Food Industry Confronts Tight Capacity, New Regulations as Global Demand Grows
This story appears in the Feb. 23 print edition of Transport Topics.
Food producers and shippers are adjusting to changes in their transportation needs just as increasing demand for products and supplies is running up against forthcoming rules that will regulate the condition of the industry’s goods and shipping equipment.
Although it has been four years since President Obama signed into law the Food Safety Modernization Act — legislation that directed the Food and Drug Administration to issue regulations on the safe transport of food — it still could be a while before final rules are adopted, said Rob Moseley, an attorney with the law firm Smith Moore Leatherwood. However, he said that their eventual enactment is sure to reshape how food is shipped.
“There are no rules on the safe transport of food,” Moseley said during a recent webinar. “I will often see a bill of lading that says food cannot be commingled, but there is no FDA regulation on that.”
That could have an effect on sectors of the food industry that rely heavily on transportation.
“We are basically an industry on wheels; we need transportation,” Deborah Johnson, CEO of the North Carolina Pork Council, said last month in a workshop on food supply chain issues during the Transportation Research Board’s annual meeting in Washington, D.C.
To illustrate her point, Johnson displayed a North Carolina map dotted with locations of 3,600 pork farms, many situated at the intersection of interstates 40 and 95 in the southeast corner of the state. The two largest pork-processing plants, running at peak capacity, could yield 32,000 pigs per day, or about 250 truckloads of pork, she said. With that kind of demand, Johnson said the state’s transportation infrastructure needs to be, “robust.”
“It has to be well-maintained . . . and planned with foresight in order for pork production to succeed,” she said. “We need to be able to move animals in and out of the state.”
Though pork farmers have located around two interstate highways, grain producers are more limited in where they can locate their operations, said Mike Steenhoek, executive director of the Soy Transportation Coalition.
“Certain industries can locate where the transportation is; agriculture is located where the favorable climate is,” he told Transport Topics. And in the United States, that location is the Midwest.
“We are far removed from our ports,” he said. “It’s a 1,400- to 1,500-mile rail journey, or 900 to 1,000 miles by barge along the Ohio or Mississippi River.” Regardless of port choice, however, he said that the vast majority of the soy shipments that exit the region start out on a truck.
“Farmers are increasingly owning their own trucks or hiring drivers,” he said. “Right now, 90% of deliveries from a farm to the first receiver of grain occur by truck. And that is projected to be 100% within the next 10 years.”
Also on an upward trend is the soy industry’s global exposure, Steenhoek said.
“Right now, one-quarter of the U.S. soybean crop goes to China, and that is only projected to grow,” he said.
North Carolina pork producers also are expanding globally, Johnson said. “One out of every four pigs raised in the U.S. are exported,” she said. “Our largest customers are Mexico and Japan, with the largest volume going to Mexico.”
And this globalization brings new challenges, said Sharon Clark, senior vice president of transportation and regulatory affairs for Perdue AgriBusiness. The company sources, buys and processes commodities for poultry producer Perdue Farms, based in Salisbury, Maryland.
“We are seeing a significant change in the shipping of agricultural products and globalization of trade,” she said at TRB. “Globalization and food demands have changed traditional shipping patterns and are adding to the complexity of getting food to our table. This means we need to focus on core infrastructure and a two-way traffic flow to support exports and imports.”
And it begins, she said, at the farmer’s driveway.
“It starts with the gravel roads that the farmers have to use to make their way to secondary roads to highway,” she told TT. “Traffic analysis must extend via the railways, highways and marine highways into the interior [of the country] to facilitate the importing and exporting of products.
“Our success relies on an efficient and effective transportation network,” Clark said, “and all of these must be working together for us to support future growth.”
North Carolina, for one, is making an investment.
“We are having some significant work done on our bridges,” Johnson said. She noted in a follow-up e-mail to TT that 30% of the state’s bridges have been deemed “structurally deficient” by the North Carolina Department of Transportation.
To address the situation, the General Assembly approved $330 million in the fiscal-year 2014-2015 budget for bridge improvements. That’s on top of $240 million in federal funds the state said was earmarked for bridge work in fiscal 2014.
This type of investment is necessary if competing industries — including trucking — want to stay even with railroads, Clark said.
“While the railroads have made significant investments to create a first-class rail network, this investment is significantly diminished if highway, waterway and port infrastructure is left behind,” she said.
This is especially true as capacity tightens on the rails and the highways, Johnson said. “There is a lot of competition for rail,” she said, citing demand driven by oil drilling activity in North Dakota. “There are some needs there.”
