On April 13th there was a recall of over 200M eggs that had possible contamination of Salmonella Braenderup, a digestive tract pathogen that causes issues from intestinal distress to life threatening illness. Considering the volume of eggs involved, there can be a significant impact to transportation markets and that cost gets passed down the line to the consumers in a big way.
The Food and Drug Administration is responsible for assisting with any potential public health concerns regarding the egg recall. They were able to investigate and locate the origins of the salmonella with the help of the CDC.
The FDA does not have strict guidelines on how the farm or retailer should procedurally handle the recalls. The reasoning is their “focus is to remove potentially adulterated products from commerce,” according to a representative of the agency. They are more concerned with the speed with which the problematic item is removed versus the way it is removed. The reasoning works due to all the localized variables a centralized agency could not foresee. One plan will not work for everyone everywhere and private businesses have a strong motivation to handle the recall effectively from a PR perspective.
The retailers in this instance are grocery stores and restaurants so there is a huge cost if they decided to return the eggs back to the point of origin, Rose Acre Farms in North Carolina. The eggs were distributed to 9 different states with the furthest point being Colorado.
Fortunately, neither the FDA nor Cal-Maine, the company that owns the farm, requires the retailer to return the product for refund. The grocery stores and restaurants can dispose of the eggs at a local level if they so choose. Some stores may choose to transport the eggs to an off-site reclamation center along with their other “unsellables” as they would normally handle their expired foods.
The main cost is not in the recall itself, but in the replenishment of the eggs. Normally, eggs are loaded in full specialized reefer trucks to regional distribution centers for grocery retailers or commissary for restaurants. They can fit as many as 200,000 eggs on a 48’ – 53’ foot trailer. If they were to replace all the eggs as efficiently as they could, it would mean over 1,000 truckloads going to the 9 states. Keep in mind these are reefer trailers which move at a premium in relation to dry van.
Not all the 200 million eggs need to be replaced at once as many of the eggs that were sold in early February have already been consumed or thrown out, but the eggs on the shelves need to be replaced quickly as there is now a gap in the supply chain from farm to retailer. You would expect to see a price increase reflecting this and according to the USDA, you did.
Easter tends to drive the prices of eggs higher and this year was no different. The egg prices were driven higher over the last few weeks due to the short supply. According to the USDA egg prices climbed from $1.45 average weekly price per dozen for large eggs to about $2.70 per dozen in mid-April, an 86% increase. A lot of this cost increase was in transportation as specialized carriers are more susceptible to market volatility than standard dry van.
The normal spot rate range according to DAT for reefer trailers from Raleigh, NC to Philadelphia, PA, a lane heavily involved in the recall, is $2.32 to $3.85 per mile between the 25th and 75th percentile. The same lane for dry van has a range of $2.84 to $3.37 per mile. The exposure to dramatic increases is much higher in high demand scenarios. Assuming the contract market is operating somewhere in the middle of that range around $3.30 per mile you can reasonably assume a $0.50/mile or 20% increase in transportation cost was realized with equipment being out of position.
The USDA is reporting egg prices are returning to normal, but this is a good example of how freight market volatility can originate from un-egg-spected places.
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