Origin of produce delivery might be as important as final mile, part of Amazon-Whole Foods discussion

The final mile might be what’s on everyone’s mind when it comes to Amazon and its move to purchase Whole Foods Market, but the point of origin might be just as important when it comes to transporting perishable foods like fresh produce.

On Tuesday (June 26), Tom Finkbiner and Ted Prince, co-founders of Tiger Cool Express, spoke on their refrigerated intermodal container business and the transportation of perishable foods. Finkbiner and Prince were part of a conference call on the implications of the Amazon and Whole Foods deal for transports hosted by transportation analyst John Larkin of Stifel.

On June 16, Amazon announced it will buy Whole Foods for $13.7 billion. According to Transport Topics, a publication of trade organization American Trucking Associations, the deal is expected to benefit trucking overall. Whole Foods looks to continue to operate under its brand, and the deal should close in the second half of 2017.

“I think the buy gives Amazon an instant network of temperature-controlled distribution, which has always been their Achilles’ heel,” according to a June 21 Transport Topics article. “Frozen and refrigerated [goods] are a whole other animal, and with the 460 stores located nationwide they got instant credibility [in this space].”

Finkbiner said the transportation of perishable items, from produce to processed pizza, is a $40 billion market. It’s a seasonal business, and depending on the location of the produce grower, it might last six to eight weeks.

But regulations, such as the ELD (electronic trucking logs for hours of service) mandate, could impact the transcontinental transportation of these perishable items. And the Food Safety Modernization Act has changed the role of the broker to shipper. The shipper is primarily responsible for food safety.

The business is dictated by shelf life of the item. Some have a lifespan of less than 15 days, 15 to 30 days or months. Finkbiner estimated the value for a trailer load of cherries is $180,000. The cost of food spoilage for a load is $1,000 per day. Items in the market that have seen the most growth are organic and ethnic produce, according to the Produce Marketing Association. Because these types of produce are grown on smaller farms, and not 4,000 to 5,000 acre spreads, the origin and transportation will be more difficult, Finkbiner said.

“The first part, the field to distribution center might be just as difficult (as the final mile),” Finkbiner said.

The more truckloads of items that can fit into a container the more likely for lower transportation costs, he said. The biggest point of origin for produce is Texas and Mexico, originating more refrigerated truckloads than California. Some states have greater variations in the amount of produce that’s produced. For example, California can have 1,000 loads per day or 7,000 loads per day. Other states such as Washington are more stable.

Independent truck drivers, small trucking companies and brokers haul the freight in this market. Brokers help grocers fill in the demand peaks, Finkbiner said. The ELD mandate is expected to have the biggest impact on the independent, owner-operators and small shippers – in the sense of reducing the numbers of operators.

The challenge for drivers will be meeting hours of service requirements, Prince said. In the intermodal business, trucks are needed to pick up and deliver the goods to and from the railroad, and it becomes a challenge when more than 15% to 20% of mileage is consumed by pick up and delivery. Sometimes a driver might be at a field for 30 minutes, sometimes for 13 hours.

The price of diesel is more closely tied to the rates for transportation than driver pay, but with the ELD mandate, it could be more greatly impacted by driver pay. With the mandate in place, he estimated driver pay would double to 80 cents per mile, from 40 cents. At $2 per gallon of diesel fuel, the impact on trucking rates is 35 cents per mile. It would be 70 cents per mile at $4 per gallon.

Also, transit time is expected to change because the amount of miles a driver could drive per day under the mandate would fall to 450, from 650 now. From coast-to-coast, a driver could haul a truckload of goods in five days, but after the mandate, this is expected to rise to seven days. Goods that are hauled intermodal would reach their destination in six days.