Trucking: unsung hero in the agribusiness supply chain

Karol Aure-Flynn, Wells Fargo Sector Analyst, Specialty and Non-grain Crops

Truck transportation is the unsung hero in the agricultural supply chain. The U.S. economy depends on trucks to deliver over 70% of all freight transported annually.1 And, nearly all agricultural products make their way from harvest into the supply chain via trucks and rural roads. From field to fork, trucks and a land-based fleet of customized trailers transport raw products, processed intermediaries, and final goods to processors, manufacturers, wholesalers, and retailers.

The efficient flow of U.S. farm and food products to the consumer clearly relies on availability and the predictable pricing of transportation. Yet, agricultural trucking is facing a number of serious challenges that have evolved over decades, and are impacting supply, price, and risk for the entire agricultural supply chain.

In a recent industry webinar entitled “Transportation Turbulence”, Wells Fargo’s Chief Agricultural Economist, Dr. Michael Swanson, opened by stating, “As goes the economy, so goes trucking”. Fitting, since demand for the transportation of goods ebbs and flows with the overall economy. As illustrated by the chart below, U.S. GDP growth has been on a positive track since early 2016.2


Source: Datastream, U.S. Department of Commerce and Wells Fargo Securities

In lockstep with GDP growth, the seasonally adjusted truck tonnage index has rebounded steadily since mid-2009, and has steepened since 2016. The improving U.S. economy is not only creating demand for tonnage, but demand growth for freight services which creates competition for the inputs and resources utilized by those trucking companies serving agribusiness, including labor. While these conditions suggest that supply would naturally respond to demand signals, a fundamental lack of reserve capacity in trucking and a combination of ongoing trends are creating a pinch point for truck transportation.

Seasonally adjusted truck tonnage

Source: U.S. Dept. of Transportation, Bureau of Transportation Statistics (BTS) calculation from American Trucking Association Monthly Truck Tonnage Report

What makes the Agribusiness industry unique?

Transportation service provision for agribusiness is characterized by fragmented suppliers, low barriers to entry, and seasonal imbalances of supply and demand. Spikes of demand for refrigerated trucking to transport fresh produce during the summer season, and the corresponding struggle to survive periods of overcapacity and low demand during winter months when a lot of produce is out of season exemplifies this. Furthermore, with fresh fruit and vegetable production concentrated in a few production regions, transporters are challenged to find goods for the return trip to maximize efficiencies. Containerized bulk goods, manufactured intermediaries, and finished food products are other examples of cargo that are subject to seasonal pricing pressures, and inefficiencies of primary loads and backhaul mismatches.

In other scenarios for agribusiness, bulk commodity transportation to first stage processing such as for wine grapes and tomatoes, requires localized equipment and logistics know-how. These service providers own large fleets of specialized trailers for specific products and specialize in ramping up staffing and on-site support teams. Typically, multi-year contracts exist to rationalize the equipment investment for service providers, and to aid in planning for processors.

Move down the supply chain and spot pricing dominates the swings of trucking supply and demand for cross-country, refrigerated trucking. Competitive bidding and contractual pricing dominate the partnerships between food processing companies and their trucking providers with specialized equipment.

What’s causing the trucking turbulence?

While seasonal swings in market prices, crop size, expansion and/or retraction in production areas continue to be the backdrop of uncertainty for agribusiness trucking, historically slim margins have also limited overall investment in the trucking industry. So, this translates to declining trucking capacity, even in the face of an improving economy. In addition, there are other trends occurring that are raising the risk factor for those agribusiness companies dependent on trucking transportation.

In 1980, the Motor Carrier Regulatory Reform and Modernization Act officially deregulated trucking in the U.S. The expectation of deregulation was that customers would benefit from reduction in pricing and entry controls. However, pundits’ forecasted that better pricing would be at the expense of driver pay, and that appears to have played out.

A truck driver’s average annual salary in 1980 was just over $38,000 per year.3 That would translate to $111,000 per year today, factoring in inflation in 2015 dollars. But today’s truck driver’s average annual salary actually hovers in the range of $60,000 to$70,000 per year. Compensation for warehousing and transportation jobs has been declining in comparison to U.S. total payroll numbers as illustrated by the below chart.

