Fuel prices, regulations make shipping tough on processors

Rising diesel fuel prices are driving trucking companies out of business and raising rates with additional fuel surcharges. But the trucking and produce industries are working with the Department of Transportation and other federal agencies to help growers and processors get their produce from the field and eventually to consumers.

Fuel Consumption

Passenger cars and trucks consume the most fuel in the United States – 64 percent, according to the Department of Energy. The trucking industry is second, consuming about 19 percent, but all diesel fuel. Airlines use 10 percent of the fuel consumed in the United States, and buses, railroad and water transport use a combined 7 percent.

Worldwide consumption of petroleum is expected to increase by 1.2 million barrels a day, according to the Department of Energy’s Energy Information Administration. About one-third of that increase in fuel will be used by China, with Russia, Brazil and India also increasing consumption.

Americans consumed about 20.7 million barrels of oil a day in 2006 and 2007. High petroleum prices and an economic slowdown will result in a drop of 190,000 barrels a day in 2008 – or 330,000 barrels a day if the increased ethanol production is accounted for. But that trend won’t last, as the Department of Energy predicts an increased consumption of 210,000 barrels a day in 2009.

Diesel Prices

The price of crude oil increased 52 percent from 2007 to 2008, averaging $72.32 a barrel in 2007 and so far averaging $109.53 a barrel so far in 2008. The department of Energy predicts a slight drop in price of 6 percent in 2009.

The crude oil prices affects what truckers will pay for diesel fuel at the pumps, but an increased global demand for diesel has increased the disparity between crude oil and retail prices, according to the Energy Information Administration. New federal regulation requiring the use of low-sulfur oil also is driving up the price. A breakdown of one barrel of oil shows that it makes about 19 gallons of gasoline, 8 gallons of diesel fuel, and a combined 18 gallons of heating oil, jet fuel, liquid petroleum gases and other products.

In 2007, diesel prices averaged $2.88 a gallon, but that has increased 37 percent in 2008. Drivers now pay $3.94 per gallon on average, although the Department of Energy predicts a 7 percent decrease in price in 2009, to $3.67 per gallon. The retail price of diesel has steadily been climbing since March 2008. For the week ending in May 12, the average cost at the pump was $4.33, an 18-cent increase from the previous week and $1.56 over the same week in 2007, according to EIA. The central Atlantic region paid the highest price at $4.52 a gallon, followed by New England at $4.46 a gallon and the West Coast at $4.45 per gallon.

“As you can imagine, it’s affecting our business big time,” said Russell Laird, executive director of the Agricultural and Food Transport Conference of the American Trucking Association. “You can only stay in business if business is profitable.”

The number of trucking companies that have filed for bankruptcy is on the rise this year, likely caused by decreased profitability from rising fuel prices and a slower economy, Laird said.

Presidential candidate John McCain in a campaign speech in May called for a “gas tax holiday” that would eliminated the 18.4 cent to 24.4 cent federal taxes on gasoline and diesel fuel between Memorial Day and Labor Day. ATA supports the idea of reducing gas taxes for its members, but the association also is protective of the highway infrastructure, and those gas taxes fund repairs and upkeep on the roads. McCain has since clarified his statement, stating that the loss in revenue would be replaced from the General Fund.

Driver Shortages

Shipping is a critical component of both the supply and food safety chains. Each step – shipping from the field to the processing facility and the plant to the store or customer – is dependant on trucks to move product quickly. Overall quality can be affected if raw product sits on a truck too long or if the cold chain is broken during final product shipping.

But the transport industry is facing a critical shortage of drivers in the United States – a problem compounded by rising fuel prices and competition from Mexican truckers allowed into the United States by trade agreements. According to a study commissioned by the American Trucking Associations, there was a shortage of 20,000 drivers due to an aging workforce and declines in the demographic groups that typically make up the driver pools. If the trend continues, ATA estimates that there will be a shortage of 111,000 long-haul truck drivers by 2014.

A shortage of that magnitude would affect almost every segment of American commerce, including the produce industry.

“It’s a perennial concern,” Laird said. “Some years it’s more pronounced than others.”

The driver shortage may not be as critical this year. Trucking company failures have increased the number of drivers looking for work, Laird said.

The ATA is working to alleviate driver shortages in the future. The association is working on a program with the U.S. military to train drivers in the armed forces so they can transition quickly to the trucking industry when they leave the service.

Other Ag Issues

Drivers working with agriculture can qualify for exemptions to the limit on hours of service guidelines. Currently, a truck that operates within 100-mile air radius of a farm during planting or harvest – and is taking produce only from the field to the first point of processing – isn’t limited on hours. ATA is working to expand that radius to 150 miles, which better reflects the agricultural industry, Laird said. USDA supports the 150 mile radius, but the Department of Transportation wants to limit the radius to 50 miles – and law enforcement associations have sided with the smaller area as well.

“Farmers don’t want to wait to have fertilizer delivered to them,” Laird said. “We’re going to have a fight on our hands to keep even that 100 mile radius.”

One of ATA’s goals is to make moving produce from the field to the processor more efficient. One way to do that is to increase the weight limits allowed for agricultural product transportation. The current guidelines call for five axle trucks limited to 80,000 pounds, but the association is working to increase that to 97,000 with the addition of a sixth axle. The cost would be high for producers – they would need to buy new trailers to benefit from such an exemption – but in the long run it would make moving produce from the field easier, Laird said.

When fruits and vegetables are loaded in the field, the loads have to be secured following Department of Transportation guidelines. New cargo securement rules were implemented a few years ago that were more stringent, but they were one-size-fits-all with few exceptions, Laird said. Raw produce packed in specialized containers that didn’t comply with the new regulations were subject to fines from local law enforcement – which was especially pronounced in California, Laird said.

Tomatoes shipped to processing or packing facilities in fiberglass tubs with cable systems needed additional straps to comply with Department of Transportation guidelines, and fruit bins with tie-down systems also needed unnecessary strapping. ATA has been working with the Department of Transportation to get exemptions for some raw produce shipping methods, and the association has made some progress. DOT has conducted tests on some of those products and may rule on exemptions in the near future.

The fresh-cut industry relies on transporters for moving raw and finished product, and rising fuel prices and driver shortages can cut into profits. ATA is working to make its members’ industry more stable, and the association has partnered with produce groups to ensure food safety and to enable communication between the two industries. Working together to achieve profits is vital for both processors and truckers as the global demand for petroleum products and food safety regulations cut into both industries’ bottom lines.