Many freight brokers know the common phrase:
April showers bring May flowers, what do May flowers bring? Produce.
This time of year, carrier representatives prepare for the produce season, which typically runs in the United States from April to June. While a large amount of our produce comes from overseas, this is the time of year when the U.S. transports the most domestic produce along with exporting it as well. This usually creates capacity issues across the South and West Coast, in areas like Florida, Texas and southern California.
It is also important to note that as the country continues to open up with increased vaccine participants and weather becomes warmer, carriers will also find demand in areas like food distribution to restaurants and nursery freight including trees, bushes and flowers.
The USDA tracks capacity shortages in the major growing regions, which was reported by FreightWaves a few weeks ago. In those few weeks, most markets increased in value, leading to a greater truck shortage in areas like central Wisconsin, Florida and Michigan. A few areas in California dropped from a 5 to a 4, but still are not providing an adequate supply.
While this information is helpful, FreightWaves SONAR offers indices that can help your brokerage target reefer carriers to help mitigate increasing costs related to these shortages.
The AGRATE index is a weekly average total truckload price, including fuel and other costs. During times of high produce activity, the USDA surveys produce shippers in the areas they deem agricultural hubs.
Monitoring these indices can help carrier representatives discover their pricing power for loads coming in and out of these regions. As rates increase, this is a sign that demand is increasing as well.
WARNING: The following SONAR chart might trigger you!
The chart above is a tree map of yearly percent change in price across all AGRATE indices. Just like the lettuce and broccoli coming out of California this time of year, it is VERY green.
What is astonishing is the high percentage change, with most in the double digits. Along with that, the few that are red have very little change. With this much of a percent increase across the board, the very few markets that have shown little change or a decrease can only drop costs by so much before carriers start following the money to the green markets.
The SONAR tree map above shows the same AGRATE index but a percentage change of last value, giving you a better real-time view of the markets. Unfortunately, most are picking back up as produce season picks up, along with recovery from a slight decrease in rates from the last week, which was primarily end-of-quarter shipping.
Your carrier representatives should be trained to know that after seeing this type of year-over-year change, their next steps should be to review tender rejections and rate increases.
The Truckstop.com Rates Per Mile enables SONAR subscribers to track the 7-day average rate per mile in the most heavily trafficked lanes. These rates are updated every Monday.
The average is calculated by the average all-in (linehaul + fuel) cost/revenue (Bill of Lading amount) of the prior week. Rate data is available for Van (TSTOPVRPM), Reefer (TSTOPRRPM) and Flatbed (TSTOPFRPM) modes.
While SONAR has other indices for rate data, Truckstop.com data is important as many small to medium (and some large) brokerages rely on the site to source carriers.
The chart above shows the average Reefer rate on Truckstop.com over the last year.
Yes, it is EXTRAORDINARILY HIGH.
There is a slight dip in rates around quarantine closures last year, as many farmers struggled to deal with social distancing in the fields, but other than that, rates have stayed high since a resurgence in mid-May 2020.
Managers of carrier relations representatives can set alerts for when these trends start to change, but with an increase in rates this high, your strategy should be focused on contracting these carriers to a more sustainable rate (if they are even willing to have that discussion).
Now, time to deliver the most discouraging news…
As a SONAR user, OTRI should be your favorite index of all time.
To quote Biggie Smalls: If you don’t know, now you [should] know.
The tender rejection indices are measurements of carriers’ willingness to accept the loads that are tendered to them by shippers under contract terms. The unit for this index is a percent, so a 25 would mean that carriers are rejecting or passing on one of four loads.
Tender rejection indices include van, reefer, flatbed and intermodal modes, along with inbound and outbound results. You can view data in weekly, bi-weekly, monthly and annual changes.
This index is quite simple; if it is going up, capacity is tightening (rates going up). If it is going down, capacity is loosening (rates going down).
In the chart above, you are looking at the Reefer Outbound Tender Reject Index for this year, along with 2019-2020 in yellow and 2018-2019 in green.
This chart clearly shows a drastic increase in reefer demand compared to past years. Reefer carriers are currently turning away 45% of all loads contracted to them. Even if the industry added 25% more reefer capacity, there would still be a higher ROTRI than previous years.
If you are managing carrier representatives who focus on reefer relationships, the frustration on their face is warranted.
They are not going to be able to do much in regards to negotiating in outbound produce markets.
On a positive note, they should be able to get great rates into produce markets, as carriers sometimes take losses just to get to this type of pricing.
As a manager, it is time to manifest your destiny on this one, and start putting those phones to work and prepare for a future in which reefer carriers name their price.
The industry is seeing high records of truck and trailer orders to help build this capacity back up, but with the continued shortage of semiconductors to build these trucks, drivers will more than likely be waiting for their new units.
In the chart above, you can compare the increase of rates between reefer, van and flatbed trailers. This capacity crunch is not going anywhere and the increase of rates across the board show that carriers know they will continue to win on pricing for a period of time.
