The relative stability of the refrigerated transportation market has brought more participants into the sector, bringing not only competition on rates but also expanded service options. Those include more domestic intermodal reefer routes and expedited truck service that gets perishables from California fields to East Coast markets in three days.
The new portfolio of transportation options means shippers have to plug more factors into the equation when picking freight shipping modes and carriers.
“We use rail, trucking, air freight, intermodal, ocean container, breakbulk,” said Diego Lobo, head of international logistics at JBS USA in Greeley, Colo. “We have chilled, frozen and dry cargoes, so we have to really look carefully at what is best.”
JBS sells more protein — beef, pork and poultry — than any other company in the world, with 2011 totals of about 170,000 40-foot equivalent container units in addition to significant refrigerated breakbulk shipments. The company, whose brands include Swift, Pilgrims Pride and other well-known consumer labels, has been growing 20 to 30 percent a year.
“Three times a year we sit and review everything, and analyze the most economical way to move the program,” Lobo said. “We review factors for different type loads such as: Are we in a rush? Is this cash in advance for our product? What is the risk in this market? What is the equipment availability? If Long Beach is congested, will we have to divert shipments to the Pacific Northwest?”
Although the global transportation equation for JBS is complex, the answers are easier within certain markets or sectors, he said. “Our most expensive items are chilled products that have a 30-day shelf life, so we want the transportation to be as fast as possible,” Lobo said.
Rail shipments from JBS plants in the Midwest to West Coast ports would require 14 days, but truck shipments take just three days. “The clients that buy chilled pork and beef are demanding and picky about the cold chain. Our Japanese customers demand that we load it in a container and truck it to the port,” Lobo said. “We use our own trucks for that and our chilled products never touch the rails.”
Frozen products can be shipped by intermodal, rail boxcar or truck, he said. The company can pay more attention to looking for better rates, economy of scale, weight and payment terms in transporting frozen goods.
Frozen pork, for example, usually is loaded into jumbo boxcars and transloaded into containers near the Port of Long Beach.
Despite lower transportation rates using boxcars, payment terms can sometimes come into play, and JBS uses truck or intermodal to get product to customers more quickly.
Payment terms vary, usually by country. “With Japanese customers, it is cash in advance; with Russian customers, they give us a 30 percent deposit and the other 70 percent when the cargo enters Russian waters,” Lobo said.
For Paramount Exports, a San Francisco-based company that buys and sells fresh fruits and vegetables globally, calculations aren’t as complicated or done as frequently.
“Where we’re shipping to and what we are shipping are the two factors we consider,” said Lee Doud, Paramount’s senior vice president. “If it’s raspberries to the Middle East, it would always be by air. Apples, citrus, grapes — those can go by ocean. This is all standard and has been for years because of the perishable nature of different commodities. It sounds like we all have our heads stuck in the sand, but we’ve learned this is what works.”
Air freight is obviously more expensive, he said, but for extremely perishable products such as raspberries, there isn’t an alternative. “We have people coming to us all the time telling us they have figured out how to ship the commodities by ocean,” Doud said. “We’ve discovered over time that it does really hold true; besides, the volume we would need to ship by ocean is huge. It is difficult and highly expensive to fill a 40-foot container at one fell swoop.”
Gary York, who works directly with growers and shippers in his job as general manager for transportation at C.H. Robinson, said the company offers service in all modes, but most of his customers stick with truck shipments domestically, although he sees that starting to shift.
“I’d say more than 90 percent of the produce grown in California is going on trucks, not rail,” York said. “It is really a convenience factor; it’s something they have always known. Unless we can show them a really tangible pricing difference, they aren’t going to switch from truck.”
Rail service is improving, he said, but is generally at least a day longer than putting a load on a truck. “There is a flexibility in trucking in terms of speed and destination,” York said. “Once a load is on a railroad, you can’t change the speed or destination.”
