June 7, 2008
A perfect storm in the transportation sector will have a real and significant impact on the bottom line of almond growers and others who produce agricultural crops in California.
Rising fuel costs, container shortages at major West Coast ports, and new air quality regulations that require retrofitting diesel truck engines are putting a squeeze on those who ship agricultural commodities, particularly for export. The result is likely to be higher transportation costs and lost markets that are sure to impact returns to growers.
A number of factors have contributed to the shortage of container and shipping space and higher costs at U.S. ports. They are compounded, however, by a weakened U.S. dollar and slower demand for foreign imports, which have created a disincentive for ocean carriers to service U.S. exporters. Carriers instead are beefing up more profitable routes such as Asia to Europe, leaving fewer ships and containers available to exporters of commodities leaving the West Coast. At the same time, shippers are raising their fuel surcharges and freight rates.
With up to 70 percent of California almonds going overseas, this development is having an impact on almond handlers.
Handler Dan Whisenhunt, sales and marketing director for Monte Vista Farming Co. in Denair, said like other handlers, he is having a difficult time scheduling timely shipments to important almond destinations such as Europe and Asia. That not only raises costs and interrupts the flow of almonds to key export markets, but also makes it difficult to strike while markets are hot. Lost revenue, as a result, directly impacts the returns handlers can make to their growers.
Add to that the rising costs associated with meeting new air quality regulations now on the table. Proposed new rules by the California Air Resources Board will require diesel truck operators to retrofit older truck engines beginning in 2010. At an estimated cost of $15,000 to $20,000 per truck, that added cost is sure to trickle down to growers. Similarly, a proposal to limit truck idling at West Coast ports will further erode the flow of goods to export and affect returns.
At the same time, rising fuel costs are putting the squeeze on almond growers from farm to fork. Based on projections for this summer, fuel costs will have risen as much as 50 percent in the last year. Rising fuel prices not only impact production costs for petroleum-based products like fertilizer and irrigation pipe but also increase costs to operate tractors and haul almonds from the field, to the handler and to the port.
The Almond Board of California is monitoring a number of these developments, through regulatory meetings as well as through trade groups such as the Agriculture Transportation Coalition (AgTC).
AgTC Executive Director Peter Friedmann said his group is working on behalf of California agricultural shippers to address these and other concerns affecting the flow of agricultural goods to market. They are meeting with members of Congress and the Federal Maritime Commission in an effort to raise awareness on the impact of anti-trust exemptions that allow ocean carriers to discuss and fix rates and services, Friedmann said. AgTC is also working with shipping lines to educate them about the market potential in providing more service to U.S. exporters.
AgTC will hold its annual meeting in San Francisco, June 12-13, to bring together experts and provide the industry with an opportunity to learn more about what can be done. For information, log on to the AgTC Web site at www.agtrans.
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