Editor’s note: The following is one of the issues highlighted in The Packer’s Year in Produce 2023 review.
Freight costs for produce shippers declined during 2023, but the rate dip may be setting up a return to firmer pricing in 2024, some experts say.
In coverage Aug. 7, The Packer reported a substantial drop in truck rates compared with 2022.
The story noted that freight costs in January 2022 for a load of refrigerated produce out of California to the East Coast averaged $5.19 per mile, according to the USDA. By late July, the rate declined to $3.55.
The industry’s transportation woes started in 2020 when the pandemic shut down driver training schools, resulting in a shortage of truck drivers, Dean Croke, principal industry analyst at DAT Freight & Analytics, with headquarters in Beaverton, Ore., and Denver, said in August.
But when Paycheck Protection Program loans ended July 2020, Croke said there was a rush to join the trucking industry from people who had never been in the industry or who had been driving for a larger fleet and bought their own trucks because rates were so high.
At the same time, during the second half of 2020, diesel prices dropped to $2.40 a gallon, and spot rates for freight increased about $1 per mile — from $1.30 to $2.30, Croke said.
“The diversion of those two data points away from each other was really what started the whole ball rolling,” Croke said in August.
After PPP loans ended, about 100,000 carriers joined the ranks of the trucking industry over a 12-month period.
Croke said then that low rates of 2023 are bound to face upward pressure again.
“We’re in the bottoming-out part of the market,” he said in August
Dip in the road
USDA truck rate data revealed that the average per mile cost for refrigerated trucks dropped from $3.88 per mile in early January to $3.69 per mile by July 4 and to just $3.21 per mile by Dec. 5.
Truck rate cycles follow a familiar pattern, according to the DAT Freight & Analytics 2024 Freight Focus report.
“When truckload capacity tightens, rates rise. When rates rise, new carriers enter the marketplace and large fleets add trucks,” according to the report.
“As truckload capacity increases and demand softens, rates fall,” the report said. “When rates fall, carriers leave the marketplace and capacity once again tightens. At the moment, we’re in that final phase, waiting for the other shoe to drop.”
A mid-December survey of industry professionals in the LinkedIn Fresh Produce Industry Discussion Group indicated that most who responded to the poll expects rates to rise in 2024.
Asked in mid-December to respond to this statement, “Refrigerated truck rates for produce in 2024 will be …”
With about 80 votes casts, the results on Dec. 18 were:
- About the same rates as 2023 — 27%.
- Higher rates than 2023 — 48%.
- Lower rates than 2023 — 25%.
Looking ahead
DAT’s 2024 Freight Rate Focus report said the pandemic-fueled disruptions of 2020 and 2021 stretched routing guides beyond their threshold and pushed truckload rates to record highs. The high rates attracted a record number of new carriers, with the number of for-hire interstate carriers nearly doubling.
While truck rates are bound to rebound to some degree, the DAT report said it may not be until mid-2024.
“The truckload market cycle is bottoming out as carriers continue to exit the industry,” the report said. “However, without any significant change in truckload demand expected before the second quarter of 2024, the market may remain in its current state for quite some time – likely until at least midway through 2024.”
Other shocks to the global supply chain, including war, could change pricing quickly, the DAT report said.
DAT’s prediction, the report said, is that current market conditions will continue until late Q2 when the market should finally find equilibrium.
“The truckload market should revert with spot rates rising over contract rates sometime in the first half of the year, and demand will normalize as the supply chain disruptions that began during the pandemic work their way out of the system,” the report said.
Average U.S. refrigerated truck rates (per mile)
- Jan. 3 — $3.88.
- Feb. 7 — $3.72.
- March 7 — $3.48.
- April 4 — $3.43.
- May 2 — $3.37.
- June 6 — $3.58.
- July 4 — $3.59.
- Aug. 1 — $3.57.
- Sept. 5 — $3.69.
- Oct. 3 — $3.41.
- Nov. 7 — $3.33.
- Dec. 5 — $3.21.
(Source: USDA)
