Creative solutions for an uncertain future
Cutting costs, saving money and staying current with regulations are just some of the challenges facing every grower who sends a truckload of fruit or produce to market. Add to that ongoing concerns like tracking outbound shipments and keeping trucks full on the backhaul, and 2009 promises to be an interesting year.
“The economy will continue to be the greatest challenge for 2009,” says Steve Potter, senior vice president of industry relations for the International Foodservice Distributors Association (IFDA) in McLean, Va. “The current freight-scarce economy has helped bring up fuel inventories and lower prices, but as demand picks up there will be increases in prices. Companies that have not positioned themselves for economic times like these and have relied heavily on asset-based credit will be in trouble,” he says.
On top of that, unemployment will continue to be a major concern. The trucking industry lost close to 25,000 jobs in January, the highest monthly total since 1994 and just under a third of what was lost in all of 2008, according to IFDA. However, Potter notes, “The great thing about food and produce is that everybody has to eat. Our business is not closely tied to manufacturing, so that is to our advantage.”
One area that promises to give the produce industry a boost is the Produce Traceability Initiative (PTI). PTI’s goal is to develop a standardized system of bar coding for all produce. The bar code, applied at point of origin, will allow specific produce to be tracked throughout the distribution chain.
Part of the benefit will accrue to growers and their distributors by maximizing internal efficiencies. If the promise of easier tracking pays off, this will also be a boost to public health and agriculture officials when they need to trace the origin or distribution chain for a product. Several industries have been the target of investigations recently for safety or health issues, and a good tracking system would sort out the innocent from the tainted quickly and with less chance of injury to producers whose fruits or vegetables are not involved.
The process being promoted by the group involves the use of GS1 standards, Global Trade Identification Numbers (GTINs), Lot Numbers and Pack/Harvest Dates physically shown on every case or on every case label.
According to the U.S. Department of Energy’s Energy Information Administration, diesel prices on the East Coast averaged $2.153 in early March. This was slightly higher than the national average for the same time, which is $2.087. The same prices for the week of May 25, 2008, according to DOE, were $4.723 for the nation and $4.779 for the East Coast, but nobody thinks prices will stay down forever.
“Operators cannot control the global price of fuel, but they can control consumption,” Potter notes, and says that reduced fuel consumption can be achieved without capital investment. “The largest single influence on fuel consumption is the driver. Training drivers on the hows and whys of speed and idling control, progressive shifting, the seriousness of maintaining proper tire pressures, and then managing it will go a long way in lowering overall fuel costs,” he says.
Best-in-class foodservice distributors are doing these things, but they realize that to truly manage these things there need to be systems in place to monitor driver performance while on the road, potter says. “onboard computers provide the necessary information to monitor driving habits and to follow up where improvement opportunities exist. many fleets have utilized onboard computers to implement programs that reward their drivers for improvements in fuel economy, delivery times and other key performance indicators,” he adds.
Truck manufacturers have seen sales slump, but, while they are working on more efficient engines and drivetrains that will power full rigs, growers know a tractor is more expensive. It used to be a customer could walk into a dealer and get close to 100 percent financing. Now, owner/operators are expected to plunk down 20 or 30 percent.
“We’re in uncharted waters. We’ve got to help ourselves,” says Dan Vaché, vice president of supply chain management for United Fresh Produce Association, Washington, D.C. Vaché, who is in their newly established Redmond, Wash., offices, notes that even parts sales have dropped as people take old trucks and pirate parts to keep newer equipment running.
Vaché says, “You can’t have trucks sit and wait for lower fuel costs.” His solution is to team up with a good broker. “A good broker is worth his weight,” Vaché says. “There has to be give and take. Brokers and truckers are in this together and they have to take a collegial and collaborative stance.”
Equipment specs also have a large impact on fuel consumption, Potter notes. Improper horsepower, transmissions, gear ratios, fuel tank sizes, aerodynamics and tire treads have a dramatic effect on miles per gallon and maintenance costs over the life of the equipment.
One key is to get profitable backhauls. More produce moves west to east than vice versa. One solution Vaché sees is for drivers to take shorter runs, reducing the length of unprofitable backhauls.
“You can’t use trucks for storage—get them in and get them out,” he says.
Another way to save money is to reduce shrinkage at the other end. Spoilage is wasteful, but someone pays to pick and pack the fruit, pays for the fuel to ship it, and pays to landfill the wasted product. Vaché says technology can help here.
Educating the consumer will help move your product. Many observers feel there are too many SKUs (stock keeping units or individual products) on grocery shelves, and consumers become confused when faced with 14 varieties of apple. “Educate the grocer and the consumer,” Vaché says. If the consumer is faced with too many choices, they will retreat to the familiar. Educational posters or leaflets will help your product move off the shelf instead of to the dumpster.
Today, many consumers like to “buy local.” In some areas, 90 percent of product is marked with point of origin. Most observers feel this is good for the consumer and for the industry. Of course, it only works if the product reliably reaches the market while still fresh.
Many trucks are equipped with GPS systems, and there are lots of computer programs that will take temperature data, seasonal data and cross-analyze it by carrier, route and destination.
Looking at this data will allow a grower or hauler to improve the cold chain shipping.
“Cut way down into the weeds—measure and analyze everything,” Vaché advises. No longer does a shipper wonder where his drivers are, as cell phones and GPS make that question obsolete.
The idea is to keep the truck on the road and keep it earning money. While the truck is on the road, it is important to keep it legal.
Most observers see nothing specific looming on the regulatory front for fruit and vegetable shipping. However, the change in administration in Washington, D.C., does leave the door open for a new regulatory climate.
“With the new administration in Washington, there are still a lot of unknowns; but one thing that we can be certain of is that environmental concerns will remain a high agenda item,” Potter says.
He predicts environmental mandates surrounding emissions will continue to add costs. “Compliance will increase delivery equipment prices and transition-related costs, but hopefully the final Stimulus Bill will contain provisions for tax cuts for buying new equipment, retrofitting diesel engines, and accelerated depreciation for equipment purchases,” he says.
Potter expects highway funding for the deteriorating infrastructure to get a lot of attention. “The House version of the Stimulus Bill had dedicated $30 billion for highways and bridges, but the Senate sliced it to $27 billion and added $5.5 billion for significant regional or national projects.
“If the final monies are not sufficient to address the necessary repairs, I think there will be an acceleration of government pressure to privatize highways, which will mean more tolls to get from Point a to Point b,” Potter adds.
The EPA-mandated 2010 engine emission standards will be the next round of changes fleet owners or operators will see. Most U.S. engine manufacturers will be using selective catalytic reduction (SCR) to clean up truck exhaust and meet the new standards. It is predicted that these requirements will be $8,000 to $10,000 more expensive than the 2007 models.
The last two times EPA tightened emission standards were in 2002 and 2007, Potter notes. Fleets went on pre-buying sprees in the year prior to the rules change. It is not believed that there will be a big pre-buy in 2009.
That demonstrates that regulations written for the whole trucking industry can have a negative impact on a small, specialty group like produce haulers. That’s why groups like IFDA and United Fresh monitor Capitol Hill constantly.
Vaché points out that there is a big difference between a grower who hauls produce to a distributor over back roads and one who uses an interstate highway—even for one exit. “A lot of that comes down to driver and dispatcher training,” he says.
Potter predicts many companies will come out of this recession in better shape than they were before. “They will do this by improving their processes, identifying and reducing inefficiencies, and getting back to the basics of the business,” he concludes.
Curt Harler is a freelance writer in Strongsville, Ohio.