Posts Tagged “truck rates”
Playing the spot market with freight rates on fresh produce is common with owner operators and small fleet owners. However, refrigerated fleets for years have often negotiated seasonal, if not year around rates.
The fleets see advantages to having more predictable produce rates with higher rates in the slower winter months, but lower ones during the peak shipping seasons of spring and summer.
However, record produce rates this past year has changed ways of doing business, not only for the fleets, but the produce shippers. For example, uncertainty surrounding freight rates has resulted in some Idaho grower-shippers of potatoes to shy away from quoting delivered prices for potato price contracts.
Sun-Glo of Idaho Inc., in Sugar City, has chosen not to take on the risk of volatile transportation rates by quoting delivered prices. The company has found trucking companies refusing to quote set rates, because of the uncertainties in trucking. If those fleets are unwilling to take the risk of contract rates, then the grower-shippers are not going to risk giving delivered prices.
Much higher truck rates have occurred, at least in part, by the implementation of electronic logging device (ELD) regulations last year. Higher truck rates is one of the biggest complaints of grower-shippers. Instead, companies such as Sun-Glo are quoting prices for their potatoes, something which they are in control.
Other shippers are doing business in a similar fashion. Wada Farms Marketing Group LLC of Idaho Falls, ID has indicated it may lose some customers this shipping season because Wada no longer is offering a delivered price contract. It has some contracts with trucking companies to haul potatoes, but it is on a month-to-month contract basis. Six month to one year contracts with truckers has become a rarity. Since Wade Farms cannot get seasonal or yearly contracts with trucking companies, it is avoiding offering delivered price contracts to customers.
Wade Farms has even inserted some flexibility clauses into contracts. For example. if there is an extreme shortage of trucks or holiday overages, it is not locked in to the same price.
Shippers have long complained of retail chains driving down prices on the produce they purchase. Potandon Produce LLC of Idaho Falls, ID has pointed out in the current truck rate environments, some retailers are looking to drive down f.o.b. prices to maintain delivered costs.
In a effort to cut shipping costs Potandon say if offers potato buyers a premium Idaho potato, or it can source spuds from 16 other states which may be closer to their customers. The company continues to seek alternative shipping methods to cut costs.
Potandon is still offering customers delivered prices and says it has the advantage of an in-house transportation department which is in constant contact with freight carriers to get the amount of trucks needed.
Trucking produce rates set some historic highs during the summer. While rates have declined since then they still remain will above the level of 2017.
For example, Mexican citrus, watermelons and vegetables crossing into the Lower Rio Grande Valley of Texas were $4800 to $5000 in mid August compared to $7800 to $8500 in the middle of June.
Salinas-Watsonville vegetables and strawberries were grossing $9100 to $10000 in mid June to Baltimore, but has dropped to mostly $8,100 in mid-August.
Washington’s Yakima Valley apples, pears and stone fruit were grossing about $8200 to Boston in mid-June, off from about $7,800 in mid-August.
While rates have come down from mid- and late June peaks, they have stayed high compared to previous years.
Historically, summer produce rates reach a peak in May or June and start tapering off in July. This year was no different. Historic peak rates in June of $2.70 per mile had dropped to $2.59 per mile in July, which includes fuel surcharges. Still the July 2018 produce trucking rates were 25 percent higher than the same period in 2017.
With the close of August no serious truck shortages from major produce shipping areas were being reported. August rates were averaging $2.50 per mile, which was still higher than any period on record prior to this year.
Close observers of truck rates believe rates will continue to remain higher than in past years with reasons ranging from higher wages for drivers, ever increasing truck regulations, and a soaring economy with low unemployment. Additionally, there’s more competition for trucks from dry freight with the improved economy.
With the arrival of fall comes additional demand for equipment due to back-to-school activities, Halloween and demand for perishables from foodservices entities ranging from restaurant chains to school cafeterias. Fall crops ranging from apples to pumpkins and potatoes also increase demand for trucks.
While truck rates typically decline overall in the fall, some observers believe rates will remain higher, perhaps as much as 20 percent for the same time a year ago.
Historically, the produce industry gives truck transportation and trucking rates little thought, unless they are having a problem getting their product loaded, or rates are on the rise. Well, both are happening.
For example, several Northwest potato shippers have recently expressed concerns over what it cost to ship their potatoes. They say the situation has become enough of a concern in various parts of the country that more regional potato crops are being plants. Being closer to major markets means less transportation costs.
Valley Pride Sales LLC of Burlington, WA recently complained about short truck supplies and is concerned the situation will not be improving anytime soon. They also hear about a shortage of drivers. The company has seen freight rates to East Coast for russet potatoes costing $9 per 50-pound carton. This is seen as given potato shippers on the East Coast an advantage in the marketplace since they pay less for trucks.
New York Trucking Concerns
As with most companies in the produce industry, New York produce operations have seen escalating truck rates since 2017. However, shippers there are complaining less than shippers elsewhere. This is due to their location of being much closer to major Eastern metropolitan regions than Western and Midwest produce shipper.
