After the turmoil of the past few years, relationships are more important in navigating the market.
Originally printed in the September 2023 issue of Produce Business.
With fuel prices stable and rates moderating, produce transportation is shaking off at least some of the troubles that plagued the sector during the COVID-19 pandemic and the global instability that followed its peak. Challenges remain, though, with a tight labor market, crime and climate change.
Freight rates have declined, which is one element in the produce transportation sector that has seen some normalization.
Evan Kazan, vice president at Target Interstate Systems, Bronx, NY, says basic economics have been behind rate declines.
“Capacity has exceeded demand for the last several months,” he observes. “That has caused rates to come down.”
But comparisons to previous years show the decline is still a higher plateau for transportation rates.
John Ryan, Boston office general manager for the Allen Lund Co., La Cañada, CA, pulled some numbers from California to Massachusetts for the last four Junes. “In June 2020, the average truck price was $7,275. In 2021, it went to $10,800, up 48%. In 2022, it was $8,952, down 17%, and this year it was $8,219, down another 8%. It is still up 13% from 2020 to 2023.”
However, don’t look for rates to stay down. Fred Plotsky, president of Cool Runnings, Kenosha, WI, expects lower rates will lead to a rebound. Many companies that started trucking operations when rates were peaking during the pandemic often had limited experience and spent too much on equipment. Operations, focused on the spot market, have been further undermined by the return of customers to contract arrangements.
Although the competition that’s developed has helped lower rates, Plotsky says companies that aren’t economically viable can hang around the market and even undermine established companies.
“That’s definitely a concern,” says Plotsky, “if they can withstand a slow bleed to buy time for rates to come back, then eventually get out, the guys who are left may say, ‘There’s a truck for every road, let’s firm up rates.’”
The reality is, he says, not everybody is going to make it, given market conditions.
“You’ve got carriers that are working at 20% below cost,” he says.
Chris Sujka, director of sales, TransLoop, Chicago, IL, says although the past couple of years have had ups and downs, the challenge today is “finding the bottom line in terms of where we can connect with shippers and carriers to keep companies in business. Rates continue to fall, and trucking companies are having a hard time keeping their lights on due to the competitive market.”
TransLoop has been able to keep costs in line, Sujka says. “We have been on a steady growth path over the past three years, not much has changed specifically. Contracted rates are down, but volume is still high.”
Target Interstate’s Kazan says costs are significantly less than three years ago, but have “definitely plateaued.”
“The cost to operate a truck rose sharply over the last few years, which raised the floor for freight costs,” he explains. “In addition, when the trucks have to wait long periods between their loads, their monthly expenses per trip increase, raising the floor even more.”
Still, all the turmoil of the past few years has made relationships more important in navigating the market.
“Relationships are better because there is a larger need for transparency and collaborative thinking/efforts to get orders sourced,” says Sujka.
While relationships remain important and helped companies through the pandemic, Plotsky notes shippers who paid big bucks to move their goods amid the pandemic have, in some cases, become less cooperative as the freight tables turned.
“Some say, ‘it’s just about the money,’” he says. “That’s their transportation creed.”
“We have some customers that our relationship got stronger, and some that we realized are strictly about the price,” says Allen Lund Co.’s Ryan. “The one thing that is certain is we have a much better idea of where we stand with every customer. We learned who were partners and who are transactional customers.”
As he looks ahead for the rest of 2023 and 2024, Ryan identifies a couple of critical considerations.
“The first is the amount of theft, fraud and double brokering that is going on in the industry right now. This is an issue that shippers and brokers need to work together to resolve. It is quite evident that the government will not get involved,” Ryan says. “The second is new regulations that California will develop to further hinder the industry.”
Wendy Adan, manager of Allen Lund’s San Francisco office, agrees thefts are a “massive concern.”
As carriers are getting more creative and using technology to get loads, it “creates the need for additional security measures and personnel to ensure we know the trailer’s location at all times. It is becoming very costly in aspects.”
Target Interstate Systems’ Kazan says although truck availability has been “plentiful” for the most part, he has seen “pockets of tightness here and there.”
“The biggest issue is that freight coming off the East Coast has been really tough lately, making it hard for trucks to make their turns and get back to the West Coast quickly. Many trucks wait several days or even a week before being able to get their reload, and the rates going back to California are less than half what they are from California.”
