Transportation is still a significant issue for shippers of food and ingredients.
Logistics continues to be the most difficult issue facing the grain business, as well as buyers and sellers of food ingredients, and has been for more than two years. When it appeared that COVID’s effects were abating in the majority of countries, Russia invaded Ukraine, bringing with it a new set of difficulties—fuel costs being just one of them—and COVID returned to haunt shipments coming from China in particular.
Since the COVID-19 pandemic, the trucking industry has seen some improvement in conditions. This is encouraging because trucks account for almost all “last mile” deliveries and carry over 70% of all freight in the US. Grain deliveries in the Southwest hard red winter wheat region are weeks behind schedule due to manpower shortages and other issues that have severely hampered railroad operation. In the last year, the rail sector has undergone a significant merger, and with government involvement, a protracted strike in Canada was avoided. There are varying conditions in the ocean freight market. While rates are still much higher than pre-COVID levels, they have decreased from their peak in 2020–21. Although there are fewer ships waiting in West Coast ports, port congestion is still a significant issue.
Fuel prices are a fundamental factor that impacts all forms of transportation. Even though the United States only obtained around 3% of its crude oil from Russia, the conflict between Russia and Ukraine has had a significant impact on the price of crude oil and petroleum products both globally and domestically. The US Department of Energy’s Energy Information Administration stated that spot prices for West Texas Intermediate crude oil in Cushing, Oklahoma, reached a peak of $123.64 per barrel on March 8, a rise of more than 100% from the previous year. Since then, prices have fallen as low as $94.85 on March 16 and then risen beyond $100 again in the first part of April. President Joe Biden declared on March 31 that an extra million barrels per day on average would be Fuel users applauded the amount of oil that was released from US stockpiles over the next six months.
The EIA’s weekly average price report for on-highway diesel reached a peak the week of March 14, when it was $5.25 a gallon, 67% more than a year earlier. The week of April 11 saw a little decline in prices to an average of $5.07 a gallon, which was still 62% higher than a year earlier.
Carriers pass on increased fuel prices to shippers. Surcharges in the trucking business are determined by certain carriers and might differ significantly. In the rail sector, surcharges are more standardized, though they are still subject to variation and are updated on a monthly basis. They are based on the EIA weekly average on-highway diesel price. In April, Norfolk Southern will levy no railroad fuel premium; Burlington Northern and Union Pacific will charge 39¢ per car per mile; Canadian National will charge 45.45¢; Kansas City Southern will charge 48¢; CSXT will charge 51¢; and Canadian Pacific will charge 54¢. For instance, the fuel surcharge announced by the Union Pacific Railway for April was 39¢ per mile per car, up from 15¢ in April 2021, and for May it will be 61¢, up from 22¢ in May 2021.
According to the US Department of Agriculture’s April 7 Grain Transportation report, fuel surcharges for unit train shipments of wheat in April ranged from zero to $529 per car, while for shuttle trains, the range was from zero to $624 per car, depending on the route. For wheat, unit trains paid $3,658 to $7,290 per car, while shuttle trains paid $4,193 to $6,670 per car in rail freight rates in April. Fuel surcharges are applied to the freight rate per vehicle and, in certain situations, to the cost of transportation wheat, adding roughly 15¢ per bu. The total cost of exporting wheat by train, including fuel surcharge and freight, varied from 99¢ per bu for the shortest route (Grand Forks, ND to Duluth-Superior) to $1.97 per bu.
An increase in truck freight
The epidemic revealed the weak points in the trucking industry, which was already in trouble due to low wages, a lack of workers, and labor shortages. Although the business is still adjusting to waves of volatility following two years of pandemic-related setbacks, data suggest things are getting better.
Redstone Logistics President and CEO Jim Ritchie stated, “We’ve been looking at all the stats in the data and are starting to see real evidence that demand is subsiding, and all things point to a little bit of a relief.”
Before the pandemic struck, customers had more spending power as they were handling stimulus funds, which had given them an infusion of cash, and they weren’t purchasing hard-to-get or discontinued services. However, a lot of the goods that customers could easily buy required shipping and delivery, which put more strain on the already overburdened distribution system that was trying to deal with labor shortages and COVID mitigations. According to Mr. Ritchie, as COVID laws eased, individuals began to spend money again on services.
An other reason driving down demand was oversupply. Businesses began to overstock their inventories during the pandemic as a precaution against unpredictable delivery timetables. However, Mr. Ritchie claimed that businesses aren’t moving as much inventory these days, which has relieved pressure on supply lines.
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The American Trucking Associations estimated that the trucking industry was short about 61,000 drivers prior to the onset of the epidemic. According to a US Department of Labor study from April 2020, the trucking industry lost about 90,000 more drivers. Delivery delays and exorbitant surcharges resulted from fewer drivers being on the road to fulfill the increasing demand for delivered items.
“If I were an importer, I would like to accumulate some inventory and take some protection.”
It should be noted that while just 10% of US waterborne grain exports are transported in containers, a large number of other goods and components needed in food production do arrive in containers, including dry dairy products.
As it has been since the start of COVID, there is still uncertainty around logistics as a whole.