For example, Torrey Farms Inc., of Elba, N.Y. observes the proximity to Eastern markets places their operation with many within five to six hours drive time. The company believes transportation will be a battle all summer long N.Y. While Torrey Farms typically has adequate trucks during June and July, by the start of July truck supplies already were tight this year.
New regulations that implemented electronic logging device mandates has made it harder for truckers reports Paul Marshall Produce Inc. of Batavia, N.Y. The trucking company notes two years ago the trucking lane from Elba to Chicago was pretty steady at $1,000 per load. In the summer of 2017, those rates escalated to $1,600.
At Turek Farms of King Ferry, N.Y., truck rates during the July Fourth holiday period were up 20 to 25 percent compared with a year ago. The company notes the new electronic logging device mandate rules mean adding another day to any trucking route more than 500 or 600 miles.
Higher freight rates, particularly from western shipping states, are making Michigan summer produce more attractive to buyers and receivers. The result is boosting Michigan produce demand and truck rates, because of the freight advantage of being closer to markets in the eastern half of the U.S.
The electronic logging device (ELD)mandate also is created with making trucking cost significantly more expensive.
For example, E. Miedema & Sons of Byron Center, MI will be shipping more summer vegetables to markets closer to home. Michigan sweet corn shippers have a significant freight advantage over Florida corn to midwestern markets. Sometimes Florida corn may cost as much in freight as the f.o.b. Additionally, shipping to closer markets means the corn is that much fresher. Sweet corn will not start for a few more weeks.
Superior Sales of Hudsonville, MI is another shipper noticing higher freight rates determining where receivers source their product.
Van Solkema Produce of Byron Center, MI is another shipper finding more interest in their Michigan grown produce in part due to the lower transportation costs.
As a result over the past five years the shipper has started handling items beyond the traditional staple produce items such as brussel sprouts and green onions.
Naturipe Farms of Estero, FL also handles Michigan blueberries. They ship Michigan “blues” to practically every major midwestern retail chain.
Michigan asparagus shipments also has experienced changes in the last few years. Michigan “grass” used to be known as a local product with distribution mainly limited to in-state receivers. It eventually widened its appeal and extended to markets on the east coast. This season a significant amount of Michigan asparagus is being shipped to destinations west of the Mississippi River. There are now even a couple of West Coast companies that are marketing asparagus for Michigan shippers. The asparagus season in Michigan is just wrapping up.
Refrigerated truck rates on the spot market for fresh produce reached 40-year highs at the end of 2017 and early 2018. At the same time fruit and vegetable tonnage approached record levels. Meanwhile, the spike in rates may not be over, according to the USDA’s Agricultural Refrigerated Truck Quarterly, a 31-page report published in March. Continued economic growth may also encourage the upward push on rates.
All sectors of the trucking industry were affected in a similar fashion by the driver shortage, capacity issues and higher rates, which squeezed the transportation for fruit and vegetables. Because of less truck capacity, many are concerted about widespread disruptions in the supply chain.
Trucks account for around 70 percent of domestic freight tonnage, and trends showed the sector was heating up with the U.S. economy in the fourth quarter.
The American Trucking Associations (ATA) reports fourth-quarter 2017 tonnage of all truck freight, was up 3.7 percent from the previous quarter and 8.1 percent higher than the fourth quarter of 2016. Total tonnage for 2017 was up 3.8 percent from 2016, which was the biggest annual increase since 2013.
Diesel fuel rates in the fourth quarter were $2.87 per gallon, up 9 percent from the previous quarter and 16 percent above the fourth quarter of 2016.
Additionally, the USDA reported refrigerated fruit and vegetable shipments in the fourth quarter of 2017, at 7.72 million tons, were the third-highest on record. The quarter trailed only the 2016 mark of 8.05 million tons and 7.99 million tons in 2011.
Total refrigerated fruit and vegetable shipments for all of 2017 were a record 33.6 million tons, up 0.5 percent from33.4 million tons in 2016.
The ATA estimates if current trends continue the driver shortage of 48,000 positions in 2015 could grow to 175,000 positions by 2025.
The electronic logging device mandate has been disruptive for many carriers, with many shipping point districts reporting shortages immediately after the December 18 ELD deadline.
Fourth-quarter fruit and vegetable truck rates of $2.55 per mile for routes from 500 to 1,500 miles were up 25 percent over year-ago levels, and rates of $2.52 per mile for routes of 1,500 miles to 2,500 miles were up 24 percent over the fourth quarter of 2016.
Coast-to-coast reefer truck rates on January 10th exceeded $10,000 per truck from several Western districts. For example, January rates from Idaho to Miami were as high as $10,200 per truck, up from $6,800 the previous year.
Truck rates in late March were down from January historic highs, but were still higher than in 2017.
At Nogales, AZ, imported Mexican produce rates were in the $5,800 to $6,800 range to New York City on March 27, down from $6,000 to $7,000 on March 8 and well off the rates of $9,000 to $9,800 reported in mid-January.
March produce trucking rates were still above the same time a year ago, when trucks from Nogales to New York City were in the $5,000 to $5,200 range.
The next quarterly report will be issued in late May for refrigerated trucks hauling fresh produce.
