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Shippers brace in anticipation of skyrocketing transportation rates

by Tim Linden | May 09, 2011

With diesel fuel rates hitting $4.50 per gallon, and no let-up in sight, West Coast shippers are bracing for what could be the highest transportation rates they have ever seen.

“Everyone is concerned about it,” said Jim Bogart, president of the Salinas, CA-based Grower-Shipper Association. “But there is not much we can do about it.”

He said the association has been involved in a rail feasibility study with a private company and the Monterey County Air Resources Board, which figured that if it could take some trucks off the road it could improve the local air quality. Mr. Bogart said the study involves the feasibility of building a rail station in the area, but nothing has been decided and its not going to offer any immediate relief in any event. “Even if it was up and running, they are only talking about reducing truck traffic by 10 percent at the most,” he said.

Cary Crum, vice president of sales and marketing for Green Tree International Inc. in Visalia, CA, which also owns Sierra Agricultural Transportation, headquartered in the same city, said “Freight rates are going to get ridiculous this summer. Right now [late April] they are 20 percent to 25 percent above normal and they are only going to go up.”

He said two large trucking companies recently closed their doors because they couldn’t make ends meet. “Supplies [of trucks] are going to be very tight this summer. I think by late May, we will see rates in the $8,000 to $9,000 range. We saw five-figure rates in 2008 and I think we will see them again this summer.”

Mr. Crum said that freight rates that high, which pencil out to be as much as $8-$10 a carton, especially wreak havoc on distressed loads. “If you have $8 in freight [per carton], it makes it almost impossible to sell a load that has problems.”

He expects more and more buyers to be looking for delivered prices this summer, which ultimately shifts the burden of finding a truck to the shipper. Others agreed that they have heard more requests for delivered load pricing.

But Greg Beach, vice president of sales for Steinbeck Country Produce Inc. in Salinas, CA, said while requests for a delivered price are on the rise, “they are still not a blip on the radar. Almost everything we do is f.o.b.”

Mr. Beach said the rising cost of fuel is the reason the rates are going up “and there is nothing we can do about it. Remember it also affects us at farm level as we have to put the same fuel in our tractors and trucks.”

He said that occasionally customers look at alternatives such as rail, but over the road trucks is the mode of transportation this industry uses and the freight rates are just part of the equation.

Years ago, Christopher Ranch established a destination warehouse system with facilities strategically located across the country. Bill Christopher, managing partner of the Gilroy, CA-based garlic specialist, said that system helps the company during high freight rate periods. In the first place, the firm can lower its per unit cost by shipping full loads to those destination warehouses. And by scheduling regular shipments, it can also take advantage of some discounts. While rail would seem to be a potential option for garlic, Mr. Christopher echoed others in stating that rail just doesn’t seem to work for very many customers.