Fuel prices weigh on distributors

09/09/2011 02:40:00 PM
Andy Nelson

NORWALK, Iowa — Diesel fuel is a buck higher per gallon this summer, compared to the summer of 2010, and distributors are doing everything they can to soften the blow.

Making sure trucks are as full as possible and routes as efficient as possible are more important than ever, said Brendan Comito, chief operating officer of Capital City Fruit Inc.

The company also keeps a close eye on its drivers through on-board GPS systems, Comito said.

“If they’re idling, we point out how expensive that is.”

The ever-expanding locally grown movement also has helped Capital City mitigate high fuel costs, Comito said. After making their deliveries, many Capital City trucks backhaul local product to Norwalk.

“It’s cheaper than having someone do LTL freight for you,” he said.

At least once a week, Scott Danner, chief operating officer of Kansas City, Kan.-based Liberty Fruit Co., talks with company owner Arnold Caviar about high fuel costs and what the company can do to offset their effects, Danner said.

Fuel costs in the summer of 2011 are about one-third higher than they were last year at the same time, Danner said.

And they’re not easy to absorb.

“It’s a direct bottom line hit,” Danner said. “You just can’t pass them along. Customers don’t want a surcharge.”

Being in the more sparsely populated Midwest makes matters worse.

“I joke with my friends back East, ‘The next market for you is 15 miles away. Here it’s 200,’” Danner said.

Liberty Fruit’s distribution net reaches as far as Dallas in one direction and Arkansas in another. But the company hasn’t had to drop any routes this year because of high fuel costs, Danner said.

That’s due in large part to being more ready for the high costs this time around. Several years ago, when prices spiked, distributors like Liberty Fruit got smarter, Danner said, and figured out which routes could be cut.

Now, companies are much more vigilant.

“We review it all the time,” Danner said.

“There is such a thing as bad market share. If you’re not making money (on a route), why have it?”

High freight costs have, however, paid off in one way for Liberty Fruit, Danner said.

Demand for the company’s peeled, sliced, diced and otherwise cut onions, potatoes and other commodities has risen because of high freight costs shipping from the West Coast.

“It’s helped us attract other wholesale markets,” Danner said.

Liberty Fruit provides fresh-cut fruits and vegetables under its Carol’s Cuts label. After two years of major expansions, growth in the line has leveled off in 2011, Danner said.

Surcharges and Road Net routing software help Des Moines, Iowa-based Loffredo Fresh Produce mitigate the effects of soaring fuel costs, said Steve Winders, the company’s chief operating officer.

The routing software helps the company maximize its truck fleets’ efficiency, Winders said.

Also, Loffredo Fresh Produce is asking customers if it can make deliveries earlier in the day. There’s less traffic on the road at 4 or 5 in the morning compared to 6 or 7 in the morning, which means less time idling in traffic and more deliveries squeezed into one day.

Even with surcharges, sophisticated technology and cooperative customers, however, fuel costs remain a thorn in distributors’ sides, Winders said.

“You still can’t recoup it 100%,” he said.

The high fuel costs haven’t, however, shrunk Loffredo Fresh Produce’s distribution net, said Gene Loffredo, the company’s president and chief executive officer.

Loffredo Fresh Produce also faces transportation-related headaches from the supply end, Loffredo said. Thousands of truckers have gone out of business in recent years, and that has meant that distributors have often had to scramble to find trucks to bring in their fresh fruits and vegetables.

Fortunately, 2011 hasn’t created too many sourcing crises, Loffredo said.

“We’ve been lucky,” he said.

The company has not been lucky in 2011, however, when it’s come to getting produce from Kansas City to Omaha, Neb., thanks to the summer-long closing of Interstate 29 due to Missouri River flooding.

The company has distribution centers in both cities. However, for incoming freight, a truck might drop half a load in Kansas City before dropping the other half in Omaha.

Before the flood, it was a straight shot up I-29. Now, trucks must detour through Des Moines, 135 miles east of Omaha.

That hasn’t been the only flood-related challenge for Loffredo Fresh Produce. Deliveries north out of Omaha to places like Sioux Falls, S.D., have been detoured, Loffredo said.

The company’s Omaha distribution center, located near the river, has come close to flooding, he said.



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