And the drop in oil prices over the last year or so hasn’t affected freight rates as much as commodity volumes. The biggest lever in rates is the amount of demand for trucks to ship product. “This has been a really odd year in terms of transportation,” observes Jason Furman in business development for Sunbelt Logistics Group.
“Demand has been low because there has been less produce on the market. For example, the Florida deal was essentially dead from all the rain—there were very few pulls for strawberries by the chains compared to last year,” he says.
Furman added that logistics companies who make their business as transfer companies in Detroit or Chicago, switching loads from American trucks to ones certified to cross into Canada, are also seeing a significant drop in business this year. “They would switch the truck for a backhaul of produce and other products, but this year there has been little or none of that for these niche companies, and this shows the demand for transport is down significantly.”
“Freight prices out of California have been pretty low this year,” confirms Formusa, “but that’s not a direct reaction to fuel prices. When fuel prices go up, freight is quick to react, but when they go down, we don’t get the opposite reaction.”
Carriers have significant fixed costs as well as the expense of updating and maintaining equipment that is not offset by a drop in fuel. On the other hand, increasing fuel prices impact delivery costs and typically result in a fuel surcharge. Without the fuel surcharge and with lower produce volumes, rates have fallen significantly. Ceciarelli says freight prices have been about 20 percent lower this year. “I get calls and emails every day offering me trucks at lower rates. I can choose the ones I want and negotiate, and that, across the board, is also influencing the lower rates.”
For transport and logistics brokers, the rapid change in rates has made it a challenging year to work with some clients. “Clients are always analyzing where they were last year and simultaneously the market is very forward looking,” comments Furman. “Some of our clients are looking for multiyear programs with guaranteed truck rates, but the market can change very fast and you don’t know when that will happen.
“We offer some programs to meet their needs, especially with the bigger clients and using larger transport companies,” Furman adds. “In a multiyear deal, there are always winning and losing periods, and you hope to get a fair return over the term of the contract. Small and mid-size carriers are less likely to do this and more likely to go by the spot market or a quarter-by-quarter deal.”
Not the ‘New Normal’
In terms of freight prices, wholesale and retail profit, as well as volume—there’s room for improvement. The shortage of supply and lower demand softened freight prices, spiked commodity prices, and created a tough start to the year for all players in the industry.
Even so, in the long run this is a seasonal aberration and as most hope, not the new normal. Better technology, increasing yields, and climbing demand all point to long-term growth for Canada’s top produce market and growing region.
Images: Shutterstock.com/Ronald Sumners, David C. Rehner, Goran Bogicevic
