Perishables bring challenges to all freights

By: | at 08:00 PM | Channel(s): Air Cargo News  International Trade  

By Karen E. Thuermer, AJOTAlong with the rest of the economy, the food industry is challenged these days given soaring costs. While many obstacles exist in moving perishables freight, opportunities exist. The key is for everyone in the supply chain to stay informed and be as flexible as possible to adapt to the times. Let’s start with the outside influences that impact the agricultural business at the commodity level. Bob Ingram, National Account Manager for Norfolk Southern based in Roanoke, VA, poignantly points to the price run up on commodities such as wheat, corn, and soybeans as one of the industry’s critical issues. To understand the problem, one must first know how there was a huge run up in wheat prices between 2007 ($4.82) and 2008 ($7.92). While prices remained in the $7 range for the following three years due to redirected and over planting, the price of corn and soybeans skyrocketed astronomically. Soybeans, especially, hit extreme volatility due to futures traders and the financial markets. For example, the price of corn was $3.85 per bushel in May 2007, but soared to $7.12 per bushel in May 2011. Soybeans, which cost $7.33 per bushel in May 2007 leaped to $13.31 bushels in May 2011. “Some producers did not anticipate prices to keep going up after 2007, so did not hedge,” Ingram remarks. As a result, large poultry producers like Pilgrim’s Pride, and later, Townsend declared bankruptcy. “They did not have contracts and the price of corn outstripped their ability to recover the price of their product,” Ingram remarks. “Not only did this ultimately affect transportation costs, because of the bankruptcies and price run ups, most shippers now require upfront payment before accepting a shipment.” The issue gets worse when considering the value of corn to be shipped by rail. Such shipments can be worth upwards of approximately $2.2 million. Whereas before, a customer could pay for the corn after its arrival, now if he does pay prior to shipment, a bill of lading cannot be submitted. “For a rail company like Norfolk Southern, this means we sit there with three engines valued at about $7.5 million and 75 cars at $70,000 a piece that cannot move,” Ingram says. Ultimately this impacts the agricultural end user such as the poultry producer, and finally the consumer. “Before they potentially had three trains worth of corn in transit or within that pipeline,” he explains. “But now the accounts payable cycle for an end user has been condensed from 14 days to 2 days within a span of one week.” The issue is impacting ocean vessels as well. With the price of soybeans now at $13.31 per bushel, that commodity is valued around $26.8 million for transit on a 55,000 ton vessel out of the Port of Norfolk or New Orleans, Ingram estimates. “A lot of shippers overseas (or countries) do not have that kind of money to put up front,” he says. To get around it, many now use what has been dubbed “grocery boats”—smaller vessels that do require that such money be tied up in loading a vessel. These smaller vessels also have the benefit of reaching their destinations before the commodity rots. “Many of the countries do not have the port or inland infrastructure to handle a 55,000 ton vessel,” he says. “So much of the commodity rotted before it could get inland.” Consequently, those in the industry see the grocery boats as changing the dynamics of ocean shipping when it comes to these commodities. Quick Response Rising costs, both in commodity prices and transportation, is particularly of major concern to large companies like Perdue Farms Inc. “Everyone is tooting the corn horn,” exclaims Bruce Meihammer, division manager at Richmond Cold Storage in Perry, GA, which works in close partnership with Perdue “Every time grain prices go up, Perdue is more focused on controlling costs.” For Richmond Cold Storage, this means focusing on quality and reliable service – two mandatory factors to doing business with Perdue.

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American Journal of Transportation