Shippers need the flexibility in terms of delivery speed to maximize the sales price, he said. Produce loaded onto a truck trailer might be planned as a single driver trip but switched to expedited service. “If a customer calls and needs something right away because sales are better than expected or the load before was rejected, you are going to get a higher price the faster you can get the truck to them,” York said.
For many companies, the environment is also a factor in determining how to ship goods. “A company can be responsible in terms of the environment, it can be proactive in terms of solving problems, and it can make money at the same time,” said Ben Cohen of Ben and Jerry’s Ice Cream several years ago when he introduced a new type of in-store freezer that is 10 percent more energy efficient.
The carbon footprint of a commodity was starting to become important three years ago, York said, but that conversation has slowed since the recession hit. Some shippers still switch to rail, but that has more to do with cost savings because less fuel is used. “The end-result is the same,” he said. “When you use less fuel, it is less expensive, and it is better for the environment. When our customers choose rail, it’s because of cost.”
But for some shippers, especially large well-known brands, the environmental aspect is growing. Kraft Foods announced in December it had measured various environmental benchmarks across the company from agricultural products, processing, marketing and its logistics network.
Between 2005 and 2010, Kraft eliminated 60 million road miles through various procedures, and the company plans to remove another 50 million miles by 2015 by overhauling its shipping strategies and making its supply chain more efficient, the food giant said.
The $42 billion manufacturer of products from Kraft cheese to Maxwell House coffee to Oscar Mayer meats chopped the highway miles using alternatives to trucking, and rethinking its distribution network on a broad scale.
Some of its inbound and outbound freight shifted from highways to rail and to waterways, the company said. It also streamlined distribution, repositioning hubs and other facilities to reduce the number of trucks it needs and the number of miles they travel, reducing packaging and cutting back on the number of empty miles driven.
Heinz is another huge shipper touting environmental improvements in its logistics system. While Kraft focused on trucking improvements, however, Heinz achieved much of its savings by switching a significant amount of cargo to rail.
In fiscal 2011 through last April, the company said it increased rail use by 20 percent over 2010. Heinz said that translates into cutting 25,785 truck trips, which eliminated 68,021 tons of carbon dioxide from entering the atmosphere and saved 6 million gallons of diesel fuel.
But as Cohen noted with his environmentally friendly and less expensive freezers, there is a financial upside to the movement for Heinz. Heinz North America said it shipped 148,994 tons of potatoes by rail in fiscal 2011, which reduced average cost and case weight per railcar by 15.5 percent.
Heinz said its goal this year is to reduce its use of fossil fuel by 10 percent worldwide, and it will continue to redesign packages and increase the number of items in each truckload.
Lobo said companies should look at the complete transportation picture — at the products they ship and not just deciding mode or carrier on a commodity-by-commodity or load-by-load basis.
Shippers should focus on global contracts and leveraging all business at hand to come up with the best system, he said. “When it comes to the intermodal business, it’s not a good fit for all the business we do, but it is a good fit for the dry cargo,” Lobo said. “We ship a lot of byproducts and hides. That is a very complicated cargo to transload at a port. It is better to load it into the containers at the production site. It’s almost like building a supply chain, because it becomes a warehouse on the rails.”
But the dry container shipments of hides and byproducts aren’t as sought-after by carriers as the JBS reefer cargoes. On the flip side, not every carrier wants to allow its reefer containers to go inland, and some carriers avoid the chilled meat business, he said.
“We have 200 containers a week from the U.S. in the hide business; worldwide, it is 500 containers a week, Lobo said. “We try to leverage it as a total package and look for carriers that want all of our business and that will work closely with us.”
After doing all the reviewing and calculations, JBS uses about 20 ocean carriers, but “just a handful” of the carriers are what Lobo calls his preferred global carriers that get the majority of the cargo.
William B. Cassidy contributed to this report. Contact Stephanie Nall at firstname.lastname@example.org, and William Cassidy at email@example.com.