But challenges remain in a market still plagued by high fuel costs and inflation.
Originally printed in the September 2022 issue of Produce Business.
The transportation sector is recovering from the traumas of the COVID-19 pandemic, when supply chain snafus, a lack of drivers and even parts shortages made life difficult. Although things aren’t exactly easy, with fuel price increases and the uncertainty about the future of some newer carriers, the overall situation looks brighter.
For produce companies and retailers that rely on the transportation sector, the developments rate as improving. In June, the American Trucking Association’s advanced seasonally adjusted For-Hire Truck Tonnage Index increased 2.7%, after a revised 0.3% slide in May. The index equaled 120.1 in June versus 116.9 in May.
As compared to June 2021, the SA index increased 7.9%, the 10th straight year-over-year gain and the largest since June 2018. In May, the index gained 3.5% from the year-earlier month. In the third quarter, the index rose 1.1% from the previous period and 4.6% from the same quarter in 2021. The not seasonally adjusted index, representing the change in tonnage actually hauled by fleets before any modification, equaled 124.5 in June, 4.2% above the May level of 119.5.
In the index, 100 represents 2015. ATA’s For-Hire Truck Tonnage Index is dominated by contract rather than spot market freight.
Trucking serves as a barometer of the United States economy, representing 72.5% of tonnage carried by all modes of domestic freight transportation. Trucks hauled 10.23 billion tons of freight in 2020, and motor carriers collected $732.3 billion, or 80.4% of total revenue earned by all transport modes. The American Trucking Association (ATA) calculates the tonnage index based on the results of membership surveys and has been doing so since the 1970s.
In a review of the figures, ATA Chief Economist Bob Costello, says June’s jump tells him a couple things. “First, the transition in the freight market from spot back to contract continues. ATA’s tonnage index is dominated by contract freight, so while the spot market has slowed as freight softens, contract carriers are backfilling those losses with loads from shippers reducing spot market exposure. Essentially, the market is transitioning back to pre-pandemic shares of contract versus spot market.
“Second, and perhaps equally important, while economic growth is expected to be soft overall in the second quarter, the goods economy wasn’t as bad as feared,” Costello says.
Mark Petersen, vice president, C.H. Robinson, Eden Prairie, MN, says the aftermath of the COVID-19 pandemic has created a fresh economic circumstance and that is driving events in transportation, but unevenly.
“Overall, consumer demand is reacting to today’s economic situation in a somewhat unpredictable manner,” he says. “We are seeing buying patterns continue to change, and this can cause disruption to distribution patterns that put regular networks out of sync. Truckload volumes are also trending downward, which has reduced tension in the truckload market, creating opportunity to revisit freight transportation strategies. Additionally, LTL continues to benefit from e-commerce retail, which is growing at pre-pandemic rates.
Fuel prices, while going down in cost per gallon, are still very high, Petersen says, which has had the greatest impact on smaller carriers, or the majority of trucking companies. Typically, they can feel greater impact from less freight in the spot market and thus incur more empty, non-revenue generating miles, he explains.
C.H. Robinson constantly seeks to improve the customer experience for carriers of all sizes, he adds. “Through our scale and the introduction of new technology, we are able to help create more efficient ways for carriers to gain access to freight, book loads and reduce empty miles, thus saving them time on the road and money.”
CARRIER CAPACITY FLUCTUATES
Despite some things looking up, Evan Kazan, vice president at Target Interstate Systems, Bronx, NY, says today’s pressing issues range across “carrier capacity, customer acquisition, inflation, fuel costs and a fairly stable spot market that properly reflects these issues.”
Carrier capacity is an example of the betwixt and between, in terms of improvement.
“Capacity was still an issue the first half of the year, but has been improving,” he says. “There are occasional issues, but not as common as it was the previous two years.”
Kazan says that carrier capacity was a concern entering 2022, but that the issue had evolved.
“We thought that trucks would be very tight, but it was worse for a time than we anticipated in the first few months of the year,” he says. “Then, they were still tight, but loosened up in late spring as local produce became available, which is what we expected. Then, in the summer, capacity was better than we anticipated.”
The cost of fuel, of course, has been a factor but so has adapting the business to a hybrid workplace when not everyone is commuting to Target’s facility in the Hunts Point market. However, overall, Kazan says, circumstances have been manageable.
He adds that, at mid-August, “it would seem that there is equilibrium in the capacity — supply — and demand as reflected in the current rates.”
BASIC COSTS UP 20%
Fred Plotsky, president, Cool Runnings, Kenosha, WI , says that, as the marketplace continues its unwind from the heights of the COVID-19 pandemic, things are looking up, but the challenges that the coronavirus wrought aren’t simply going to disappear. Illness drove drivers out of trucks for a couple of weeks at a time or even, in some cases, to retirement. Then, retailers began boosting their inventory of hard goods after having been caught short as the pandemic gained momentum, even if they came to regret their enthusiasm in that regard. On top of that, fuel costs jumped, and some companies overpaid for equipment in establishing carrier businesses that capitalized on high rates that have begun to come down. Factors such as those continue to have a significant effect on the transportation business.
Basic costs that transportation firms face today run about 20% higher than they were pre-pandemic, Plotsky says. Although cost increases are universal, some uncertainty in the market is more specific. For example, companies that sprung up in the pandemic, particularly those dependent on the spot market and high rates to cover costs, will struggle to stay afloat.
In some ways, particularly in availability of trucks and rates, things have been looking better for the produce sector, but shifting circumstances are far from settled.
