Produce Freight Rates Up on Tight Capacity as Mexico Exports Rise, Calif. Under Pressure

This story appears in the June 9 print edition of Transport Topics.

The produce trucking markets are generally tight heading into summer, and rates are already rising as Mexican fruit and vegetable shipments surge and a drought pressures California markets, industry officials said.

“Mexico is still very busy,” said Gary Nuttall, director of network management for C.R. England Inc. “Business there has definitely been robust.”

C.R. England Inc., based in Salt Lake City, is the largest refrigerated carrier in the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.

Kenny Lund, vice president of support operations for broker Allen Lund Co., in La Cañada, California, said berry shipments doubled this year, linking the growth to completion of a Mexican highway.

Steve Covey, executive vice president at Maryland-based broker Choptank Transport, also said the cross-border business has grown this year, creating an equipment shortage.

The tightness of capacity was illustrated at Texas border crossings in late May, said Mark Montague, an industry pricing analyst at load board operator DAT. The number of brokers and shippers looking for a produce truck there has been as much as triple the typical level, he said.

“The Texas Valley is tighter than normal for this time of the year,” added Kerry Byrne, executive vice president of broker Total Quality Logistics, in Cincinnati. “It’s pretty safe to assume that is directly related to the situation in California.”

Produce moves are being delayed in California, where half of the produce consumed in the United States is grown.

“Product is coming on later,” Lund said, weakening early June freight levels. “We have not heard a significant indication that there is going to be a severe drop in [California] volume.”

Marshall Kipp, CEO of produce broker and trucker Advanced Transportation Services Inc in Visalia, California, said California growers “this year — I repeat, this year — will just squeak by,” despite drought conditions.

Farmers in parched counties in California are drilling deeper for water, and crops such as cantaloupe are being planted farther north, where spring rain was more plentiful, he said. Among the strong California crops this year is a record grape crop.

Nuttall said England, which ranks No. 19 on for-hire TT100, has noticed the delay.

“Usually by Memorial Day, we are swamped with freight, but not this year,” Nuttall said.

While there have been market shifts, overall shipment levels haven’t changed much.

“In terms of overall quantity, produce season is comparable to 2013,” Montague said.

Specifically, the Agriculture Department’s latest weekly fruit and vegetable report shows total produce shipment volumes in the 2014 growing season down 3% to 570,953 loads.

Truck markets likely will tighten over the next 30 days, before the Independence Day holiday, said Dan Vache, a vice president at trade group United Fresh Produce Association.

Though shipment volumes haven’t grown yet, tight capacity has had a favorable effect on rates.

“While things have calmed down from the severe weather in the first quarter and early second quarter, the market is still tight relative to what we have seen in the past few years,” Byrne said. “Rates are higher in all growing areas compared to last year.”

Choptank is seeing rates overall about 12% higher than last year, Covey told TT.

Pricing is rising in part, he said, because of reduced truck capacity, as well as growing pressure to deliver the safest and freshest products to stores. That trend, supported by greater en route visibility of shipments, has allowed carriers with those capabilities to charge more, he added.

“The rate structure seems to have changed,” Montague said, reporting an 8% rise in refrigerated rates last month as capacity remains under pressure for produce shipments. “I don’t think it’s a matter of not being able to find a truck. It’s just that rates are higher.”

USDA reports show the rate and demand picture, too.

The agency cited a significant late May shortage of trucks for California’s Imperial Valley onions, which forced some loads to be moved in bins on flatbed trailers instead of vans. Longhaul rates from there rose up to 35% over the comparable 2013 period, USDA reports show.

“C.H. Robinson is seeing intermodal become the mode of choice for many perishable shippers,” said Luke Gowdy, general manager at C.H. Robinson Worldwide, the largest U.S. broker, as a result of federal and state regulatory changes.

C.H. Robinson also sees the potential for produce sourcing outside the United States because of California’s drought, Gowdy said.

Covey also said that nationwide weather over the past two months has been comparatively predictable, making it possible for brokers and carriers to provide a high level of service consistency.

Vache also cited the weather’s effects on growing regions.

For example, he said, California’s cherry crop is weaker than usual this year, but that fruit will have a good crop in Washington state.

Another example is the Midwest, where the 2014 apple crop will be pretty good because of recent favorable growing conditions, compared with last year’s disastrous crop in the region.