Exceptionally high US freight rates set to ease
Freight rates have been a hot topic in the fresh produce industry across the United States recently. Growers and shippers have expressed their concerns about having to pay exceptionally high rates to get their produce to the market. Availability of trucks has been cited as both a cause for the high rates, along with presenting a challenge to get product moving.
The issue first arose in relation to the introduction of the E-Log regulations. Growers in the Midwest and Northwest noted the difficulty in getting product out to market. At the time, a series of hurricanes had affected the southern states of Texas and Florida, and as a result, trucks had been used in a logistical capacity for relief work. Coinciding with this was the introductory of mandated E-Logs. The E-Log regulations involved trucking companies installing electronic logs to replace paper-based records of hours driven and rest periods.
But while moving product from one side of the country to the other has been priced at much higher levels than previously, many in the industry agree that the recent price spike has seen its peak, and rates are set to ease in the coming weeks.
Suppliers suffer under high rates
The limited availability of trucks has culminated in the extreme freight rates in recent weeks. Suppliers from Washington state, to Florida, to Texas, have noted the exceptionally high rates paid and noted that costs will inevitably be passed on to customers. "Prices are astronomical," said Mario Cisneros, of Santis Produce. "I have a client in Chicago who was quoted $10,500 to bring one truckload of fruit from Texas to Chicago. Another in Fresno was quoted $12,000 from Texas to Fresno. There is a lot of demand for trucks in Mexico and it's adding to the issues we are having with our supply of limes."
Many growers have said that the rates have kept a lid on market prices. They have noted that reducing the price on their products has been the only way to get movement on products. "The broccoli market should be higher than it is at the moment," said Bob Cordova, of Western Pacific Produce in California. "Freight rates are almost double of what the industry typically sees due to the shortage of trucks. Prices for broccoli have been around $12, when they should really be sitting at $15 or $16, based on current demand. However, with the current freight rates factored in, that price would be too high to ensure good movement."
Transportation broker explains high rates
One company that brokers transportation services, explained that there was more to the rates than just the E-logs and hurricanes. "While the ELDs (E-logs) drove some of the capacity, one of the biggest reasons behind the high freight rates is the improved position of the economy," said Kenny Lund, of Allen Lund Company, based in California. "We have seen a 17 percent increase in the number of loads being transported around the country. And it's reflected across the board in every sector. Recent tax breaks have also contributed, with many companies having a little extra cash around which they've used to accelerate projects."
Lund also explained that the boost in truck usage from hurricane relief work has extended beyond the initial cleanup. "Disaster relief efforts stemming from the hurricanes as well as wildfires did lead to more trucks being directed to states that were affected," he said. "Now we are in the stage of loads being used for continued rebuilding work."
More produce is being shipped out of Mexico than ever before
The fact that suppliers are seeing very high freight rates from Texas in particular, is of no coincidence, according to Lund. He has observed that logistical patterns have changed over the years when it comes to fresh produce. "There is an increasing amount of product coming out of Mexico," he noted. "Patterns have changed and places like California are not producing as much as they have in previous years. There is now more produce leaving Texas than California, which has a lot to do with the amount of produce coming out of Mexico. This creates a bottleneck of trucks in certain regions and has caused a change in the overall market."
According to Lund, higher freight rates are set to stay. However, he said the unusually high rates seen in recent weeks will ease as the availability of trucks has now improved. "We are out of the phase of a severe truck shortage," Lund said. "Trucks are a little easier to find and we should see rates ease. Rates are still very high though and they are not going to come down to levels we have seen in the last year or two."
New York produce shipper agrees
Not all those in the fresh produce industry are surprised by the recent high freight rates. Paul Manfre, of TopKatz in New York, has been in the fresh produce industry for over 40 years and he said high rates after the Holiday season is part of a normal pattern that occurs every year. He also noted that rates have been on the lower end in the most recent years.
"During the last two years, freight has been relatively inexpensive compared to previous years," Manfre said. "For example, last year, a load from Texas to New York was costing around $5,000, whereas 3 years ago, the figure was $6000. But even when it was cheap, the worst 2 weeks are always just after the Holidays. The simple reason is that everyone wants to be home for the Holidays. Afterwards, trucking companies don't want to go back out empty, and so they tend to wait until they have loads. But produce keeps moving and this creates a shortage of trucks during that period. This pattern occurs after every Holiday season and we should see freight rates drop again in the next two weeks."
Market prices for peppers have been affected
Manfre observed that this year, the rates have been exceptionally high and pointed to other factors that contributed to this. "We had the E-Logs come in, although companies were aware of this and should have been prepared," he said. "There was also a crackdown on holders of Mexican licenses as well as a licensing scam that occurred in California, prompting authorities to more closely scrutinize license applications."
By reducing the prices on produce, Manfre believes that suppliers have also contributed to the truck shortage by creating an environment where produce is priced to move more quickly. "There was a belief among some that produce wasn't moving because the price was high," he explained. "Therefore by lowering prices, this created an artificially active market, which exacerbated the shortage of transport options. Now we are seeing prices drop significantly on numerous products, such as red peppers, cucumbers and squash."
All in all, it appears freight rates have passed their peak and prices should decrease over the next few weeks. More trucks are now available at critical shipping points and prices are stabilizing. Growers will be hoping for a more balanced transport market in the near future to be able to normalize prices on fresh produce.
For more information:
Tel: +1 (956) 316-4457
Allen Lund Company
Tel: +1 (818) 949-4513
Top Katz LLC
Tel: +1 (718) 861-1933
Publication date: 1/16/2018
Author: Dennis M. Rettke
© 2018 FreshPlaza. All rights reserved.