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Lofty truck rates could go even higher

by Tim Linden | June 27, 2011

Truck broker Jeff Jerue makes no bones about it. Truck rates are high and they are headed higher.


John Jerue
“We are going to see $4 [per mile], and it is going to stay there for a long time,” said the vice president of John J. Jerue Truck Broker Inc. in Lakeland, FL.


Mr. Jerue said that the recession caused an oversupply of trucks and a buyer’s market over the last several years, but the tide has turned and demand now outstrips the supply.

“We’re finding people that wouldn’t deal with a truck brokers two years ago and now they are happy to,” he said.

John Jerue, the president of the company that bears his name, told The Produce News June 22 that produce truck rates from California to New York and other eastern points were in the $9,000 range — “and they haven’t peaked yet. We will surely see $10,000 rates this summer.”

A $9,000 rate represents a per-mile cost above $3, while a $10,000 rate translates to about $3.40 per mile.

John Jerue said that the increase in summer fruit production from California has created the increased supply situation and the higher rates.

Jeff Jerue added that California shippers were lucky that the fruit deal was late, which allowed the freight rates to remain at a lower level for a longer period. He said that the recession had many trucking companies that do not typically operate in agriculture looking for produce hauls, thus creating downward pressure on rates.

Some of those companies have since gone out of business or returned to hauling manufactured goods. For the most part, produce hauls are back in the hands of veterans in the field.

Denny Donovan, sales manager and general manager of Fresh Kist Produce LLC, which is headquartered in Guadalupe, CA, but has facilities in the vegetable-heavy Santa Maria and Salinas valleys, agreed that truck rates are headed higher.

“They went through the roof about two weeks ago,” he said June 22, adding that he expects the rates to go higher as summer progresses. “Because of California regulations, there are a lot less trucks here, and right now the fruit guys [in the San Joaquin Valley] have an edge on us.”

Mr. Donovan said that the strong vegetable market, which was the rule rather than the exception through most of the spring, has bottomed out with increased supplies outweighing demand. With freight rates going up and vegetable prices coming down, he said that it is difficult to get any sales action on the East Coast.

The longtime vegetable industry expert used celery as an example, as it is one of Fresh Kist’s top products. Because of its heavy weight, a full load of celery consists of only 24 pallets, which equals 768 cartons. At a freight rate of $9,000 to the East Coast, the freight cost per carton is approaching $12, which is greater than the current average f.o.b. price of celery.

“Not too many buyers are willing to pull from here in that situation,” he said.

Mr. Donovan said that the same is true with other commodities, which has exacerbated the supply-exceeds-demand situation up and down the vegetable sales board.

“I think we are in for a rough summer with high freight rates and a tough market,” he said.

But Mr. Donovan added that the situation could be subject to change. He noted that Salinas was in the midst of a heat wave that could give some relief to the supply side of the equation.

Brad Vickers, who is with Sierra Agricultural Transportation Inc. in Visalia, CA, agreed that freight rates were high but thought it was possible they have hit their peak.

“We were getting $1,000 more [on an East Coast trip from California] two weeks ago,” he said. “Fuel prices are headed down, so maybe we have hit the peak.”

However, he did not go as far as saying that rates would be dropping. In fact, Mr. Vickers indicated that the best the industry could hope for is a stretch of status quo.

Mr. Vickers reasoned that because of fuel and the cost of a driver, a rate in the neighborhood of $2.50 to more than $3 per mile is justified, especially when loading from California. He said that California loads typically have to pay at the high end of any per-mile rate range, since the burdensome regulations continue to drive some drivers away from the state.

“The newest regulation that went into effect on January 1 requires any 2011 truck or newer to have a spray shield on the trailer from one end to the other,” he said. “These costs are driving truckers away. They’d rather haul from Arizona or Oregon or Washington.”

One might think that loads from those states would then be cheaper because of the desirability of getting a load there, but Mr. Vickers said that this is not the case.

“The rates from California still keep those rates [in the surrounding states] high because a trucker will come down to California if the price is right,” he said.