What’s down the road for transportation costs?

To learn how the late start to this year’s domestic produce season might impact transportation costs and availability, The Packer recently spoke with Dean Croke, principal analyst for DAT Freight & Analytics.
To learn how the late start to this year’s domestic produce season might impact transportation costs and availability, The Packer recently spoke with Dean Croke, principal analyst for DAT Freight & Analytics.
(Photo: BigBlues, Adobe Stock)

To learn how the late start to this year’s domestic produce season might impact transportation costs and availability, The Packer recently spoke with Dean Croke, principal analyst for DAT Freight & Analytics. Croke was a produce carrier for a decade before moving into the technological and analytical side of the industry.

The following was edited for length and clarity.

The Packer: How has the late start to the season impacted transport?

Croke: Until [mid-May], transportation appeared to be in a similar situation to last year, but for different reasons. Last year, we had the drought in California, which caused a big drop in produce volumes. This year we had the same start to the season because of too much water.

Up until [mid-May], we were seeing fairly muted truckload produce volumes from the USDA, and the total number of truckloads they reported was down about 7% year over year, which is remarkable when you consider it was closer to 20% down year over year only a few weeks ago. So, it looks like a late start, but a promising one.

Why is this significant?

The produce season is one of the few things that really drives rates up in a meaningful way for refrigerated and dry. About half of our truckloads come out of the West Coast for produce in the spot market. Between Vidalia onion pack date and the Fourth of July, when refrigerated and dry van rates typically peak each year, refrigerated rates — spot rates — increase on average 26 cents per mile and drive van increases 21 cents per mile. That's what we consider produce season.

Last year because of the drought, refrigerator rates only went up 2 cents a mile over that period because there's such little volume coming out of the West because of the drought. And we were really worried we'd have a repeat this year, but for the opposite reasons — the atmospheric rivers that hit California in January and then March, and then the aftereffects of Hurricane Ian in Florida in November, which caused a late start to produce seasons down there. But as of [mid-May], both markets have recovered well; I won't say California has recovered yet, but Florida has certainly recovered and their volumes are up 3% year over year, with pretty good loadings of watermelons, winter produce and strawberry volumes.

How would you compare the impact of the Florida market to that of California?

While we're seeing really good volumes out of Florida, it's not a big market and doesn't move the national needle like California, which as of [mid-May] was down 20% year over year, though slowly improving. So, I watch California the most because it's got the biggest volume that impacts national capacity levels. We've seen strawberry volumes starting to pick up and meaningful truckload volumes coming out of Salinas, although it's way behind.

A data point that I watch closely is the number of truckloads from the five major produce growing regions. When you look at California, Florida, Mexico to Texas, Mexico to Arizona, and Mexico to California, [in early May] about 5,000 fewer truckloads were coming in from those five regions. In [mid-May] it was down to 600. We're getting closer and closer to a similar volume that we had last year, which wasn't fantastic, but at least it’s not worse than last year.

It looks like growers are trying to squeeze 24 weeks' worth of production into 22 weeks.

What does this mean for refrigerated carriers?

In the middle of May, truckload market refrigerator rates only went up a half a penny per mile.

For refrigerated carriers, produce season is having a significant effect in that volumes are still behind in the major market. So, we are really hoping for a slow start, but a really strong finish this year.

You’ve said there’s a surplus of carriers in the market leftover from the COVID-19 pandemic. Is this further impacting transportation?

The rate of growth has been unprecedented. There's still a lot more capacity than there are loads, and that's what's keeping a lid on spot rates at the moment.

You’re still hoping for a strong finish this year and you don't have a crystal ball, but what does this mean to retailers and consumers in terms of produce pricing and availability?

The cost of transportation won't be a big factor. Truckload rates for all sorts of commodities are falling and have been falling for 12 months. But the impact of weather will mean that growers have less time to produce their crop and less acreage because of the damage from the floods, so prices will go up [for consumers]. I think we'll pay more for produce. But trucking prices are going to be pretty, pretty favorable for growers-shippers because there are still a lot of trucks in the market chasing loads.

Are there potential repercussions from the refrigerated truck surplus in combination with lower produce volumes?

We saw long-haul interstate carriers start to leave the industry in significant numbers last October, and it's been that way since. We've been losing about 1,500 carriers a month since last October. But remember, 1,500 in the context of 470,000 companies is a really small number. So, it's not a — it's not a significant number, but it's enough to alter the capacity mix in the spot market where a lot of them work.

There will be an ongoing exodus of carriers, and we think it'll take some time for capacity to balance itself with demand because it's not just produce season that's in question, it's also that manufacturing is down slightly. At best, our expectations for overall truckload demand — including produce and everything else — will be flat to slightly down this year.

We've got four to five months of fairly tepid market conditions before we start to see this market improve. And when I say improve, I mean the equilibrium of supply and demand that takes us into fall peak shipping season, which is when we think the market will start to turn positive again and we'll work our way out of this freight recession.

We really need a strong produce season to lift this market. That's what we're hoping for.

Related: Truckload freight volumes declined national average spot rates for refrigerated loads fell for the fourth consecutive month in April

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