The year’s headlines to date have centered around panic and disorder. Anyone perusing social media can see a slough of memes pointing out what a disaster of a year 2020 has been thus far. This article will point to one area that is actually having a better year – the produce trucking sector.
“Produce season” is a reference to the moving period of time between March and July when multiple harvests of fresh produce that we see in the grocery stores occur in the U.S. Most people do not realize that most of the produce we consume originates from relatively small, specialized regions of the country during the domestic growing seasons. Those that generally garner the most attention annually from truckers are the harvests that occur in California during these months.
The start dates are moving targets most years due to growth and planting cycles being impacted by weather patterns. Some years the harvest begins in April, while others it starts in June. In a year where the weather does not significantly delay planting or harvest, it generally starts in mid-April and lasts until June. The lack of consistency and unpredictable weather pushes most of this freight to the spot market or short-term pricing bids.
This year, even with the COVID-19 pandemic pushing freight volumes to their lowest levels in over a decade, spot rates for produce are averaging above 2019 by as much as 15% according to USDA surveys.
The spot rates are “all-in” rates, meaning they include all accessorial charges such as fuel. The interesting thing is that fuel prices are 25% lower this year, meaning the base rates for hauling produce are actually much higher than the absolute difference.
Using the San Francisco to Chicago lane as an example, the average spot rate for this week last year was $4,950 – while this year’s observed rate is $5,650 – 14% higher. Further south, the Los Angeles to Chicago lane is fetching $850 more this year than 2019. The Fresno to Atlanta lane, just to make full coverage, is $650, or 12%, more expensive this year.
This produce season is important to any carrier or shipper that does not haul produce because it can have a notable impact on national capacity due to the potentially high cost of moving this type of freight. Many reefer carriers will abandon contracted freight to cover the produce because the operating margins can be so much higher, thus putting upward pressure on rates in the non-produce sectors as shippers lose their carrier options. This is one reason the Reefer Outbound Rejection Index for California (ROTRI.CA) is rising so rapidly.
Why would carriers risk their relationships, though? The answer is simple – they can earn as much in one produce load than they can in multiple regular loads. Looking at FreightWaves Lane Signal application in its SONAR platform, a median cost carrier should be fetching around $1.12/mile moving from Salinas, California to Chicago. Assuming about $0.23/mile for fuel, this totals around $2,924, over $2,700 less than a load of produce on the same lane right now.
It is important to note Lane Signal is based on dry van data, but the base cost of operating a truck hauling a reefer trailer versus a van is a few cents per mile in fuel costs and the purchase of the reefer trailer. It is certainly not $2,700 on a single load.
The bottom line is a hard thing to argue when hauling freight. Many carriers are hauling freight making a penny or two on the dollar on a good day just to keep their truck moving. In the example above, that would mean making $60 on the standard load or over $2,800. Not many business owners could turn down that kind of payday when they are struggling for survival.
This scenario may be a warning for shippers who have “locked-in” their low rates this spring without regard to potential capacity shortages if the second half of the year is as robust as many are predicting. If carriers are on life support, good relationships may not be enough to salvage route guides.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.
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