransForce’s LTL revenues were down 3.4% from 2006. LTL include shipments from Canada into the U.S. through TransForce’s exclusive partnerships. An 8.1% decrease in tonnage shipped per day to the accounted for the drop in revenues, even though TransForce charged its customers 5.6% more per hundredweight than in 2006.

Canadian Trucker Doomed or Minor Setback?

Even though the strengthening loonie is expected to further weaken Canadian exports, TransForce revenues are on target to surpass $2 billion in 2007.

The Fund is as diverse as Canada itself. Headquartered in Montreal, the Fund operates more than 200 trucking terminals: 78 in Alberta and British Columbia, 61 in Québec, 52 in Ontario, 12 in the Atlantic Provinces and 3 in the U.S.

TransForce also has a diversified client base with no single client generating more than 10% of total revenues. Major customers include Staples, Encana, Domtar and a Electrolux. Clients span a wide range of sectors: retail (15%), automotive (14%), energy (12%), waste management (8%), building materials (6%), chemicals and explosives (6%), metals and minings (5%), maritime containers (5%), manufactured goods (5%), food and beverages (4%) and other (5%).

Oil, Currency and Interest Rates

TransForce is able to recover higher fuel expenses through surcharges to its customers, which typically show up in future earnings reports.

A change of one cent in the U.S. dollar exchange rate would impact the Fund’s earnings before taxes by about $1.3 million annually. Even then, the Fund manages the risk of fluctuations in the American greenback through foreign exchange forward contracts.

As a result of acquisitions, TransForce has $471 million in long-term debt at variables interest rates. A 1% change in rates would impact the Fund’s earnings before taxes by about $4.7 million.

Should Canadian trade with its global trade partner continue to weaken, TransForce should survive the downturn. The biggest risk to TransForce’s financial health may well be higher interest rates.