Canada’s freight market is becoming increasingly uneven, creating new challenges for retailers trying to balance transportation costs, inventory levels and customer service expectations.
TFI International’s latest quarterly results suggest truckload transportation is strengthening while other parts of the freight market remain under pressure, reinforcing what supply chain experts say is becoming a more selective transportation environment. For retailers preparing for the important fall and holiday selling seasons, those differences could influence everything from inventory planning to transportation contracts and fulfillment costs.
“Canada’s freight market is not recovering in one piece,” said Gary Newbury, a Canadian supply chain strategist. “Conditions are strengthening in parts of truckload and specialised transportation, while steel, forestry and some consumer-facing activity remain comparatively weak.”
He said retailers should be cautious about planning around national averages or broad statements that the freight market is improving.
“The next capacity squeeze is likely to emerge by lane, service and product category before becoming visible in market-wide data,” Newbury said. “Transportation networks should be segmented into stable, vulnerable and potentially constrained flows, with capacity and contingency arrangements concentrated where the commercial exposure is greatest.”
Freight activity tells only part of the story
TFI reported stronger overall results during the second quarter, supported by improvements in its truckload and logistics businesses. Less-than-truckload transportation presented a different picture, with shipment volumes increasing while revenue per shipment declined, illustrating the pricing pressures that continue across parts of the market.
Company executives said pricing actions are expected to reduce lower-value freight while improving profitability. Management also described Canadian less-than-truckload demand as remaining relatively soft.
For retailers, the results illustrate an important point: higher shipment volumes do not automatically produce better financial performance.
“More freight did not automatically create more bottom-line value,” Newbury said.
The same principle applies throughout retail supply chains. Additional orders can create warehouse handling costs, split deliveries, returns, expedited replenishment and customer-service expenses that are not immediately apparent when a sale is recorded.
“Retailers can make the same mistake as carriers: pursuing additional volume that adds activity and complexity without adding sufficient margin,” Newbury said.
That distinction has become increasingly important as retailers serve customers through stores, e-commerce, marketplaces and direct-to-consumer channels. Two orders with identical sales values may generate very different profits depending on shipping distance, product size, delivery requirements and return rates.
Retailers selling furniture, appliances, home improvement products or seasonal merchandise may also experience freight conditions differently than businesses shipping smaller products such as apparel, cosmetics or accessories.
Driver Inc. enforcement may reshape parts of the market
Recent federal tax reporting and enforcement measures are beginning to reshape parts of Canada’s trucking industry.
The Canada Revenue Agency has lifted a moratorium on penalties for trucking companies that fail to report certain qualifying service payments. Beginning with the 2025 tax year, trucking businesses are required to report payments exceeding $500 to Canadian-controlled private corporations operating in the industry on T4A slips.
The measures are intended to improve tax compliance and address arrangements associated with the Driver Inc. model, under which some drivers provide their services through corporations instead of being treated as employees.
Federal officials have said non-compliance has allowed some operators to undercut compliant competitors while reducing employee protections and benefits.
During TFI’s earnings call, Chairman, President and CEO Alain Bédard said additional reporting requirements are beginning to affect the Canadian market, although Driver Inc. remains an issue.
Newbury said the gradual removal of artificially inexpensive capacity could lead to higher freight rates in some areas, although he believes retailers should view those increases in context.
“If artificially cheap capacity leaves the market, some rates will rise, but this should be viewed as the removal of an unsustainable subsidy rather than a new logistics cost,” he said.
Many large retailers already conduct financial, insurance and safety reviews before selecting transportation partners. Newbury believes they should also identify where their supply chains depend on unusually low freight rates, extensive subcontracting or financially fragile carriers.
“The greater risk is not paying slightly more; it is discovering during a peak period that the capacity being relied upon was never economically or legally sustainable.”
As retailers prepare for seasonal shipping peaks later this year, understanding where transportation capacity is genuinely resilient may prove more valuable than simply securing the lowest available rate.
Looking beyond the freight invoice
Transportation costs no longer dominate headlines as they did during the pandemic, but they continue to influence retail profitability.
The Bank of Canada’s second-quarter Business Outlook Survey found that many Canadian businesses continue to face higher costs associated with fuel, shipping and transportation while experiencing limited ability to pass those increases along to customers.
Newbury said retailers should continue monitoring landed costs while developing a more detailed understanding of cost-to-serve by product, customer and sales channel.
The quoted freight rate is only one component of transportation cost.
Inventory carrying expenses, split shipments, emergency expedites, service failures, customer-service recovery and markdowns can quickly outweigh the savings achieved through a lower transportation contract.
A delayed shipment of seasonal merchandise may reduce full-price selling opportunities and increase markdown exposure. An unreliable carrier can also create additional labour costs, replacement shipments and customer-service issues that ultimately exceed the difference between competing freight rates.
Understanding those trade-offs allows retailers to evaluate transportation decisions within the broader context of profitability instead of focusing exclusively on the freight invoice.
Scenario planning needs decision triggers
Tariffs and Canada-U.S. trade uncertainty continue to influence transportation planning across several industries.
TFI said freight related to steel and forestry products remains comparatively weak, reflecting ongoing trade uncertainty and slower activity in those sectors.
Many retailers already model different tariff, sourcing and demand scenarios. Newbury said the greater challenge is deciding in advance when those plans should change.
“What tariff, freight rate, exchange rate, or lead-time threshold will cause inventory to be repositioned, orders to be reduced, or supply to move elsewhere?” he said. “Who has authority to act, and within what working-capital limits?”
Those questions become increasingly important because inventory, merchandising, finance and transportation decisions are closely connected.
“Without those decisions being agreed in advance, scenario planning risks becoming an impressive collection of spreadsheets followed by the usual emergency meeting,” Newbury said.
Predetermined decision points can help retailers respond more quickly when market conditions change while reducing the temptation to overreact to short-term disruption.
Preparing for a more selective freight market
Newbury expects Canadian transportation capacity to tighten gradually and unevenly during the next 12 months instead of developing into a broad nationwide shortage.
That outlook generally aligns with TFI’s latest results, which point to stronger conditions in truckload transportation while other parts of the freight market continue to recover more slowly.
Retailers may benefit from protecting transportation capacity on priority routes without making unnecessary commitments across their entire distribution networks.
In an environment where freight conditions vary significantly by product category, region and transportation lane, flexibility may prove more valuable than securing the lowest freight rate or carrying additional inventory.
“The advantage will not belong to the retailer holding the most inventory or securing the lowest freight rate,” Newbury said. “It will belong to the one able to identify the trade-offs earlier and act before uncertainty becomes cost.”
