ANAHEIM, Calif. -- Due to a range of pressures, transportation costs will likely continue to rise. However, cooperation with produce buyers may help mitigate a steep increase, a panel of experts concluded at Produce Marketing Association's International Convention & Exposition here.
Transportation costs have been slashed from 17% to 8.5% of the cost per dollar for food items since 1980, according to Cass Information Systems, St. Louis. Citing this statistic, Mark Walker, vice president of transportation for CH Robinson Worldwide, said the trucking industry has "reached that ultimate limit where we've gained as much efficiency as possible out of the marketplace."
The same fierce competition that drove down those costs resulted in bankruptcy for several trucking companies, leaving the industry so lean that it's now having trouble coping with spikes in demand. Walker said that while total freight increased 8% during the past year, capacity has increased only 1% to 4%.
For fresh foods, "there's just not enough capacity left," said Walker. "Too many operators have either gone out of business, or converted refrigerated units into dry van because they felt that was a more profitable marketplace for them to be in."
Although the rising price of fuel has placed the most noticeable and immediate pressure on transportation costs, Walker said a looming labor crisis has hamstrung the industry's ability to renew capacity. As a result, salaries for drivers may need to be raised soon, too. "We have 2.5 million drivers and rigs in the country, but the number of people entering our workforce is at an all-time low. Many trucking companies have said they will soon need another 10 cents per mile -- part of that to improve wages -- and these increases are likely to stay."
The railroad industry managed last year to pick up some of the perishables overflow from trucking companies, but it was a taxing transition. "In 2003, through attrition and retirement, we lost a lot of employees. We didn't backfill those positions in anticipation of a flat year. In the fourth quarter, [the economy] spiked on us. The end result was that we weren't able to ramp up as quickly," said Mike Windley, business manager of food and refrigerated products for Union Pacific Railroad. Windley added that every one-cent increase in the price of fuel costs the railroad industry $1 million.
By coordinating buying efforts more closely with the transportation industry, however, large retailers may help ease rail and trucking congestion and help stabilize costs.
"As a retailer, our primary emphasis is having product delivered on time," said Mike Kemp, director of produce for Save-A-Lot, Earth City, Mo. "I don't care if it's delivered by plane, train, automobile or mule, as long as it's delivered high quality at the right price. In the past, [the supermarket industry] only focused on that end of it, but now we have to get inside of each other's realm of business and work together."
Tim Riley, vice president of administration for Giumarra Cos., Los Angeles, questioned whether custom packing could be causing inefficiencies. "From a grower-shipper perspective, we have 40 different pack sizes for tangerines and nectarines. Everyone wants something a little different on the retail size. If that could be palletized or standardized, we could possibly get more of this collaboration going with transporters."
Other panelists disagreed, noting that large companies have different retail footprints and often have significant points of competitive difference in their merchandising strategies, which often necessitate custom packing.
Yet as the conversation continued, other suggestions emerged. Panelists said finding a balance in transportation requirements that can be met through a combination of rail and trucking might give retailers more negotiating power.
Bulk commodities with a longer shelf life, for example, could be transported by rail to free up truck fleets, suggested Windley.
In the past, during points of high capacity in the transport industry, retailers have found it easier to source up-to-the-minute transport for fresh foods. Now, as capacity has grown tighter, Walker said planning has become more critical.
"From my point of view, forecasting your demand cycle and orders timing, even within a week, will allow you more flexibility to plan alternative transportation options," said Walker.