What do you get when you put together a booming economy, new regulations targeting certain sectors of industries, and a lack of freight capacity?
Ag shippers are finding out that the answer to that question is extremely high lane rates.
Trucks from the Imperial Valley and Yuma areas are setting records, with some trucks to the East Coast running at over $10,000. According to the sales manager at one of California’s largest organic producers, trucks to eastern Canada are coming in at over $11,000.
Load board operator DAT reports that trucks from the Imperial Valley to New York averaged $2.05 per mile this time last year. This year, the lane rates are booming to around $2.86.
It is reported that this is adding over $2 per case to markets in the north like Boston and Chicago.
Though there is some mystery about the spike in the rates, it most likely can be boiled down a several reasons.
First is the booming economy. With tax reform passed and the markets setting records on a regular basis, consumers can purchase more freely. Couple this with the overall trends of healthier eating and the demand for capacity for fresh produce increases.
Second, the trend is occurring at a time when the freight industry across the board is experiencing a lack of freight capacity. Even agricultural producers who do have access to capacity are finding that they are paying a lot more for it. The economy is doing better than it has in at least a decade, and carriers are gauging to see whether the trend is short term or is here to stay.
Lastly and perhaps most importantly are the new government regulations that have been forced upon carriers. The agricultural freight market is highly fragmented and most agricultural products are hauled by owner operators and smaller fleets who were not as prepared as the larger carriers for the ELD mandate.
In fact, as FreightWaves reported earlier this year it is estimated that 10 to 15 percent of owner operators still are not ELD compliant.
This is a huge burden for a small operator and even if the actual implementation was somewhat overhyped, it is the dread and uncertainty of the hard enforcement starting in April that is causing the small operator to pad their rates even more. The hours of service rules are causing companies to reevaluate their processes and they are passing some of the risk involved in that to their customers.
However, regardless of the reason the fact remains that production volumes and demand for capacity for fresh produce are going to pick up starting at the beginning of March. It will soon be seen if the industry will experience the same high rates from Salinas as is has from the Desert.
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