This article was published in the June/July 2024 issue of Vision Magazine North America.
Logistics underpins the global produce trade, acting as the vital conduit that allows fresh goods to journey from farms to international markets. This indispensable industry not only preserves the quality and freshness consumers demand but also supports agricultural livelihoods and bolsters the stability of global food markets.
Today, the logistics industry is beset by a constellation of challenges. These range from the impacts of climate change, which imperil the availability of produce, to tangible logistical hurdles such as labor shortages and a scarcity of truck drivers. Yet, despite these obstacles, the sector is finding some relief in the continuous uptick in produce volumes, the buoyant performance of the air cargo segment, and emerging technologies poised to mitigate some of the prevailing operational cost burdens.
Ocean Freight Challenges and Responses
The intricate dance of logistics within the global produce trade begins at sea. According to Jay Kelly, president of Cincinnati, OH-based Integrity Express Logistics (IEL), ocean freight faces unique hurdles. Recent drought conditions in the Panama Canal, a critical waterway for global shipping, have compelled the Panama Canal Authority (ACP) to adapt swiftly. They’ve increased transit slots and implemented water-saving measures to manage the lower water levels effectively.
These adjustments are critical as they seek full operational normalization by 2025. Yet, persistent dry conditions threaten ongoing restrictions, notes Kelly. “Short-term and long-term water management solutions are being pursued, including proposals to the Panamanian government for watershed definition and law revisions,” he says. This scenario is causing shipping lines to grapple with fluctuating spot rates, leading some to cancel trips to stabilize or boost rates—a strategy known as blank sailings.
In sharp contrast, the air cargo sector has demonstrated robust growth. In February 2024 alone, demand soared by 11.9% year-on-year, marking a sustained upward trend. This growth is not just in numbers; available capacity has also expanded by 13.4% compared to the previous year, even as air cargo yields saw a slight decline of 1.5%. Despite these mixed results, the overall increase in activity hints at a resilient sector poised for continued success.
Moreover, across the U.S., the demand for air cargo is up nearly 10% year-on-year, with capacity levels surpassing expectations in a still-recovering market. Kelly believes this indicates a collective sentiment within the industry of reaching a turning point, setting the stage for a broader economic rebound.
Guarded Expectations
However, the apparent resurgence in normalcy within the logistics sector carries its own set of burgeoning concerns, notably the escalating costs associated with transporting produce. “While inflation has cooled slightly, produce cargo values still remain elevated, in some cases upwards of 20-30% over multi-year averages,” says Kelly.
A further concern, he says, is the significant and costly issue of fraudulent activity within the supply chain and shipping industry, which can range from bad actors stealing the identity of a legitimate carrier and conducting business with the intent to steal the cargo to the more traditional theft during transit. “While there is tremendous optimism within the market of a return to normalcy and eventual boon, skepticism remains until we see it in action,” adds Kelly.
This sense of cautious optimism is echoed by Lance Jungmeyer, president of the Nogales, AZ-based Fresh Produce Association of the Americas (FPAA), which represents U.S. importers of Mexican fruits and vegetables. “There are a lot of things affecting produce shipments right now,” he says.
A specific challenge emerged in response to heightened immigration across the Mexico-U.S. border. Last year, Texas Governor Greg Abbott authorized Department of Public Safety (DPS) officials to station themselves at the Hidalgo port-of-entry, directly after customs, connecting Reynosa, Mexico with McAllen, TX.
The introduction of a checkpoint that inspects 100% of incoming trucks has introduced further delays, severely disrupting the supply chain, Jungmeyer explains. “This is a fruitless decision, which harms business quite a lot. It has the effect of reducing supply chain capacity and causing unpredictability, and in the produce industry, predictability is hugely important,” he says.
In the face of these challenges, the FPAA has not been passive. The association has actively lobbied in Washington DC and Mexico City to ensure the continuity of the produce trade. When a software failure caused backlogs at Nogales’ Mariposa port-of-entry in late April 2024, Jungmeyer and the FPAA swiftly engaged Arizona governor Katie Hobbs, who coordinated with her counterpart in Sonora, Mexico, Alfonso Durazo, facilitating a quick resolution.
