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June 8, 2015 2:00 AM, EDT

California Drought, Texas Floods Cut Produce Truck Demand

By Rip Watson, Senior Reporter

This story appears in the June 8 print edition of Transport Topics.

California’s drought and Texas’ floods have softened freight demand and created a more stable environment for produce shipments, in sharp contrast to 2014’s painful price spikes and capacity constraints, industry officials said.

Those states drive produce markets because they are two of the largest growers of fruits and vegetables, according to the U.S. Department of Agriculture. Last year, tighter capacity drove spot market refrigerated trailer demand to record levels in early summer.

“There is a definite change in outbound reefer freight in California,” said Kerry Byrne, executive vice president of Total Quality Logistics, which managed 5,000 weekly refrigerated loads last year. He told Transport Topics the market was “less hectic.”

“Volumes out of California could be off 8% to 10%,” Mark Montague, manager of industry pricing for load board operator DAT Solutions, told TT on June 3.

Damage to crops — and trucking — is most severe in California’s Central Valley, especially the community of Tulare. A report from the University of California, Davis blamed the drought for leaving more than 300 million acres idle in that area.

Montague said available water is being diverted to grow higher-profit products such as almonds, and marginally profitable crops such as broccoli have been cut back drastically.

“The marketplace is much more stable in 2015,” because of less demand in California, said John Stenderup, the Monterey-based manager of grower shipper supply chain services for the largest freight broker, C.H. Robinson Worldwide.

“We are seeing a much better flow of equipment throughout the nation,” he said. “In past years, truckers were desperate for backhauls so that they could get back to California [for another load].”

California demand also is declining because port congestion earlier this year discouraged some California produce shipments, Stenderup said.

Drought and flooding have stimulated cross-border produce shipments from Mexico, said Montague and Steve Covey, executive vice president at Maryland-based Choptank Transport, a nationwide produce shipment broker.

Over the past three weeks, Covey said, multiple grocery customers have been ordering more produce from Mexico because of flooding in Texas.

Covey characterized Texas as “kind of destroyed,” though he acknowledged actual market statistics weren’t available.

The primary problem in Texas is that the ground is so wet in parts of the state that harvests of onions, cantaloupe and other melons are being slowed, John Esparza, CEO of the Texas Trucking Association, told TT last week.

Esparza offered some consolation for his state, where last month was the wettest May on record.

Extra rains helped crops such as watermelon, he said.

While rain and flooding have disrupted all freight in cities such as Dallas and Houston, Esparza said, the worst conditions were north of the largest growing areas.

“The few weeks of the flooding certainly affected both inbound and outbound freight volume,” Byrne said.

However, he also cautioned that “it is still too soon to tell if the Texas floods will have a lasting effect” as more crops are harvested and shipped.

Stenderup also said hours-of-service restart rule changes in December could be creating additional capacity that further eases shortages seen last year.

On an overall basis, Covey said, “Prices are stable, and equipment supply is fine.”

Year-to-year rate comparisons are difficult, he said, because of the drop in diesel prices. Last week, diesel was $1.01 per gallon less than the comparable week of 2014.

Matt Minthorn, a Phoenix-based manager of La Cañada, California-based broker Allen Lund Co., joined others in saying that while equipment supply is adequate overall, the produce market still has volatile moments,

For example, Minthorn said, it was impossible to find trucks during one weekend in May, and at one point, rates jumped 35% to 40%.

“We have seen some tightening on days we aren’t expecting,” said Minthorn, whose company moved more than 100,000 produce loads last year.

He noted that while Friday and Saturday typically have been the busiest volume days, “Wednesday is the new Friday, so to speak.”

Byrne said the day-to-day volatility in rates and truck availability is continuing in California.

Covey said stormy weather patterns in the East and South in recent weeks also have disrupted rates and demand at times.