Harvesting a Solution to Agriculture Transportation
By Courtney Schmidt, Wells Fargo Food and Agribusiness Industry Advisor (October 11, 2022)
As I walk through the cotton fields on my family farm in Texas, I wonder how much the chemicals will cost this week – or if they’ll arrive at all. My cattle also need feed which is becoming harder to find. The cost to haul both our grain and cattle has increased, we’re eating into our profits, and now there’s the truck driver shortage. Farming is a part of my DNA and I’ve witnessed firsthand the effects of the shipping and transportation disruptions.
I know I’m not the only one facing these struggles. Farmers and ranchers across the country are scratching their heads and reaching into reserves just to handle day-to-day operations – and some of them are even stockpiling grain. The question is, will agricultural transportation see any improvements during the remaining and future harvest seasons? Perhaps. This is what we know so far:
We’re seeing some improvement in ocean shipping. The rates have been softening since the late summer of 2021 but remain well above pre-pandemic levels.
On June 14, the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) employer group communicated in a rare joint statement that despite port employees' contracts expiring, they were not planning any work stoppages or lockouts that would worsen supply chain logjams.
The signing of the Ocean Shipping Reform Act on June 16, 2022 not only shifted the burden of proof to show the reasonableness of fees to ocean carries instead of shippers, it also pushed the Federal Maritime Commission (FMC) to act more aggressively on unfair detention and demurrage charges.
What this means for you: Shipping container availability and freight rates for U.S. agriculture export products are improving but are still under pressure. The industry is hopeful the new Ocean Shipping Reform Act will continue to improve ocean shipping conditions.
Freight rates started experiencing some alleviation in May as capacity increased and demand declined.
Fuel price hikes are putting strain on consumer demand for goods as household budgets are stretched thin. This gives other types of freight some rate relief as load volume is down and truck capacity is up.
To put further strain on consumers, fuel surcharge contracts transfer price risk from transportation provider to the end-user. The speed and amount of price change is paid by the consumer.
California’s AB-5 heralds another uptick of transport rate hikes as transportation companies need to embed additional costs into rates – causing contract agribusiness transport rates to continue to rise.
Seasonal bulk agricultural demand for local and regional hauls with specialized trailers doesn’t have the same characteristics of longer haul routes with reefers or flatbeds.
What this means for you: The decrease of freight rates for companies, the increase of fuel surcharges for consumers, and the truck driver shortage are creating a standoff for the end-user and the agribusiness trucking industry.
Labor appears to be the main issue for railroad agriculture transport. According to the National Grain and Feed Association, railroads were already down roughly 25 percent in staffing prior to the pandemic – which was only exacerbated in the months that followed.1 Contract negotiations with employees threaten more disruptions in railroad shipping.
The West Coast is especially struggling with receiving grain and feed for their livestock and poultry operations through railway shipping – issues that have been ongoing since late winter. The Surface Transportation Board (STB) issued an emergency service order to Union Pacific Railroad to give preference and priority to unit trains of corn from the Midwest to Foster Farms’ facilities in Traver and Turlock, California.
Pilot Company is in a dispute with Union Pacific over train deliveries of urea for diesel exhaust fluid (DEF) – producing and selling 30 percent of the U.S.’s supply.2 There is concern that shifting deliveries to over-the-road trucks will result in higher costs, additional delays, and DEF shortages. The price for DEF is at an all-time high of almost $4 per gallon.
What this means for you: In September 2022, the White House reached a tentative agreement to avert a potential nationwide freight rail strike that would have caused massive disruption in service. Union members must ratify the tentative deal which includes better pay and more flexible schedules. This summer, President Biden issued an executive order to help end the contract dispute between the unions and the major freight railroad companies, including Union Pacific and BNSF. The executive order appointed a three-person board of arbitrators to help the two sides work toward a settlement.
Is there any hope in sight?
Whether you use ocean shipping, railway shipping, or trucking to run your business, there are challenges and opportunities to each method. No one truly knows what will come of the laws and regulations now in place until they have been enforced and acted upon. What I do know is that if this pandemic has taught me anything, it’s that we just need to keep moving forward the best we can and roll with whatever comes next.
1Morgan, Tyne. Trouble Shipping Grain and Feed Via Rail Far From Over, Concerns Now Growing About Possible Worker Strike At Harvest, Dairy Herd. July 18, 2022.
2The Hoyt Report - Western States Forage Market Analysis, June 24, 2022 (Note: source available by subscription only).
ABOUT THE AUTHOR
Courtney Buerger Schmidt is a sector manager within Wells Fargo’s Food and Agribusiness Industry Advisory group focused on the protein, cotton, and hay sectors. Buerger Schmidt joined Wells Fargo in 2014 as a relationship manager within The Private Bank Wealth Management group, where she spent two years prior to assuming her current role. Before Wells Fargo, Buerger Schmidt spent six years as a commodity broker and research analyst with Frontier Risk Management developing hedge and risk management strategies for agribusiness clients, and also served as assistant director of the research division that focused on livestock, grain, and oilseed.
Buerger Schmidt holds a Bachelor of Science degree in Agricultural Economics with an emphasis in finance and real estate from Texas A&M University. She was recently selected for Texas Agriculture Lifetime Leadership (TALL) Cohort XVIII 2022-2024. Buerger Schmidt also is a member of the Texas A&M College of Agriculture Development Council. Reach Courtney on LinkedIn here.