Which city is your best choice for distribution logistics in Western Canada?
When choosing a center for regional distribution logistics in Western Canada, Calgary has enjoyed advantages in recent years, particularly very low transportation rates into Vancouver, and a central location that minimized transit times. With these obvious advantages, coupled with the rapid growth in Western Canada, it might seem safe to assume that the future looks rosy for logistics in Calgary.
There are several key factors that weigh in against this, though, and the recent economic downturn has highlighted them. It is important to have a full understanding of the pros and cons of both marketplaces before committing to logistics location.
Freight Management in Western Canada
One of the largest costs in distribution logistics is freight management. These costs tend to be magnified in Western Canada, because the distance between centers is much larger. In addition, carriers in Western Canada tend to have fewer terminals, and only in the largest centers. That means there is more reliance on regional interline carriers, which means that your freight may be handled more often, and transit times will be increased. A major geographical factor is the Rocky Mountains, where the roads wind through treacherous mountain passes, and are periodically shut down in winter months due to snow and rockslides.
The recent economic growth in Alberta has created a situation where significantly more freight goes into Calgary than goes out. For carriers who are active on the Vancouver – Calgary lane, up to 30% of their units returning to Vancouver from Calgary run empty. So if you are shipping to Vancouver, you basically have unlimited capacity at a very attractive price. Some LTL freight moves so cheaply on this lane, it is almost on par with local delivery prices in Vancouver. It would appear that this is a fantastic opportunity for logistics providers in Calgary, but there’s another edge to this sword. While it works for the outbound trip, the inbound is another matter altogether.
North-South vs. East-West Freight Shipping
There are 2 major inbound lanes for freight shipping that are affected negatively by this. The first is the I-5 corridor, essentially the north-south west coast route, which covers Los Angeles to Vancouver. In addition to the production in Southern California, and it being the entry point to Mexico, all the cities above are Port cities. There is enough activity on this lane to keep a large number of carriers active on it.
However, due to its proximity to the border and the availability of southbound freight, most US based carriers are only interested in going as far north as Vancouver. They tend to be unwilling to carry on to Calgary, unless you are prepared to cover the cost of them travelling empty on the way back to Vancouver. Recently, a client needed a load picked up in Los Angeles, and brought to Calgary, and the responses we got from the carriers illustrate the problem. Only 20% of the carriers contacted were even willing to go to Calgary. Their reasoning was simple:
1. Travelling across the Rockies took a unit out of service for 2 extra days, when it could be making more money travelling up and down the I-5.
2. Many drivers are uncomfortable on the mountain roads that are very different than the flat Interstate roads they are used to.
In this example, in the end it proved to be less expensive to move the freight into Vancouver, cross-dock it and use another carrier to take it to Calgary. If you require movement of freight on this lane, price is not your only concern. availability is a constant factor.
The second major source of inbound freight affected is from the Port of Vancouver. If you are receiving containers in Calgary, then you are subject to rail service, which can be slow, or the added cost of running the containers to Calgary by truck – which is about 6 times more expensive than local drayage in Vancouver. The expansion of the port capacity in Vancouver continues to increase, and many Canadian importers are increasingly attracted to the lower ocean freight shipping costs, due to its proximity to Asia. As the population expands in Western Canada, they are also seeing an increasingly large percentage of their sales occurring there too. More and more, a cost effective national distribution in Canada requires a 2nd distribution center on the West coast.
When considering your freight shipping needs in Western Canada, be sure to take into account whether or not your logistics provider can accommodate these factors with a West Coast storage facility.