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Industry Viewpoint: For produce and food shippers, freight is great again, for now

In the third quarter of 2019, it’s looking as though most of the chaos that formed the story of 2018 has subsided. That doesn’t mean it is business as usual. There are plenty of questions unanswered as it relates to how transportation and logistics will impact produce shippers in the immediate future — From the agricultural exemption for hours of service more clearly defined definitions for what constitutes a sufficiently “unprocessed agricultural commodity” to what the effects of the AOBRD (Automatic On-Board Recording Device) phaseout in December of this year might be. There are also questions on the demand side of the equation with an increase in trade conflict and the potential for a domestic recession.

Here are the current trends and what you can do to best position your transportation spend during this time:

1. Freight rates continue to trend down as trucking capacity exits the marketplace (through bankruptcy, etc.)
After the flood of demand from tariff frontloading and the decrease in capacity from the ELD mandate caused freight rates to skyrocket in 2018, the government shutdown in early 2019 set the tone for the freight rate environment this year. If you felt like it has been easy to get trucks so far this year, you weren’t alone. In produce seasons across the United States, freight rates were markedly lower than last year. This means that produce shippers with contracted rates would benefit from taking a closer look at the value they are getting to make sure it’s still competitive.

2. Freight volumes continue to trend down as imports and exports decrease from tariffs
The trade war is a double whammy for the transportation and logistics sector. Not only do we lose the freight coming into the United States, we also lose the freight that would’ve been exported. Freight volumes are trending down, which means there are relatively fewer shipper partners for asset transportation and logistics companies to jump to today if they lose your business than there were yesterday. This gives produce shippers more transportation options to choose from. This also gives produce shippers, and those who act on their behalf like freight brokers, leverage to work better deals and change asset partners easily.

3. Uncertainty in some business sectors reigns supreme in the backdrop of likely recession
If we think about what we import and export as a country, food and produce are relatively more likely to continue to be in demand through a recession than heavy equipment or building supplies. This means that for transportation companies the ideal partners are produce and food shippers to allow them to maintain their businesses in the event of a downturn. This uncertainty creates even more leverage for produce and food shippers to improve their service levels and freight costs today.

But be careful… even with all the positive trends for produce and food shippers today, it wasn’t too long ago that some eager transportation companies predicted a booming freight year in 2019 and invested in trucks and trailers contributing to the current over-supply of trucking capacity. The AOBRD phaseout in December could have a significant impact if transportation capacity gets too constrained through the holidays and into the beginning of next year. So, it’s not a bad time for produce and food shippers to re-assess their current carrier base and contracts, but caution should be taken to maintain the relationships that would be indispensable if the market flipped again quickly — because it very well might.

(Jordan Strawn, chief sales officer, and Matt Castriotta, business development for ReedTMS Logistics)