Meanwhile, Marshall Kipp, founder and CEO of Visalia, CA-based Advanced Transportation Services (ATS), comments on the ongoing expansion of U.S.-Mexico cross-border shipments, which now constitute a substantial portion of the company’s operations. However, at the same time, he says the return trip to produce harvesting areas, which are constantly changing, is often one of the most challenging aspects of the trade. “Looking around the corner, there are a lot of trucking companies that have not survived up and down the turbulent market over the past three years,” says Kipp, who says a lot of turmoil was also caused by higher demand for trucking and over-purchasing following large government stimulus during the Covid-19 pandemic.
Logistical Strains Across the Canadian Border
In Canada, importers are experiencing similar challenges. Ron Lemaire, president of the Ottawa-based Canadian Produce Marketing Association (CPMA), says there are several key issues affecting produce shipments to and from the country, spanning both reefer container logistics and overland transport.
Post-pandemic disruptions were followed in 2023 by the impact of wildfires, floods and extreme weather conditions, resulting in rising costs and delays within traditional logistics channels, according to Lemaire. These factors persistently compromise food security and the economic sustainability of the fresh produce sector. Additionally, labor strikes have led to considerable port congestion and further logistical headaches.
On the labor front, over the spring the Teamsters Canada Rail Conference (TCRC), which represents over 9,000 employees at the nation’s leading rail operators, Canadian National Railway Co. (CN) and Canadian Pacific Kansas City Ltd. (CPKC), has been threatening strikes. As of late May it was unclear as to whether these would be allowed to go ahead.
The potential for simultaneous strikes across key transport nodes, including the Ports of Montreal and Vancouver, looms large. Lemaire cautions that if strikes take place all at the same time, “we will see catastrophic impacts to the flow of goods in and out of Canada.”
A July 2023 strike at the Port of Vancouver caused gridlock, with ships lining up to dock and containers stacked high waiting to unload and pick up. More recently, fears of a strike at the Port of Montreal led to logistics companies rerouting cargo to other destinations.
For the produce sector, the implications of such disruptions are severe, with potential long delays forcing importers and carriers to face considerable losses, according to Lemaire.
Additionally, the trucking sector is struggling with its own set of challenges, notably a scarcity of drivers and available trucks, adding to a fiercely competitive market for produce transportation. In response, the CPMA is urgently appealing to the Canadian Government to prioritize perishable produce and enact measures to ensure the uninterrupted flow of goods across the nation.
Broader Factors
According to Ron Lemaire, there are myriad factors currently influencing logistics issues in Canada’s fresh produce market, notably the country’s heavy reliance on imports from the U.S., Mexico, and other global sources. “Changes in trade policies, border restrictions and geopolitical tensions can significantly impact the supply and cost of fresh produce. For instance, protectionist policies and constraints on labor mobility and immigration in the U.S. could trigger price volatility and supply chain disruptions,” Lemaire says.
Labor shortages, he continues, have also had an impact across the supply chain, from production and logistics to repacking, while fluctuations in oil prices are leading to higher transportation costs and consequently higher prices for the end consumer.
“These factors are interconnected and can amplify the impact of each other, making the logistics of fresh produce a complex issue that requires comprehensive solutions,” says Lemaire. “It’s important to note that these are general factors, and the specific issues can vary based on the type of produce, the specific logistics processes involved, and the particular circumstances of the Canadian market.”
Meanwhile, Jungmeyer says water availability has become a major issue in Mexico, with reservoirs down to 40% capacity across the country. “That’s been a problem, and it continues to be a problem because it means regional governments are having to ration water to the industry,” he says.
“With agriculture, they are having to pick and choose products, and that makes growers become more conservative and then they plant less, which is causing very high prices for vegetables. And the weather has not been ideal—we need prices to stay moderate for the good of the industry.”
Harnessing Tech
Nevertheless, technology could offer a viable remedy for some of these challenges. Lance Jungmeyer suggests that advancements such as increased non-intrusive inspections could expedite the movement of fruits and vegetables across the U.S.-Mexico border, thereby minimizing potential damage during cargo inspections.
“We want all fresh produce to be scanned,” says Jungmeyer, adding that it is getting closer to becoming a reality and would streamline the process significantly if achieved.
Ron Lemaire highlights the surge in online grocery shopping as another driver for sophisticated logistical solutions. This trend has introduced additional complexities in maintaining the freshness of products throughout storage and delivery. “The advancement in logistics, storage and cold-chain facilities is crucial for the fresh produce market,” he says. “However, any shortcomings or inefficiencies in these areas can pose challenges to the logistics of fresh produce.”
