Opinion: California drought stabilizing West Coast truckload market - FreshFruitPortal.com

Opinion: California drought stabilizing West Coast truckload market

Countries More News Opinion Top Stories
Opinion: California drought stabilizing West Coast truckload market

C.H. Robinson’s Western Growers Transportation Program manager John Stenderup

Sin títuloI think we can all agree that farmers are remarkably tough and resilient, even if I am biased as a California farmer’s son. Year after year, they face unpredictable and uncontrollable challenges, which include pests, labor, tariffs, regulation, weather, and of course, drought.

As the Manager of C.H. Robinson’s Western Growers Transportation Program, I have seen firsthand the impact of the drought on California’s produce industry and the ripple effect on other industries, specifically domestic trucking.

First, a quick update on California’s water dilemma…

The Department of Water Resources has reported that 2015 is the fourth straight year of severe drought and over the past 119 years, 2012-2014 ranks as the third driest three-year period.

Agriculture accounts for 41% of California’s water use and despite long-standing water conservation efforts, many farmers have had to make significant sacrifices. Estimates for 2015 report 550-600,000 acres of farmland will be fallowed, a 30% increase over 2014, eliminating more than 17,000 jobs and nearly 2 billion in revenue. Inevitably, a decrease in irrigated farmland will result in a decrease in the state’s produce production.

Has this affected the domestic trucking industry?

Yes. Decreased yield translates to decreased demand for equipment; and given that trucking is a supply and demand driven industry, this equates to a softer marketplace. According to a June 3, 2015, article in Transport Topics, Mark Montague, manager of industry pricing for DAT Solutions states, "Volumes out of California could be off 8% to 10%". Historically, late spring is considered the onset of "peak" season in California, a time in which refrigerated spot market rates can skyrocket and capacity becomes scarce, as was the case in 2014. Supply of drivers and equipment have been the Achilles’ heel for domestic trucking, and while the situation has not improved in 2015, the drought, coupled with several other factors, has suppressed demand and resulted in a more stable truckload market on the West Coast.

Regional seasonality of produce causes drastic swings in truck market conditions, turning head hauls into backhauls and vice versa, but decreased volume has dampened the effect. In a normal year, carriers are eager to move their equipment to California during the summer months to take advantage of elevated market rates. For example, California production normally peaks when Texas volume is tapering off, causing California outbound rates into Texas to spike and, conversely, Texas rates into California plummet. While this transition did eventually occur in 2015, a smaller disparity of outbound volume between the two states caused a delayed shift and, comparatively, the cost-per-mile variance remains much closer than historical averages.

The drought’s silver lining for produce shippers is a year over year reduction in spot market rates and more readily available capacity, a welcome change from recent years.

Could this be a sign of things to come in the future?

The simple answer is, probably. In the short term, replenishment of California’s water supply could return production to normal levels, but regardless of when the rain comes, the drought has served as a wakeup call to the produce industry. Growers have doubled down on water conservation efforts by reevaluating their crop mix, researching new farming techniques, and investing in technology.

California growers have already begun redirecting available water to crops that present the best opportunity for profitability and will continue to do so. This trend will likely alter the mix of outbound produce freight, resulting in a shift of volume and seasonality.

Furthermore, advances in technology, such as greenhouses and hydroponics, allow alternative regions to support agriculture on a scale that was not possible in the past. This could reduce the need for these commodities to be grown on California soil and provide growers the opportunity to produce in regions with more available water.

While seasonality will always be a characteristic of produce, where and when some commodities are produced may become more controlled and predictable. Additionally, regional production could lead to shorter hauls and make commercial truck driving a more desirable career. The cumulative effect could create a more balanced flow of produce freight throughout the nation and, potentially, a less volatile refrigerated truckload environment.

It will be some time before we know the full impact of the drought but I have no doubt both industries will be able to rise to the challenge, even if I am a little biased.

www.freshfruitportal.com

Subscribe to our newsletter