Ratio of hourly pay

Source: US Bureau of Economic Analysis

Fast forward to 2011, and the Federal Motor Carrier Safety Administration ushered in new federal regulations supported by electronic logging which mandated limited hours of driving in order to curtail trucker fatigue and related accidents. And, soon state regulations followed suit. An unintentional consequence of these new regulations is that ambitious drivers are seeking better wage opportunities during a period of economic growth. Now, market prices and margins cannot support the wages that attract drivers. And, an improving economy is providing potential drivers more attractive opportunities in the form of jobs that do not require long hours away from home, or the uncertainty of seasonal demand.

As a result, leading transportation companies have become concerned about loyalty of drivers as well as the existing talent pool. Trucking companies are facing ongoing headwinds to attract, hire, and retain, or substitute labor. And, many feel they are forced to accommodate candidates that would not have previously been high on the list, on top of incurring the additional expenses of recruiters, trainers, and safety monitors.

Another game changer is the substitutability of subhaulers and independent haulers needed to fill gaps in supply and demand. Recent court rulings are now requiring that these carriers be covered by the same insurance and liability of the primary carrier, as if the subhauler is an employee, and therefore, the cost structure increases dramatically. As a final negative influencer, environmental regulations focused on lowering carbon emissions are continuing to transition more of the burden of pollution costs to the trucking industry which is largely dependent on diesel engines.

In summary, increasing demand, driver scarcity, and regulations are all combining to cause sharp increase in the cost of doing business for trucking providers, and could result in a deterioration of service for agribusiness customers. Producers, processors, manufacturers, wholesalers, and retailers all need to evaluate transportation links in their supply chain to determine their exposure to increasing costs and declining service.

Where does the trucking industry go from here?

Agribusiness trucking companies are now challenged to broaden core competencies beyond logistics and end-to-end product care. The current state of the industry requires the development of human resources competencies, a disciplined risk mitigation strategy, and readiness for legal representation. A senior executive with a trucking company recently stated, “We aren’t just in the trucking business, we’re now also in the recruiting, legal and compliance, and litigation businesses.”

How must agribusinesses adjust?

For agribusinesses, trucking transportation risk must now be considered in strategic planning. Depending on the specifics, vertical integration may appear to be a solution, but this strategy should be approached with caution as vertical integration may shift the burden of trucking industry challenges to the agribusiness. Should the majority of problems be related to a single trucking provider, the solution may instead be for the end-user to find a better provider partner, rather than attempting to enter the transportation business. But, agribusinesses must also accept that trucking transportation suppliers are under intense pressure, and currently have few options. With cost structure shifting quickly, customers must plan on rate increases.


In today’s challenging truck transportation environment, suppliers and customers alike are best served by recognizing that partnership is as much about culture and communication, as it is providing to the contract. Agribusinesses must understand that a trucking company can’t survive on an underpriced service contract. Trucking providers can explore innovative and even previously unconsidered adjustments to scheduling or process to improve efficiency and service metrics. Bottom line, agribusiness trucking must evolve from the status of “unsung hero” to “recognized partner” in order to ensure agribusiness sustainability.

To listen to a replay of Wells Fargo’s former webinar “Transportation turbulence and the impact on Agribusiness”, access the webinar landing page, register for the webinar, and insert passcode “Transport” to hear the replay.

2. US Department of Commerce, Wells Fargo
3. National Transportation Institute

Karol Aure-FlynnKarol Aure-Flynn is a Vice President and Sector Analyst within Well Fargo’s Food and Agribusiness Industry Advisory group focused on the Specialty and Non-Grain Crops sector.

Karol joined Wells Fargo in 2016, and previously worked as Director of Business Development for California’s largest independent agricultural transportation company, Young’s Commercial Transfer. Prior, she spent several years as a senior member of Entira’s strategy consulting staff serving the largest and most influential agribusinesses in North America. Before Entira, Karol served as an Executive Director for Rabobank International’s Food & Agribusiness Advisory and Research group covering North American grains and oilseeds.

Karol’s background includes production agriculture experience with table grapes, almonds, figs, dry land grains, and beef. She is also recognized as a pioneer in the precision agriculture industry through the founding of Precision Farming Enterprises, an early GPS/GIS systems integrator based in Davis, California.

Karol holds an undergraduate degree is from Stanford University and completed her M.B.A. at University of California, Davis with an emphasis in finance and agricultural management. Karol’s family operates Flynn Cattle Company, a Tulare County ranching and farming company with roots dating back to 1874.