Are things improving on shipping and logistics in North America?
It does look as though truck rates have stabilized following the recently seen escalating rates and even come back down to pre-pandemic levels. “For example, pre-pandemic, the cost of a load of produce from Nogales to Philadelphia was negotiated between $6,800 and $7,200 per load. During the better part of the pandemic (and as recently as February 2022), loads were quoted at upwards of $12,000,” says Kasho Santa Cruz, senior relationship manager, Wells Fargo’s Agribusiness, Food & Hospitality, who is based in Nogales, Arizona.
However, while that’s good news, what remains following months of what many growers and shippers have described as a chaotic logistics season, are potential ripple effects. And as these effects get sorted through, there could possibly be longer-term structural changes around logistics. “For example, in the shorter term, port disruptions and container shortages are still creating shipping delays and this creates challenges for trucks to and from ports,” says Karol Aure-Flynn, sector analyst, Wells Fargo’s Food & Agribusiness Industry Advisory group. Aure-Flynn adds that the tree-nut sectors, which have approximately 60-70 percent of U.S. product going to export, is reporting strong sales commitments. Yet actual shipments are down 10-15 percent year over year.
Right: Kasho Santa Cruz
Movement improving
Following months of challenges around increasing rates and difficulty accessing containers, container issues are expected to improve in the next 10-12 months and better movement is already being seen. But longer-term structural changes in logistics are going to be seen in overall rates. “For bulk ag products, for example, hauling crops from the field to first-level processing are experiencing year-over-year re-calibration of pricing to the ag processor and ultimately food manufacturing,” says Aure-Flynn. “As labor markets change, and to attract professional drivers to these seasonal and demanding assignments, prices have been increasing 12-15 percent a year, and in some places more.” And while fuel surcharges of course are connected to the up and downs of fuel prices, driver wages are only expected to continue to go up.
So, are things better now logistically? It turns out they’re both better and different. “Better because product volume is low. Many growers feared produce prices in 2020/2021 were too high and thought 2021/2022 season would demand less fruits/vegetables at those prices, so they planted less,” says Santa Cruz. “Now that volume is low, demand for trucks is also low and has driven prices back down.”
The difference comes in logistics solutions and Santa Cruz says it has seen its customers acquire and open new logistics companies within the last six months. That way, they not only have access to their own trucks but they can control the availability and price of transport for their produce.
And given the pandemic has taught growers and shippers many things, it’s likely the industry has also learned to adapt their “what if” plans following their recent logistics experiences. “Industry players are working with customers to expand delivery windows, seek new technologies or distribution platforms. U.S. food and ag players are innovators,” says Aure-Flynn.
Right: Karol Aure-Flynn
Eye on domestic season
So with the domestic agriculture season developing and more stable logistics costs expected, the industry will remain watchful for the upcoming fall/winter season, particularly as both the pandemic and the war in Ukraine continue.
“Logistics are going to require more forward planning, partnering and cost. Logistics suppliers are likely going to continue to consolidate and mature. Look for partnering and contracting to become increasingly sophisticated, as data-analytics, regulatory constraints, pricing and uncertainty drive need for innovation/efficiencies,” says Aure-Flynn.
And while container shortages and delays at the ports seem to be alleviating, albeit slowly, it will take some time for issues to work through the system and trade flow is expected to flow more smoothly in 10-12 months.
Santa Cruz adds that while the logistics challenges/costs during the better part of the pandemic were unheard of before, prices aren’t expected to increase to those levels for the next season. However, what about fuel costs?
“Fuel costs were always a point of contention during load cost negotiations during pre-pandemic. During the pandemic, fuel costs did not come into the conversation. Now that prices have stabilized, fuel costs have, surprisingly, not come into the negotiations,” says Santa Cruz. But as the price of fuel continues rising, truck transport costs comes into play and will likely need to rise accordingly.
Aure-Flynn adds that transporters of perishable products and key commodities are often just ‘price-takers’ regarding the volatility of fuel prices. “Many carriers and their customers are agreeing on fuel-surcharge agreements that isolate fuel-price uncertainty. It’s all the other dynamics--supply/demand, labor, regulatory and plain old cost-of-doing-business--that will keep negotiations interesting,” says Aure-Flynn.
Photo: Dreamstime
For more information:
Sarah Hatch
Wells Fargo
sarah.hatch@wellsfargo.com
https://www.wellsfargo.com/