Not long ago, trucks for purchase could be hard to find, Plotsky notes, but adds, “Now people are asking: ‘Do you want to buy some equipment?’ It’s the well-managed companies that have survived — well-managed, with good systems in place, well-financed.”
Trucking firms that are sweating payrolls now are going to have a hard time remaining in business, so consolidation is likely. Disruption in that regard may create a fresh transportation wrinkle.
“Frankly, that carrier market of one to five trucks is our sweet spot,” Kazan says. “That is what makes up the majority of the companies that work in the produce industry. This addition of truckers was godsend when we were dealing with the severe carrier capacity shortage created by the pandemic that produced record freight rates. Now I am fearful that this group that bought trucks at the top of the market is in trouble. The freight market has declined substantially from its highs. The debt service on that equipment, fuel cost and increased driver pay, coupled with an uncertain spot market, may force them from the industry and plunge us right back where we were.”
Almost nine in 10 trucking companies have five trucks or fewer, Petersen says, including the 85,000 contract carriers with which C.H. Robinson works. In adjusting to post pandemic realities, small carriers, including those that have recently emerged, have to lean on efficiency and technology to survive. C.H. Robinson developed Navisphere, which brings them together into a single platform so shippers can tap into this tech-enabled fleet at scale to move their goods, Petersen says.
“We have plenty of capacity, the spot market is performing at five-year average levels of tension, and the contract market is performing at pre-COVID levels of performance,” he says. “With substantial growth in the number of new carriers, enabling them to operate in a fully digital fashion is critical for their success. Every bit of efficiency matters.
“Quickly finding freight and having a seamless digital experience from offer to booking to in-transit updates to getting paid allows carriers to optimize their businesses,” Petersen says. “That, in turn, optimizes trucking capacity for our shippers. We give our carriers access to the most loads in North America and technology to help them run their businesses.”
The COVID-19 pandemic shook the trucking industry, and company’s found themselves trying to forge forward in a dizzying environment. To get on a firm footing again, transportation companies and their supply chain partners had to lean on each other to remain in operation and had to innovate.
Cool Runnings was able to lean on relationships, knowledge derived from 36 years in business and the customer-driven operations developed to keep going through the pandemic and even learn some new tricks, Plotsky says. In the pandemic, as costs increased, participants in the supply chain recognized they had to collaborate to keep product moving. Up and down the chain, discussions continued so that everyone could share cost burdens and still make a little money.
“If I wrote a book, the first 34 years in business wouldn’t hold a candle to what I’ve learned in the last two,” he says.
Bob Rose, vice president of national sales, Allen Lund Co., La Cañada, CA, said the relationships the company has developed were important in weathering the past few years. Also, applying technology in the service of customers and pressing an ongoing effort to hire good employees helped keep the business moving forward.
“We are fortunate to have a robust group of carriers that have worked with our company for over 46 years,” Rose says. “We added our mobile app for drivers so that our customers can have real time tracking and tracing of all their loads. This has added another support layer to our Extra Miles Team, our evening hours group, which supports our customers when they sleep. Overall, our biggest resources are our people and that has been growing significantly over the last few years.”
Kazan also points to relationships as a critical factor in working through the pandemic and ensuing economic strains.
“We’ve enjoyed extremely strong relationships with our customers that we’ve built over the last 40 years,” he says. “This created a comfort level where our customers relied on us to help guide them through these tumultuous markets to the other side, and it has entrenched that relationship. We’ve been very grateful to our carriers that have helped us and worked with us during this time as well.“
C.H. Robinson developed technology to strengthen relationships with customers, giving them tools to handle the ups and downs of an extreme marketplace.
Peterson says the company has focused on developing products and technology tailored for its customers, from the largest shippers to small businesses. “In research we conducted in January, three-quarters of our customers said the events of 2021 increased their need for supply chain technology, automation and predictive analytics.”
Communications in transactions has changed significantly in recent years, with advancements in digitally enabled technology as well as the rapid acceptance and evolution of the remote work environment, Petersen says.
“These dynamics have changed and enhanced the way we manage relationships and, in many ways, has increased communication by making people more accessible,” he says. “When our research last year revealed that customers’ three greatest pain points were capacity, sustainability and market volatility, we created industry-first technology to solve for all three: Procure IQ to analyze shippers’ freight and show the optimal way to purchase transportation in each of their specific freight lanes instead of using a one-size-fits-all RFP; Emissions IQ to give shippers instant visibility into their carbon emissions and instantly surface opportunities for reduction; Market Rate IQ to show shippers which factors in their U.S. spot pricing are market-driven and which they can control to uncover savings opportunities.”
Plotscky says that, in terms of produce volume moving across the United States, this has been a “we’ll see” year, with some crops suffering from poor weather and rail becoming a bigger factor. Inflation is another factor that’s going to work on the movement of produce, particularly as some commodities are now selling at double the price consumers expect. As such, demand may shift sufficiently to affect the transportation sector.
People have to eat, but Petersen says many are changing how they eat, and, so, what truckers need to haul.
“Inflation has impacted just about everyone, and, unsurprisingly, it has had an impact on where consumers choose to spend their money,” he says. “For example, you may see a reduction of fresh purchases and more of a transition into frozen produce, allowing consumers to take advantage of extended use and less waste.”
Even if the market is moving closer to something like normal, challenges remain, Allen Lund Co.’s Rose says, particularly to deliver a high level of service no matter how the pressures of the economy hit the industry. And finding employees and scheduling are a constant concern.
Still, he remains optimistic about produce transportation in 2023. “Produce is a wonderful, healthy alternative to so many other products out there, and we are excited to be a part of those efforts in the food chain.”