Market Minute: Surging transportation surcharges impacting produce prices
Market Minute: Surging transportation surcharges impacting produce prices
In recent months, diesel fuel prices have surged by 40 percent or more, dramatically increasing transportation costs for fresh produce.
Diesel-powered trucks move 80 to 90 percent of fresh produce across the United States, carrying goods from farms and packing facilities to retail distribution centers every day. As fuel prices climb, freight expenses are escalating, putting additional strain on produce shipments and making deliveries more costly.
The rising cost of diesel isn’t just affecting trucking; farmers also depend on diesel for tractors, machinery and other essential equipment. These increased expenses drive up production costs, which are then passed along to wholesalers and retailers.
For example, California currently has the highest diesel prices in the country, ranging from $7.22 to $7.52 per gallon, according to the latest figures from the U.S. Energy Information Administration. Other major produce shipping states report average diesel prices such as $5.73 in Florida, $5.11 in Texas, $6.04 in Arizona, $5.51 in Idaho and $6.67 in Washington. These prices can fluctuate rapidly from day to day.
What impact does this have on retailers and consumers? Will companies need to adjust their budgets, and will consumers be forced to rethink their grocery lists and cut back on favorite produce items? Could retailers see a decline in their gross profits?
According to retail produce directors I have had conversations withb rising product costs are already affecting their businesses. One director noted that his operation experienced more than 150 produce item price increases in a single week. Others reported that their gross profit margins have dropped by 1 to 2 percent due to higher costs and retail prices passed on to customers. This has staved off those shoppers from purchasing some of their favorite items.
Additionally, some directors have observed a 1 percent rise in shrink waste rates, caused by shoppers resisting higher prices. When products don’t sell quickly, they spoil, resulting in further losses.
All these changes are unfolding rapidly, creating confusion and affecting various parts of the supply chain. The industry is experiencing a significant period of transition.
To navigate these challenges, it’s wise to reassess operations by making smarter choices in product procurement, store ordering, inventory management, marketing and merchandising strategies.
Ron Pelger is a former director of produce merchandising and procurement for a major supermarket retail chain. He is currently a freelance writer for the produce industry supporting growers, shippers and retailers. He can be contacted at 775/843-2394 or by e-mail at [email protected].
