![](https://www.freightwaves.com/wp-content/uploads/2019/07/CoW-California-produce-season-7.28.png)
FreightWaves’ SONAR chart of the week (July 28, 2019 – Aug 3, 2019)
Chart of the Week: Reefer Outbound Tender Rejection Index – Los Angeles, USDA Produce Truckload Spot Rate – L.A. to Atlanta, L.A. to Chicago (SONAR: ROTRI.LAX, AGRATE.LAXATL, AGRATE.LAXCHI)
The seasonal movement of produce out of California can trigger frenzy among carriers that has nationwide impact to all modes of transport. Temperature controlled or ‘reefer’ carriers tend to drop everything to head out west and take advantage of the surging demand for their equipment which is needed for hauling much of the produce that originates in this region of the country. This year’s produce season was more like a sneeze compared to the flu that was 2017 and 18’s produce seasons.
The reason for the California spring fruit and vegetable harvest’s disruption lie with the nature of growing cycles. Much of the produce grown in this region has a 90 to 120-day growth cycle from planting to harvest. This means a lot of it gets harvested all at once, meaning they need several trucks available on relatively short notice.
This is not typical contracted freight since the movements only occur for clusters of weeks throughout the year during the harvests, so a lot of the loads are moved on the spot market. As we have learned over the past few years, high-paying spot freight will draw carriers off their contracted accounts if the margins are high enough.
Produce shippers cannot afford to waste time with negotiation as their product is extremely perishable and they do not make money on spoiled produce. This need for urgency means they are willing to pay for capacity, which puts upward pressure on trucking spot rates.
The biggest crop in the region is lettuce. According to the USDA, roughly 98%, of the nations’ lettuce is produced in California and southwestern Arizona. This is due to the ideal climate and soil conditions present in these areas for growing this crop. This also means there is a lot of demand for long haul trucks supplying the country with fresh lettuce. Lettuce was the leading vegetable crop in terms of value as of 2015 with total lettuce production totaling $1.9 billion dollars.
Lettuce may be the largest crop, but it is not the only one harvested around this time, as strawberries, cherries, and onions are some of the other large harvests in the area. These spring harvests generally occur from April through June. This year heavy winter and spring rains delayed harvests and ruined some of the crops, meaning produce season was later than usual and had less volume.
Delays normally mean the disruption is exaggerated as carriers are not in position to manage demand due to their need to keep their trucks rolling. Historically speaking, a larger impact to spot prices might have been anticipated.
Last year the average spot rate (including fuel) for full truckloads of produce from Los Angeles to Atlanta as reported by the USDA increased from $5,400 in mid-March to $7,300 (39%) by the end of June. Similarly, the average rate from Los Angeles to Chicago increased from $4,850 to $6,750 (35%) over the same time. This year, the rates only increased from $4,800 to $5,400 (27%) and $3850 to $4,900 (12.5%) over the three-month period respectively.
It is important to note average fuel prices climbed from $2.97 to over $3.20/gal in 2018, whereas fuel has been relatively flat this year, but the fuel increase is not the main driver of increasing rates as the increase in cost roughly equates to $0.04/mile or about $80-$90 for either lane.
Increased activity on the west coast along with an over-supplied freight market are more than likely the main reasons for the softer rates. Carriers have positioned themselves in areas with higher demand as California volumes have increased significantly with the tariffs creating inventory pull forward. Outbound Los Angeles volumes were averaging 57% higher this year versus 2018 according to the Outbound Tender Volume Index (OTVI) in March prior to the normal start of the produce movements, meaning there was more reason for trucks to be in Southern California than last year.
With other major markets like Atlanta and Chicago experiencing 2-3% lower outbound volumes and spot market activity being low, there was less upward rate pressure to the normally volatile produce season.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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