This demand could shift in coming months to trucking companies that are adding capacity, said Jon Samson, executive director of the Agricultural and Food Transporters Conference of American Trucking Associations.
“This whole capacity issue is the No. 1 problem people are facing,” he told TT, noting that while the trucking and rail industries are taking steps to expand, it will take some time.
“When everybody went through the recession, they changed their business models,” he said. “They made sure they were at maximum capacity.”
But as the economy has recovered, these streamlined carriers have found themselves with demand they could not meet. This was especially true last year, Samson said, when a bumper crop for grain left shippers with product they could not move.
“You had a little bit of a perfect storm,” he said.
But Samson believes trends in the trucking industry point to an expansion of capacity this year.
“Truck sales and manufacturing are way up, and you are starting to see some of these companies building on what they have,” he said. “They can come out and grab some of that product.”
But shippers’ access to this expanded capacity will be arriving just as the food industry braces for the expected FDA regulations that will impose new demands on carriers and shippers.
Moseley told TT that, while the rules will not cover transportation of live animals, they will cover the final products.
“When you’re talking about moving processed chicken or pork, you’re talking about refrigeration processes, maintaining a proper seal and the cleanliness of the trailer,” he said. “The biggest piece is the integrity of the process.”
That process could be improved, he said, if shippers and carriers did a better job of setting expectations .in contracts.
“Shippers will need to develop processes for their products and make sure that is communicated to the carrier,” he said. “There is a lot of room for improvement on the process.”
But that doesn’t mean proper controls are not available, Steenhoek said.
“The FDA believes that what we are doing is correct,” he said. “There have been hardly any cases of foodborne illness, [and] the FDA doesn’t want to delve too deeply into transportation. They are trying to frame it around industry best practices.”
But there still will be growing pains, Moseley said.
“Drivers are used to getting certifications, not giving one,” he said. “There is going to have to be some proof from the driver that [conditions] were maintained throughout the shipment.”
But shippers also must be held accountable for the condition of a shipment when it is loaded and unloaded — especially refrigerated goods.
“A lot of times, a manufacturer will have a processor on deadline, and there is a truck sitting ready to go,” Moseley said. “If they process some chicken or pork and it is at room temperature, if you slide it right out the door, it is not at the right temperature. And the refrigeration unit probably cannot recover that temperature.”
Shipments must be given similar care at delivery, he said.
“If you back up a truck, open the doors and don’t unload it right away, you can affect the integrity of the cold chain,” he said. “On a 100-degree day, ice cream is going to melt.”
He added, “Love covers a multitude of sins, but refrigeration doesn’t.”
Moseley was quick to point out that it will take time for the details to be fine-tuned and for the eventual rules to be finalized. He noted that, while it has been a year since FDA issued proposed regulations, the agency has not held public hearings. And he expects the agency may conduct “another study or two” before finalizing any rules.
With so much change and uncertainty, food shippers rely on a responsive supply chain, Perdue AgriBusiness’ Clark said.
“Our supply chain relies on flexibility and options,” she said. “Our industry hits the reset button every crop year as Mother Nature dictates where global supply and demand for [agriculture] products will be for the coming year. No two crop years are the same.”
Perdue handles more than 55 different commodities annually, she said.
Beyond the crops inside the U.S. border are global socioeconomic issues that further complicate food producers’ transportation needs, Clark said.
“The middle class is expanding worldwide, and they want more animal protein,” she said. “As incomes increase, meat consumption increases, and then demand for [animal] feed increases.
“And volatile [commodities] prices are the new norm,” she said. “In the past five years, we have seen corn prices swing from $3 to $8 per bushel, which is huge for a market that usually trades in pennies.”
The growth of the renewable fuels industry also has put pressure on the grain market, Johnson said.
“We had renewable fuels come along, and we saw greater demand for that grain,” she said.
Clark cited data pulled from the U.S. Department of Agriculture that indicates biofuel production is drawing even with animal feed in terms of demand for grain. “This year’s corn crop will be 36% biofuel and 38% feed,” she said.
All of these factors have created a market for grain that is less predictable, she said. “World grain patterns are also changing; the U.S. used to get paid to store grain. Now, the U.S. may be exporting and importing grain in the same year,” she said.
In the meantime, food producers and shippers must contend with the ever-changing transportation challenges.
“We have many transportation options, including truck, rail, container, barge and vessel,” Clark said. “It’s a lot like playing with a Rubik’s Cube; we just keep twisting the color cubes until we get a match.”
