Plunging freight rates could head upward

Produce shippers have been enjoying a substantial drop in transportation costs this year after enduring some of the highest freight rates ever during the COVID-19 pandemic.

Those rock-bottom prices could be short-lived, however.

Freight costs in January 2022 for a load of refrigerated produce out of California to the East Coast averaged $5.19 per mile, according to the USDA. In late July this year, the rate was $3.55.

Just one year ago, a 2,781-mile trip from Fresno, Calif., to Baltimore cost $14,433. By late July this year, the cost had plummeted to $9,872.

The industry’s transportation woes started in 2020 when the pandemic shut down driver training schools, resulting in a shortage of truck drivers, said Dean Croke, principal industry analyst at DAT Freight & Analytics, with headquarters in Beaverton, Ore., and Denver.

But when Paycheck Protection Program loans ended July 2020, there was a rush to join the trucking industry from people who had never been in the industry or who had been driving for a larger fleet and bought their own trucks because rates were so high.

At the same time, during the second half of 2020, diesel prices dropped to $2.40 a gallon, and spot rates for freight increased about $1 per mile — from $1.30 to $2.30, Croke said.

“The diversion of those two data points away from each other was really what started the whole ball rolling,” he said.

After PPP loans ended, about 100,000 carriers joined the ranks of the trucking industry over a 12-month period.

Carriers already were making good money because of all the disruptions caused by the pandemic, and they were making even more money because of the low cost of diesel fuel, Croke said.

“When the pandemic hit, it kind of put the transport people on the map,” said Michael Fernandes, director of sales for John Greene Logistics, Titusville, Fla.

Companies that routinely sought out cheaper trucks “learned the lesson that cheaper is not always the best way to go,” he said.

Suppliers that had built relationships with carriers and treated them as equal partners came through the pandemic in much better shape transportationwise than those who consistently sought the lowest rates, he said.

“When the tables turn, the trucks are going to squeeze you back,” Fernandes said.

The nation has undergone a kind of economic flip-flop over the past couple of years, said Adam Lewis, head of logistics for the Manfredi Cos., Kennett Square, Pa.

With the abundance of stimulus payments during the pandemic, consumers were spending money on everything from groceries to home goods, so there was a significant demand for transportation services to deliver those products, he said.

But as inflation took off, “Everything has become more expensive, so demand for those things has gone down,” Lewis said.

That has affected the trucking market — the spot market in particular.

“I’ve seen some record lows in the past three to six months,” Lewis said.

But he added that rates have started to level off, and he is hopeful that things will pick up when schools open again, family routines return to normal and the holidays approach.

“We’re in the bottoming-out part of the market,” Croke agreed.

“We still have carriers exiting the industry; we’ve still got more trucks than loads, generally,” he added. “This is going to go on for another three or four months, until we get into peak shipping season in the fall.”

Croke anticipates about three more months of “fairly mediocre market conditions” with shippers enjoying favorable freight rates until fresh turkeys start shipping for Thanksgiving.

“By then, there will be sufficient capacity that has left the industry, and that means there are going to be more loads than trucks, and rates will start to climb again in the last quarter of this year,” he said.

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Source: The Packer

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