Date: Feb 01, 2013
Magazine:
February 2013 Fiscal Cliff Averted

The sky is falling is a constant refrain that typically has no bearing to reality when the situation in question plays out.  However, in the world of transportation there are a number of influencers converging that could greatly impact both the cost and availability of the long-haul truck, which, of course, is critical to the movement of fresh produce.

Among the factors that might be impactful are regulations on hours of service, safety issues and wait times at point or origin and destination.  Also of concern is a potential shortage of drivers, and an aging fleet of trucks, which means more breakdowns and longer haul times…two more factors very critical to the movement of refrigerated commodities.

Regulations

The Federal Motor Carrier Safety Administration has been busy the last couple of years proposing new regulations designed specifically to improve the collective safety record of our nation’s long haul operators.  Of immediate concern are changes in the hours of service.  The regulations, which are winding their way through the courts, impact the amount of hours a driver can be on the road and the length of breaks between starts.

One area of big concern to truckers and trucking companies is the requirement that a new week of driver service cannot begin until a 34 hour break has ensued.  In addition, there are restrictions on the amount of hours on the road allowable during the early, early morning hours following a restart.

These regulations can get complicated but the bottom line, according to an article in the January 2013 issue of the Journal of Commerce is that “many carriers say they will have to hire more drivers to do the same amount of work, raising transportation costs, putting pressure on driver pay and challenging shipper networks dependent on early Monday deliveries.”

The FMCSA is currently conducting a field study on the impact of the 34-hour restart rule, with that study due by March 31.  The new hours of service rules are scheduled to go into effect in July.

Gary York, general manager of CH Robinson Worldwide, Monterey, Calif., said that while the new hours of service rules could have an impact, he is watching even more carefully potential new rules dealing with the “health” of drivers.  “’Health’ means both their physical and financial health,” he said.

The FMCSA is developing a new rating system that takes into account a driver’s physical health as well as their driving record.  Both of these regulations could have the impact of decreasing the available pool of drivers.

But just as important to the fresh produce industry is a burgeoning effort by FMCSA to delve into the financial health of drivers and calculate how they get paid.  FMCSA appears to be focused on wait times at both ends of the haul.  Truckers typically get paid in a way that rewards them for driving, not sitting around.  FMCSA officials are considering holding shippers responsible for extensive driver waiting periods, which cut into their ability to drive.

York said it is the nature of the produce industry that extensive wait times are commonplace caused by weather and other factors impacting a grower-shipper’s harvest.  For example, cold or wet weather may delay harvest which delays the availability of a load to be shipped.  Truckers often sit at a dock waiting for hours to be loaded.  If the motor carrier agency follows through in this area, one should expect the cost of transportation of perishables to increase as shippers, in essence, are fined for making truckers wait beyond a reasonable time as defined by FMCSA.

Equipment Shortage

It is no secret that the economy was in the doldrums for the past four years.  The biggest impact this has had on the transportation industry is to delay the purchasing of new equipment, which has resulted in the aging of the nation’s fleet.

In general, it is a transportation industry benchmark that about 200,000 new tractor trailer units are needed every year to replace those units that go out of service due to age or traffic accidents.  “Some people use the figure 20,000 units per month and others say about 200,000 per year,” said York.  “In any event we have fallen way short over the past four years.”

He revealed that in the economic boom times of 2004 to 2007, the nation’s truck fleet grew to its highest level.  “Today we have about 20 percent fewer units than we had then,” he said.

In the two year period of 2009 and 2010, the replacement level was less than half what is necessary.  Only about 200,000 units were purchased in those two years combined.  In 2012, there was a significant rebound with about 180,000 new tractor-trailers put into service.  However that is still below the replacement level and did nothing to cut into the deficit created the previous three years.

The result:  “We have the oldest fleet we have ever seen in recorded history,” said York.  “The average age of a truck on the road today is approximately five years.”

This is especially problematic for fresh produce shippers and the advent of just in time deliveries.  There is no two ways about it — an older fleet breaks down more often and encounters more delays in making the delivery.  And of course, with the addition of a reefer unit there is more opportunity for breakdowns and delays.

While the economic forecast moving forward is positive, it will take several years to make up the deficit in equipment.  It only makes sense that as the economy heats up and there is more demand for products and more demand for trucks, the cost for transportation will increase.  However, York said that is always a difficult prediction to make for fresh fruit and vegetable hauls because supply and demand are the key factors with weather and other inputs playing important roles.