Scheduling is evolving as more technology is adopted.
“Scheduling is an issue we always adapt to,” says Ryan. “We adjust to the technology. Availability is back to normal cycles as well.”
Adan noted scheduling has become easier, “especially with those who manage their appointments with our Alchemy TMS.”
“The only challenge with those who schedule over the phone is the wait time, and once you speak to a clerk, appointments are gone. Drivers need to be unloaded as early as possible, and having late appointments creates issues with ELDs and unnecessary idle time,” says Adan.
“Technology has significantly impacted our sector, and if you want to remain a key player, you must be able to adapt,” adds Adan. “Compliance, reporting, tracking and tracing, and KPIs are constantly looked at, and customers expect you to be available 24 hours a day, seven days a week. So, technology is a must. Privacy laws are a big point of contention, and I am unsure how to mitigate that where all parties feel it is fair.”
Tracking is the biggest difference, Ryan contends. “It used to be, we let customers know when there was an issue. Now, almost every customer wants the ability to know where their loads are at all times.”
With labor tougher to get, scheduling has benefited from automation, says Plotsky, and companies have figured out how to do scheduling online. “Companies have been trying and have successfully done away with scheduling with human interaction.”
Still, interchange with customers requires flexibility to address changing conditions.
“There is a great emphasis on compliance, and customers are asking for a lot more tracking and tracing, along with the lowest price possible,” says Adan. “Most customers are reasonable, understand our business’ ebbs and flows, and are willing to be true partners. Maintaining a high level of service while adapting to the customer’s needs and being quick to pivot when the market demands is crucial.”
For the most part, Adan adds, customers are taking steps to be more efficient by consolidating produce loads.
“In the recent past, customers would move 18 pallets of light product from coast to coast. Now in California, we are seeing more local runs to make sure the long-haul trucks are being filled to capacity before heading to their final destinations.”
The labor situation remains a tricky element in the transportation equation. Although it’s eased somewhat, a lack of truck drivers is still an issue.
The relatively high average age of truckers and the decision of some to retire doesn’t necessarily suggest a new development in the transportation sector, says Target Interstate Systems’ Kazan, but rather a temporary acceleration of an ongoing reality.
“On average the long-haul truck driver workforce has always been older than the overall workforce,” says Kazan. “It’s been an ongoing issue for many years that doesn’t seem to be changing.”
Although Cool Runnings has been able to maintain itself in a good labor position, Plotsky says people aren’t exactly rushing to fill available transportation jobs. “You still can’t find people to work,” he says.
Adan adds that maintaining a solid driver/carrier base will be an ongoing consideration and part of a larger concern as equipment and fuel costs increase over time.
“For many of them, moving the truck at these lower rates does not cover the cost of keeping it running, so, often they sit until they can find a good-paying load. During COVID, the abundance of loads combined with capacity constraints created a perfect environment for drivers to be much more selective, often avoiding multi-pick loads and even converting their refrigerated trailers to dry for less liability,” says Adan.
Driver issues are set to be compounded by California law and its potential reclassification of certain workers as employees rather than independent contractors, which has an effect on the transportation sector.
“California’s AB5 law affected many small companies, and several moved out of state. Although Class 8 truck states still show growth, getting good drivers is a constant challenge,” says Adan.
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Transportation Demand Influences Produce Industry
According to the American Trucking Associations (ATA), the transportation sector continues to suffer some softness in demand due to lower consumer spending and home construction, among other factors, which should mean the produce industry should enjoy a fair advantage in moving goods.
“While the tonnage index increased in both May and June, it remains in recession territory,” says ATA Chief Economist Bob Costello. “The index continues to fall from a year earlier and is off 1.9% from its recent peak in September 2022.”
Costello says a multitude of factors has caused a recession in freight, including stagnant consumer spending on goods, lower home construction, falling factory output, and shippers consolidating freight into fewer shipments. “However, the magnitude of the year-over-year declines is improving, perhaps pointing to a bottom in the freight market.”
The ATA advanced seasonally adjusted For-Hire Truck Tonnage Index rose 2.1% in June after gaining 1.2% in May. In June, the index equaled 116.5 when compared with 114.1 in May. In the index, 100 equals 2015 volume.
Compared with June 2022, the SA index decreased 0.8%, which was the fourth straight year-over-year decrease. In May, the index was down 2.4% from a year earlier.