Tight U.S. freight market to impact food prices

Each winter the bulk of produce production in the United States shifts from the California coast to the Yuma, Arizona region and to points further south into Mexico. The produce is then trucked into the U.S.  

In fact, over $17 billion worth of agricultural goods crossed the border in 2016.

One of the main points of entry into the U.S. is Nogales, right on the Mexico-Arizona border. After the produce is shipped in it is stored in coolers in Nogales, Arizona, from where it is distributed across the continent.

However, according to reports from freight brokerage firms, there are more than 1,500 trucks currently sitting idle in Nogales because of a lack of drivers.

“I have announced my job openings in newspapers, on craigslist. We have job fairs,” said Jim Watson, who runs local trucking company JSJ Enterprises. “I think I’ve had one application.”

Watson has to hire drivers from Mexico to keep his 20 trucks running.  The Mexican drivers have valid US trucking licenses, but they cannot move freely around the U.S. They have to go straight from Mexico to their destination in the US, which means no stopping in Nogales to pick up produce.

“A lot of these produce companies are going to move out of Nogales and find other ways to transport their product so a lot of local workers are going to be out of a job,” said Watson.

This trend is reflected in two major issues that occurring in the freight markets at this time. Namely they are constrained truck capacity and tight labor markets.

As Freightwaves has reported multiple times, the freight markets are tight. Spot rates are at record highs. And the capacity crunch is also being felt in the carrier contract negotiations as shippers are feeling more and more pinched by the high lane rates.

A load from Nogales to L.A. was predicted to cost around $1,600 now costs $2,200 and will likely go even higher.

On top of this is the problem with the tight labor markets.

The US labor market is at near full employment with more construction jobs in the mix. Construction and trucking tend to have an inverse relationship and there is a lot of building going on right now. Therefore, labor is turning away from the driver pool.

Furthermore, with talks about infrastructure spending in the works there could be a lot more high paying construction jobs coming down the pike which would put a further squeeze on the labor markets.

And finally, there is uncertainty about the future of NAFTA. The United States has constructed a food production system that depends on Mexican produce during the winter months. Tinkering with NAFTA could throw a wrench into this intricate system.

Regardless of the causes, the fact that there are trucks sitting idle in one of the great food distribution hubs of the Nation has one obvious and predictable consequence. It will bring about higher prices at the grocery store for consumers.

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