Driver Shortage

York is more comfortable predicting that finding drivers is going to continue to be a challenge.  He said the aforementioned interest by the Federal Motor Carriers Safety Administration about the driving record and health of drivers will have an impact.  In fact, the Journal of Commerce article specifically quotes FMCSA Administrator Anne S. Ferro saying, “We will use every little bit of our authority to get bad actors off the road.”

Add to that, increased employment opportunities in other sectors of the economy and drivers could be at a premium.  York said that the transportation industry, housing and construction, and the automobile manufacturing industry do draw from the same labor pool.  When times are good and workers have the opportunity to stay close to home in a good paying job, they tend to pick that ahead of a job on the road.

And it is no secret that both housing and manufacturing sectors registered growth in the second half of 2012.  York said residential construction surged beyond expectations, with housing starts rising 15 percent from August to September.  Housing starts are running at the fastest pace since mid-2008.  Permits for new construction are also rising with housing inventory near an all-time low causing many to believe that the housing recovery is sustainable.

The manufacturing industry hasn’t shown as strong a growth but factors are positive for continued growth.

It is prudent to believe that the demand for workers will continue in both sectors competing with carriers for employees.

Bright Spots

It’s not all doom and gloom.  York said the brightest spot probably has to do with fuel costs.  “It does not appear that fuel costs will increase significantly in 2013,” he said.

However, he added that the drop in fuel prices that has occurred in the final quarter of 2012 has leveled off and additional drops are not expected.  Of course, fuel costs are often dependent upon unpredictable events in the Middle East.  But barring unforeseen circumstances, York said fuel prices should not produce an upward pressure on transportation costs this year.

Another positive for California shippers is that the regulations coming out of the California Air Resources Board do not appear to have significantly impacted the availability of trucks within the state.  As the state enacts more stringent emission regulations than any other state in the country, it is always the fear that some drivers will just refuse to comply and skip the California highways altogether.  While this might be happening in the dry freight world, it is not a good option in the fresh fruit and vegetable sector.  The most profitable hauls tend to be coast to coast, originating in California.  York said reefer truck costs have risen faster in California than across the rest of the country which may well be because of the tougher regulations, but trucks are continuing to come into the state.

Other Factors

Two other issues that on the surface might seem to have an impact but are not significant factors on a daily basis are rail carriers and Mexican trucking operators, according to York.

With regard to new rail service that has been initiated out of California, the CHR executive said it is an additional option and some commodities can utilize the service for specific routes.  CHR does consider rail a potential option for many hauls, however, overall he said rail accounts for only a small fraction of the total fresh fruit and vegetable movement and so it does not greatly impact the daily truck rate.

The Mexican truck situation is also somewhat of a non-issue, York said.  It was widely reported that through some hard-nosed negotiations, Mexican truckers earned the right to carry loads from their Mexican origination to their destination in the United States.  However, as a practical matter, York said those trucks have great difficulty finding backhauls into Mexico so it just doesn’t pay to haul deep into the United States and have to go back to Mexico empty.  He said the practice only comes into play in the border states and then in only a very minor way.

Shipper Strategies

As always, York said planning ahead is the best defense a shipper can use to make sure they are paying the best possible rate and have the best possible equipment.  “The more lead time you give your transportation provider, the better job they can do for you.”

He added that accurate forecasting of your transportation needs and better planning creates better freight rates and fewer times that the shipper is paying a spot market price.  He said that also typically allows the shipper to avoid getting stuck with high seasonal rate fluctuations and equipment shortages.  It stands to reason that if the shipper is providing its transportation provider with steady, predictable business, he is going to get the trucks when they are tight.

Of course, it is a bit self serving but York said the trend is toward the increased use of third party logistics firm such as CH Robinson Worldwide because the transportation business is becoming more complicated and more sophisticated and more shippers are turning that piece of the pie over to logistics experts.  “It’s all about allocation of resources,” he said.  “Whether its transportation, accounting or your IT expert, you have to make the decision where you are going to spend your time and money and where you are going to use outside experts.”

Of course, Western Growers has a business relationship with CH Robinson that allows Western Growers members to take advantage of certain economies of scale by combining the buying power of the membership to secure favorable rates and good service.

 

WG Staff Contact

Join Western Growers

Western Growers members care deeply for the food they grow, the land they sustain, the people they employ, and the community in which they live. 

You May Also Like…

Tim Linden