By Cain Adams
Trinity Logistics, LLC / Longboard Logistics, LLC
The onion world is driven by supply and demand yet disrupted by climate, pest infestation, storage capacity and market manipulation. If orders are higher than supply, the price tends to increase and if orders are lower than supply the price tends to go down. We then add freight rates into the mix and delivered pricing becomes the target everyone is after. Fuel and capacity then become a factor. Like an onion, the onion market is layered with variable factors allowing room for competition. Pulling back the layers for 2023 we can find a few areas of interest.
(Bloomberg) – Russia plans to reduce diesel exports from its key western ports to almost nothing next month after the government banned overseas sales to tame surging prices at home. Moreover, OPEC+ will dictate crude pricing the rest of 2023. Saudi Arabia has been slashing output by 1.5 million barrels a day over the summer. OPEC has reported seeing 3.3 million-barrel-a-day supply shortfall. This helped push Brent crude up by 30% since late June. American oil companies are not turning up their oil production. We will be seeing higher diesel pricing for some time. In turn, inflation may creep back up on goods being shipped using diesel. Is this a strategy to slow the economy down or is this something else?
This Summer brought carriers and freight brokers to their knees. With less freight available, we saw many freight companies lose their regular loads and move into the produce freight lanes. Customers are slammed with calls from these hopeful brokers. A few customers we spoke with said they are hanging up on most calls because it is affecting their own calls to their own customers. Many have long term carriers and not looking for someone green unless the price is right. That is until Labor Day.
Labor Day was a surprise for us. Suddenly, rates went up and we found ourself in a position of losing money. It felt like Thanksgiving. We covered all our loads and never gave them back. Sure, we lost money but we kept everything smooth. The weeks since have seen similar pricing. Higher pricing yet enough capacity to handle what needs to be moved. We finally figured it out. Fuel had gone up so fast that carriers had no choice but to fall off cheaper loads and look for ones that would pay that new overhead.
Carriers ask for more money on every load available. We almost have to build in another 5-10% of what we think the lane should pay. This is a direct reflection of the fuel prices. And the fuel prices dry up much of the profits needed to keep rolling. If an owner operator loses a transmission, he is often hanging it up. If larger companies bid too low and fuel keeps rising, carriers are cash poor and hoping for a good load now and then to bring them back to life. It’s a struggle and many will not make it. This includes brokers as much as carriers in the spot market. Contract loads, on the other hand, have been a saving grace. If a contract was bid right there will be enough to make up some of the spot market short fall. Of course, most contract loads are made with larger box stores so the independent produce brokers are stuck trying to bid and go. Deals are being made quick yet freight bills rack up fast. We have seen customers freight bills sitting on our books much longer. This, in turn, has hurt their credit. More layers just like an onion. But layers that make the stability of some rather shaky.
My wife, Cheryl, works as a receiver. Banks call her and ask her to get companies back into financial shape. She actually has a specialty in agriculture farms and has done more this year than in the last four years. Farms keep thinking next season will get better but owe millions. The banks interest rates are in the 10-12% range these days and many farms see 90 day terms to get their books in check before calling for the sale at an auction. Today, she was able to save a cattle farm in Washington but it was close. Very close. Farms, brokers, carriers all must keep a tight operation these next few years.
Overall, I paint a season which sounds stressed. Again, it is stressed for some and just fine for others. Your next sale is important though. Each load, for us, is important. We want to give the best service we can. Supply of other freight brokers is high so we must be on our A game. Produce Brokers are feeling the same along with shippers. We hope those who have been in this field can all do well and sticking together maybe there will be less stress.
Speaking of stress, we also need to keep an eye on the southern border. Long delays due to migrants trying to cross have strained all inspection capacity. If onion prices are high, Mexico sells more to us. When onion prices are low, here, we sell more to them. But if the border is in a long-term threat situation it may keep prices a bit higher due to the chaotic situation.
This week the weather is hit or miss but if a carrier knows how to tarp, the flatbeds have an enormous advantage over reefers. Be sure to ask your shippers and receivers if they can take flats, Conestoga’s or step decks while the weather is good. Reefer rates have been much higher than these alternative methods of shipping. Some lanes are seeing a $2000.00 difference in pricing. But only do this if you know what you are doing and are working with someone who knows how it works.
Enjoy what you do. Laugh often. Be a professional with charm and stay unique. Not all onions are the same and we are glad for this. Cheers and we hope to talk to any of you soon. Even just for a laugh.
Cain Adams Office 208-908-6012 Trinity Logistics, LLC / Longboard Logistics, LLC Longboardload@gmail.com