There will be more Florida oranges coming out of the groves and onto refrigerated trucks this year — good news for growers, those who like liquid sunshine with their breakfast and operators of refrigerated trucking fleets.
Latest crop estimates from the U.S. Department of Agriculture see 1 million more boxes of the fruit in need of transport from growers to consumers.
The estimates for bumper harvests don’t stop with oranges. Mostly mild winter weather was reported across much of the country this year, minimizing the chance that late snows or harsh freezes will injure crops.
The warmer weather also is speeding up harvests, putting pressure on reefer truck capacity earlier than usual in the growing season.
The southern U.S. suffered sporadic shortages of reefer trucks during the first week of April, propping up rates, according to a weekly report by the Western Growers Association.
“We’re about five weeks ahead of last year, cropwise,” said Mark Montague, pricing analyst for TransCore DAT, a transportation information company that operates a Web-based logistics freight matching network.
“Last year, we had lousy weather, snowstorms and freezing weather and freezes in crops in central Florida,” he said. “Most of the U.S. is poised to have a big harvest year, and (spot market truck) rates are starting to reflect that.
“Last year at this time, the Southern California to Dallas-Fort Worth truck lane was $1.33 plus fuel per mile,” Montague said. “This year, it’s $1.71 plus fuel or a total of $2.25 a mile — that’s 43 cents a mile higher than last year.”
“We’re seeing that capacity in the spot market has definitely tightened,” said Josh England, president of England Logistics. “It is significantly challenging to find carriers to haul the freight. There are ebbs and flows, but generally it is tight this year.”
Total Quality Logistics, a third-party logistics provider that handled about 250,000 refrigerated loads in 2011, anticipates tight capacity for the upcoming season, TQL Executive Vice President Kerry Bourne said.
“Rising fuel costs, compliance deadlines and projected economic growth will all likely contribute to create somewhat of a perfect storm in terms of capacity,” he said, adding those factors also indicate a year of rising truck rates.
England agrees rates will increase. “It is a carriers’ market right now, and I expect it to continue and we’ll see rates continue to climb,” he said.
One reason rates are rising and capacity is tight is that the reefer fleet didn’t expand much during the recession, according to Frank Maly, director of commercial vehicle transportation analysis and research at ACT Research. “During the recession and even after the U.S. came through the most recent downturn, I think in general companies held off on capital expenditures,” he said. “Right now, the U.S. reefer fleet is pretty old, and there is some catch-up going on by carriers.”
Reefer truckers have started to order trucks, Maly said, but there is a significant lag time between placing an order and placing a truck in service. “The backlog numbers for reefer trailers are the highest we’ve seen in this recovery cycle,” he said. “You have to go back to 2006, 2007 to see numbers that are similar.”
He put the backlog at 17,000 refrigerated trailer units — six months’ worth at current production capacity. In 2011, there were 36,000 reefer trailers ordered and 33,500 units shipped nationwide, he said.
According to Maly, the orderbook doesn’t show a lot of new players entering the refrigerated trucking sector, nor does he see a significant level of fleet expansion. Most of the trucks on order represent fleet replacements, he said.
“Regulation has impacted the fleet-replacement calculations,” Maly said. Several years ago, the California Air Resources Board implemented a set of phased-in pollution and emissions standards for transportation refrigeration units, or TRUs, on all trucks operating in the state.
“That phase-in period ended at the beginning of the year,” Maly said. “With the bad economy, a year or two or three ago, a fleet operator might have decided to retrofit the TRU and keep the trailer. But with the phase-in over, it’s a different equation. Do you put more money in old equipment by installing a new TRU on an old trailer, or do you just go ahead and get new equipment?”
The investment decision is more complicated for reefer truckers than for those running dry vans, because reefer trailers become less efficient as they get older, he said. “They become less thermally efficient so it takes more energy to keep them cool, and after a while, the trailers themselves begin to absorb moisture. They physically weigh more, so they are more expensive to run. They also become less reliable, and with reefer cargo, reliability is everything,” Maly said.
Because of the recession and the CARB timeline, “I think fleet operators held on to equipment a little longer than they would have otherwise, and it’s adding to the crunch now,” Maly said. “It’s hard to quantify the impact CARB has had.”
With capacity tight and rates rising, England and Bourne agree their customers face challenges. “Rates fluctuate so dramatically in a spot market that it is difficult to pin a number on it,” England said. “When we get that question from a customer, we can address it more directly, because we’ll have information on where we think rates need to be on a particular trade so they can plan a bit more.”
In tight years, TQL’s role in communicating and coordinating between carrier and shipper becomes critical in helping to minimize missed shipments, delays and product shortages, Bourne said.
Shippers face a delicate balancing act because they need to decide at what point to raise their own rates in anticipation of increased freight rates or fuel costs, Bourne said. “What is happening now is that shippers who are experienced and aware are having very strategic talks with their transportation partners,” he said. “We are getting ahead of the capacity curve to the extent possible.”
One of the big challenges for a non-asset-based company such as TQL is establishing relationships with carriers, he said. “Every day, we are talking to carriers, establishing relations and getting them qualified into our network,” Bourne said. TQL has about 50,000 truckers in its national network.
Montague said there has been more growth in the spot market for refrigerated trucking than contract rates over the last year-and-a-half, mostly because of economic uncertainty. “Shippers were waiting for rates to soften up, and carriers thought demand would increase, so neither side was that eager to jump into long-term contracts,” he said. In 2009 and 2010, shippers were able to negotiate lower contract rates, but by mid-2010, “we started to see the effect of capacity leaving the market.”
Despite rising rates, shippers shouldn’t expect to see capacity grow in the near future, according to David Schrader, senior vice president of operations at TransCore DAT. “Fleets are not growing, and the ones that are, it is only in the range of 1 to 5 percent,” he said. “It’s an issue of equipment and driver availability. I was at an industry session recently where a top official at Werner trucking spelled out the conditions that would have to be in place before there is significant new investment. It’s a matter of return on investment, and rates aren’t up nearly enough.”
Contact Stephanie Nall at firstname.lastname@example.org.