Conventional wisdom says that the summer produce harvest in California holds the annual promise for relief from soft freight demand and low rates. Like much in conventional wisdom, this summer, reality seems quite different from belief.
At the beginning of July, the harvest this summer seemed to promise the rate bounty of previous years when the revenue for a load from California to New York might average $5,500 and had been known to escalate as high as $7,200. The early prospect for high rates seemed bright but has faded in recent weeks to take on the same character of the rest of a soft freight market for truckload carriers, says Richard Durst, president of Arctic Express in Hilliard, Ohio. What looked like a bright summer for produce rates has been overcast with the same clouds as the rest of the business.
In a normal year, the competition for trucks heats up and rates begin to rise shortly after July 4. “That big money hasn't popped yet, and if we haven't seen really high rates by now, we will not see them at all this summer,” says John Christner, president of John Christner Trucking in Sapulpa, Oklahoma. “By August, the harvest is still fairly strong, but demand falls slightly as local farmers throughout the country have produce for sale and as home gardens reach their height. In addition, schools begin to open, and consumers switch from buying fresh fruit to purchasing staples and school supplies.”
Large Rate Differential
The rate differential this year compared to past years is significant. At the highest rates, some shippers have paid almost $2.50 a mile to the East Coast in previous years. In most years at the peak of demand, produce from California pays about $1.85 a mile. This summer, the rates are closer to $1.60 a mile. While still higher than the rate for much general freight, such pricing makes it difficult to work with the much lower westbound rates carriers face in returning to California for another produce load.
Perhaps outbound rates from California are low because so many carriers are looking to produce to boost lagging revenue this summer. A lot of trucks that were hauling deep frozen goods out of California have been sent to the produce sheds, Durst says, because not much deep frozen freight is moving these days. “The past month has been an unbelievable scramble for refrigerated carriers,” he says.
That is not to say that no freight exists. Arctic Express handles an average of 20 eastbound produce loads a week for one major supermarket chain, delivering to a number of distribution centers in the Midwest. In addition, the company runs another 20 trucks a week for other produce shippers. Hauling produce pays relatively well for 100 to 110 days a year. However, with empty mileage to reach loads and multiple stops to fill trailers, the potential for high revenue erodes to the point that produce rates become comparable to the rates for general freight. “Whatever produce is paying this summer, it certainly won't turn your world around,” Durst says.
Little Change from 2000
In late July, produce from California to Philadelphia and the surrounding region was paying a little more than $4,600, according to Joey Bray at Mark Martin's J-Mar Express in Searcy, Arkansas. That is a roughly $100 a load more than it paid at the same time in 2000, he says. Brokers on the West Coast recently began quoting lower rates, he says.
The traditional boost in rates from the soft fruit harvest seems to be missing this year. Usually when fruit shipping begins, rates climb slightly because more trucks are required. The fruit harvest is well underway, but rates have yet to reflect the demand, Bray says.
Adding soft fruit to the freight mix has raised trucking volume, Durst says. However, Arctic has seen no appreciable impact on rates.
Hauling produce is all that J-Mar Express does. The company runs 55 of its own trucks plus five leased from Bray. Teams make a weekly round trip from California. J-Mar has two contracts with receivers in the East and moves the rest of its loads at the daily market price, but it won't cut rates sharply. “A few days ago, we let a couple of trucks sit for a day until the rates went back up,” he says. “We did that to demonstrate to a few brokers that we would not accept low rates. Our rates need to stay fairly high to justify the service we provide.”
Maintain Rate Levels
Christner agrees with the need to hold the line on rates. “Sometimes we need to dispose of difficult customers just like we readily terminate undesirable employees,” he says. “Shippers need not call us for low rates and still expect to get all the extra services we provide. Rock bottom prices can't justify things like satellite tracking and premium equipment with air suspension to protect delicate products.”
Although many carriers have been tempted by produce rates this summer, others do not see the traffic as a solution to a soft market. The temptation to haul produce arises every summer, says Mike Bunnell, senior vice-president corporate sales and marketing at C R England Inc in Salt Lake City. The rates look high, but the revenue doesn't last very long. “We feel better off sticking with our long term customers,” he says. “It's tough to turn down high-rated freight when we get offers, but we need to keep our trucks available year round for our steady customers. We hear the promises of stable year round produce rates, but they never really materialize.”
The key to hauling produce profitably is working with the right customers, says Jack Liles, chairman of KLLM Inc in Jackson, Mississippi. He says that KLLM hauls several hundred loads of prepackaged salad greens a week. “That traffic is all on contract,” Liles says. “We don't haul for the spot market. We don't have the capacity to serve our regular customers and chase the daily rates. We have made a decision to give up the potential for high summer rates in return for year round consistency. The packaged salad shippers have long term sales contracts with supermarket chains, so they always have freight to move.”
Finding Westbound Loads
Waiting time to load and unload and low westbound rates are two more factors in the produce hauling equation. Many produce loads require two or three stops to fill the trailer. With shippers' facilities congested by trucks waiting for the harvest to be processed, a three-stop pick-up can take two days, Durst says. At the delivery end, waiting time depends on which receiver gets the load. Some receivers take eight to 10 hours, while one supermarket chain has worked diligently to reduce its unloading time to less than an hour at some distribution centers, he says.
Getting to California at a compensatory rate has always been difficult. Trucks in the East need loads, and shippers are quick to take advantage of the situation. Some carriers will head west at rates that barely pay for fuel and driver wages. Many loads off the East Coast pay as little as 90 to 95 cents a mile. Rather than operate below cost, carriers such as J-Mar Express often return to the Midwest for better paying freight. Some empty mileage is inevitable, so it makes more sense to haul a load from Memphis or Little Rock for $1.25 a mile and make a profit on the loaded portion, Bray says. The alternative is having 20 trucks waiting for decent-paying westbound loads every week.
East Coast outbound rates make no sense, Christner says. While they may pay for fuel, they won't pay for truck maintenance and replacement, and they certainly will not pay for company infrastructure such as vacation and benefits that make a job desirable, he says. Major carriers compete fairly with one another, he says. When rates get cut below costs, it becomes impossible to compete with operators who offer no insurance or other benefits to employees, Christner says.