It is a bit amusing watching the produce industry’s reaction to transportation rates and other issues.
Little thought is given to transportation – trucking or rail – until there are problems. Those problems almost always center first on what’s the cost of the truck? Find the cheapest truck available is pretty the industry’s unwritten motto.
This has typically been most true after demand for refrigerated equipment subsides entering the fall as produce volume is seasonally lower. It continues until around March or so when spring produce shipments are increasing and demand for equipment rises accordingly.
Since last year this has all changed. Another cycle in trucking has arrived. These cycles typically last maybe three to five years. The cycle that has ended saw rates for produce truckers remain pretty stagnant. A sluggish economy with stagnant wages did not present as many attractive employment opportunities.
That’s now in the rear view mirror as demand for trucks, and drivers is often outstripping supply. Now there’s near panic is some produce industry corners. Not only are freight rates substantially higher, but getting a truck at any cost is often a challenge.
Truck rates have recently backed off some, but spring is coming soon and we’ll see how long that trend lasts.
The federal mandate for electronic logbooks certainly isn’t going to help no one. Truckers currently are allotted 14 hours of operating time, but how often do they waste much of this time at loading and unloading docks? When multiple pickups and drops are involved, the problems is only compounded.
While truck rates have plunged from only a month ago, they are still much higher than a year ago.
Rates from the California desert are currently about $7,400 to New York City, off 15 percent from three weeks earlier. However, the current rate is still 20 percent above the same time a year ago.
For a load of apples out of the Yakima Valley in Washington state the gross freight rate is around $4,600 to Dallas, 20 percent below only a few weeks ago, but very similar to rates at the same time last year.
Rates from south and central Florida for tomatoes and veggies are mostly below $3000 now, which is 20 percent more that a year ago.
There’s a lot of talk about soaring truck rates, including produce, and how long these levels will last, considering January is typically one of the poorest months for decent rates. Nobody really knows, so it is going to be very interesting once spring produce volume starts kicking in with March.
In January, some truck rates exceeded $10,000 from the Imperial Valley of California to New York City. This compares to a $6,000 to $6,200 rate in January 2017. Two years ago, the rates were $5,800 to $6,000 to New York.
Florida has a similar situation where produce rates from central and south Florida to Baltimore were up 30 percent a week ago compared with the previous week, grossing $2,700 to$2,900. The same time a year ago those rates were $1,900 to $2,200, and $2,100 to $2,200 two years ago.
While Florida volume is seasonally low compared to what it will be in April and May, product is moving fast partly because the Sunshine State has a significant freight advantage over Mexican vegetable shipments to many eastern seaboard markets.
In the Red River Valley of North Dakota and Minnesota a bumper red potato crop is 46 percent larger than a year ago. Yet some observers believe potato shipments could be up to 20 percent more if the trucks were available.
Potato rates from Grand Forks, MN are $3 per hundred weight (cwt) higher than last year to South Florida, putting the gross freight rate at $6000. Rates to Boston from the valley are up $2 per cwt. and $2.50 to Chicago.
Significant credit has to be given President Trump cutting regulations, as well as the recent tax bill which is helping spur the economy. Business is booming for many. This has increased demands for transportation services, plus there is a scarcity of qualified drivers, leaving many shippers scrambling to ship sold product. There also are the adverse consequences of the electronic logging device mandate, making it difficult if not impossible to fudge on hours of service.
Many see a need for changes in hours of service. For example, time spent waiting at loading docks counts against operating hours. Produce is a supply and demand business and demand simply is outstripping the supply of available drivers.
Even refrigerated carriers have their challenges hauling fresh produce, but it is an awesome mountain for rail entities, which is why there have been so many failures over the years.
Now we hear Railex LLC is ending service to the Southeast. although it claims it will be back one day.
The rail logistics transporter, based in Riverhead, NY, ceased operations in Jacksonville, Fla. August 13th with its refrigerated perishables..
Rumors of the closing had been circulating since July. The company apparently felt it was in its best interest to reassess the Southeast receiving location and close the Jacksonville location. Railex was unable to properly structure its operations at the Jacksonville facility that was too small. The company was operating with a short-term lease.
Railex is working with the Union Pacific and CSX railroads to find a service plan allowing timely deliveries to Southeastern customers through a different location. Railex is hoping to negotiate a service agreement within the coming months.
The Jacksonville location was intended to be a temporary solution to satisfy customers that had long demanded Southeastern service.
“For various reasons beyond our control, Railex could not run the traditional unit-type train service into Jacksonville,” Paul Esposito, executive vice president of corporate affairs said. “The transit times were two days longer than what we had planned and what our customers expected. Now, two years later, during the peak summer season, with transit variabilities as well as the decline in truck rates, we find it difficult to sustain any significant volume into the area.”
The carrier transported apples, carrots, onions, potatoes and wine to receivers via 64-foot refrigerated railcars.
Railex ships from Delano, CA, and Wallula, WA., and unloads and distributes at a Rotterdam, N.Y., refrigerated warehouse near Schenectady, N.Y.
The company opened the Jacksonville location in June 2014.
Rail companies have a history of basing their rates to a significant degree, on truck rates.