Ag logistics off to optimistic start in 2023
Over the past few years, agricultural logistics and transportation have faced a number of issues, ultimately leading to increased prices and decreased reliability.
“Logisitics as we know it has been spun out of rhythm over the past two years, with supply and demand discrepancies, low reliability, global port congestion, labor shortages, capacity constraints and more – all coming together to put pressure on rates,” explains A.P. Moller-Maersk, an integrated container logistics company, in a Dec. 27, 2022 article written by Ron Sterk on world-grain.com.
The company notes there is a cycle of inflation affecting freight rates and freight rates affecting inflation, which will most likely continue in the short term. However, they also expect a positive turnaround of these two things in the near future.
Decreased demand, capacity, freight rates
According to Sterk, low grain and soybean exports have been influencing freight demand and rates in the U.S.
The U.S. Department of Agriculture (USDA) forecasts 2022-23 wheat exports to be down 3.1 percent from 2022 and down 22 percent from 2021.The department also expects corn exports to fall 16 percent from 2022 and 24 percent from 2021, while soybean exports are also set to decline five percent and 10 percent, respectively.
Additionally, in their Grains Transportation Report, USDA notes third quarter transportation costs for shipping soybeans to China and Europe from the U.S. and Brazil declined from the second quarter. The cost of shipping corn and soybeans to Japan also declined.
During this same time period, truck rates fell in the U.S., largely due to lower diesel fuel prices, and ocean freight rates declined due to weaker demand for bulk commodities, partially related to COVID-19 lockdowns in China.
In response to restricted movement along the Mississippi River, caused by low water levels, barge freight rates increased. Rail freight rates also increased as a result of the labor strikes in the U.S.
Sterk explains trade sources note there is an oversupply of bulk freight capacity.
“For ocean freight, not only has volume for bulk commodities decreased, but containers also are in oversupply, potentially leading to an all-out price war in 2023, according to one industry expert,” Sterk writes. “As with ocean freight, trucking capacity remains available, a stark contrast to conditions early in the pandemic.”
fuel costs also decline
Similar to the decline of freight volume, transportation rates of agricultural products via air, sea or truck are also expected to decline throughout the new year, according to the Council of Supply Chain Management Professional’s Supply Chain Quarterly Report.
“Many suggest the trucking industry is the best barometer for logistics, even if it may be less important than rail, barge and ocean vessels for agricultural commodities,” says Sterk, further noting trucking accounts for nearly 80 percent of total freight spending, according to the American Trucking Association.
“While more expensive per mile than other modes of transportation due to smaller load volumes, trucks are the key source of quick freight movement and the all-important last mile,” he continues.
Sterk refers to data released from DAT Freight and Analytics, which shows spot freight rates for trucks, excluding fuel surcharges, peaked in January 2022 after more than doubling from lows seen during May of 2020.
Additionally, according to Yan Krasov, chartered financial analyst and partner at William Blair Investment Management, year-over-year spot truck rates may fall more than 25 percent in the first quarter of 2023 and 25 percent to 35 percent by the end of 2023.
“The impact of fuel prices on freight costs to shippers is an unknown for next year,” Sterk notes. “The average on-highway diesel price reported by the Energy Information Administration was $4.75 per gallon as of Dec. 12, down more than one dollar per gallon, or 18 percent, from the late June high of $5.81 per gallon, but still up more than one dollar per gallon, or 30 percent, from a year earlier.”
Optimism in the new year
During a panel on transportation during the Illinois Fertilizer and Chemical Association Convention in Peroria, Ill. on Jan. 19, several experts also voiced their optimism for ag transportation sectors in 2023.
Although labor and supply challenges still linger, Kirby Wagner with GROWMARK voices his belief that the trucking sector will push forward.
“Despite all of the concerns we hear in the news, we do have an interested workforce, and we do have people who are focused on getting things done,” he says. “So, I am optimistic about how the trucking industry is going to handle the challenges of 2023.”
In an interview with Radio Brownfield Ag News, Tom Torretti of the Consolidated Grain and Barge Company says, “We always have to be concerned about Mother Nature and river levels and what not. But, we had a pretty good year in 2022, given all of the navigation problems we had, and I think 2023 will be a good year for business as well.”
Peter Skosey with BNSF Railway adds, “We continue to struggle with workforce levels – we are trying to get those back up – but I think the future is bright, and we certainly want to continue the upward trajectory we began at the end of last quarter.”
Hannah Bugas is the managing editor for the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.