Moreover, Lemaire points to artificial intelligence (AI) as a transformative force within the industry, enhancing everything from freshness assessments to pest management. The technology is poised to revolutionize supply chain management by providing more precise data, which could lead to improved operational effectiveness, he explains. AI’s capability to analyze extensive data sets can help predict demand more accurately, facilitating better inventory management and reducing operational costs, Lemaire notes.
“AI algorithms can analyze sales data, supplier performance data and external factors to optimize inventory levels, leading to significant cost savings and improved customer satisfaction,” he says. Furthermore, AI can aid in prioritizing sustainability and transparency by automating the management of supply chain audits.
At the same time, Lemaire thinks AI can enhance both the development of new product ideas and decision-making as a whole. “AI can recognize patterns in big data that humans cannot see, enabling it to make recurring decisions. This can improve supply chain performance and increase resilience to market volatility and talent scarcity,” he says. “The integration of AI into supply chain management heralds a new era of efficiency, visibility and strategic decision-making.”
However, he stresses that despite AI’s apparent potential, the implementation of the technology in the produce industry and supply chains is not without its challenges.
“Many companies have struggled to maximize the value of AI in their businesses due to issues such as a lack of trust in AI, insufficient data quality and the need for a new operating model and investment in the new program concept,” notes Lemaire. “However, with the right investments, AI has the potential to significantly transform the produce industry and supply chain management and logistics.”
Marshall Kipp from Advanced Transportation Services also recognizes technology’s impact, particularly in logistics planning and management. “I think the biggest place technology is making a difference is in our ability to track and trace and also sort out what drivers are available and how many hours they have to preplan,” he says.
According to Jay Kelly, IEL’s primary technology focus is automation with an internal focus on streamlining processes to benefit employees by removing low-value tasks and improving scalability. This strategy, he admits, may require changes that aren’t initially sought by shippers but are necessary for organizational growth.
However, Kelly thinks external automation will enhance customer interactions and make freight more efficient by prioritizing customer preferences and needs. “Specific to produce, our efforts surround a more streamlined process in regards to temperature monitoring, food safety and early intervention should a shipment become at risk,” he says.
Kelly also calls AI a “significant force” in transportation logistics, impacting functions such as route planning, demand forecasting and automation. The technology, he says, can optimize operations, reduce costs, improve customer service and enhance agility. But he also emphasizes that the adoption of AI requires careful evaluation due to integration challenges and stakeholder buy-in. “The goal is to align AI with IEL’s value proposition, adapting to new areas for competitive advantage,” he says. “Scalability, efficiency and customer alignment remain priorities for maintaining competitiveness amidst growing market complexities.”
The View Ahead
Looking ahead, Lemaire says the trajectory for freight costs hinges on a mix of global economic conditions, geopolitical developments, weather patterns and policy decisions. “Market indicators are signaling a more stable outlook for freight forwarding in 2024, as shown in somewhat flat forecasts for both air and ocean freight rates, continuing from their 2023 trends,” he says.
However, Lemaire warns that new challenges, such as geopolitical disruptions in the Red Sea and environmental issues like the Panama Canal’s drought, could influence logistics operations over the rest of 2024. “Big disruptions could mean prices start to rise,” he notes. “However, the consensus expectations are that intermodal rates will not change much during 2024, unless weather and geopolitical issues change.”
Kelly shares the cautiously optimistic view, noting that high interest rates have tempered capital investments, thereby constraining new growth opportunities. “Partners across a variety of industries seem to be in ‘hang on’ mode, working to ensure current business is handled smoothly to limit risks versus seeking new partnerships and opportunities that may jeopardize their ability to maintain high service levels.”
“We, like many, look toward the second half of 2024 as an opportunity for increased market growth and confidence,” he says. Although the trucking labor market has experienced its share of highs and lows in the years following the pandemic, Marshall Kipp thinks that there remain plenty of drivers out there to meet demand.
But the key, especially when shipping produce, is the quality of the driver, he says. “People don’t just stop eating, so there continue to be opportunities when shipping food,” adds Kipp.
As the logistics sector continues to evolve amidst a sea of challenges and innovations, its fundamental role as the conduit for global produce trade remains as critical as ever. From battling climate impacts and labor shortages to harnessing the power of AI, the industry’s ability to adapt and evolve will shape its future trajectory.
