The agricultural transport sector has fared better than others during the recession with the help of rigorous cost control and by constantly seeking to add value. Louise Cole reports
The agricultural sector is performing strongly, despite a highly competitive marketplace – but the goal for operators in future will be ensuring they occupy a spot in the market where they can add value to the supply chain.
The crops and produce markets fared better through the recession than many sectors because, when tightening their purse strings, most consumers tend to change brand and format of food – for instance, choosing frozen over fresh – rather than volume. Transport companies serving these sectors are relatively upbeat about the current economic climate.
At the time of writing, the harvest is being gathered, and work is abundant. Agricultural transport firms are employed by a wide and vibrant mix of retailers, processors, whole-salers, importers, exporters, forwarders and farmers. The schedules are tight, the journeys often trans-Continental and the goods highly time-sensitive and operators are exploiting every limited opportunity to offer something different in a supply chain already saturated with middle men adding value.
Burbank Produce, a Bradford-based importer of fresh salad, vegetables, fruit, yoghurt and cheese, runs 70% of its fleet for its own goods and 30% on third-party work to offset its transport costs.
Transport manager Paul Newman says that having some trucks employed on general contracts offers flexibility when seasonal peaks hit, and saves money on spot-hire.
In agricultural transport, the peak seasons are intense and any spare capacity can disappear overnight.
Burbank has made its transport division more profitable by “moving up the food chain”, according to Newman. “We’ve been concentrating on winning contracts directly with importers or higher up the chain and so cutting out the middlemen – it secures us better rates,” he says.
Produce from Paris
Burbank runs its own transport because it needs to get produce from the Paris wholesale markets to customers in Scotland within 36 hours and no third-party logistics company could achieve that.
“A customer can place an order for a product from Spain or Italy that is arriving at market in Paris on Monday afternoon. We’ll pick it up Tuesday morning and deliver it to Scotland Tuesday night or early Wednesday morning, swapping drivers as we need to,” says Newman.
East Anglia-based KGB Transport is seeking its own ways of differentiating itself. “We incorporate a small charge in our rates to cover the return of the 1-tonne boxes potatoes are transported in. Space is at a premium for the processors and the farmers need the boxes back, so we store them and can fit them in as a backload whenever it’s efficient to do so,” says director Tim Brown. “Customers are very positive about it.”
The family business remains sustainable through rigorous cost control, which has seen it replace more than half the 22-strong fleet over 18 months with new Euro-5s.
“If you can fix costs and keep control of them, there is a margin to be made,” says Brown. “But we walk away from unprofitable work every week.”
He says the major challenge in agriculture that other sectors do not face is the weather. “I have 11 loads coming into Felixstowe and two loads that will be going to France but, if we have severe rainfall, those loads won’t be harvested. You need to master how to lay on or cancel trucks at a moment’s notice.”
Pressure on prices
The severe pressure on prices is mitigated by the abundance of work, but Brown and Newman agree that setting the right rates to begin with is essential.
“We are often asked to quote on huge tonnages,” says Brown. “If the harvest is good, the tonnage from a single farm can be 15,000 or 20,000. So £1 less per tonne is a big saving to the customer.”
The difficulty, as ever in transport, is that often the haulier owns the least valuable portion of the product’s journey. Farmers are looking for a return from the retailer or wholesaler; and retailers want to minimise the effort and expense of preparing food for the shelves. This latter role is played by the processors or pack houses and, increasingly, this is where the larger agricultural transporters will position themselves.
The logical place for any large player to diversify in is in preparing the product for sale – activities such as ripening, adding barcodes, sleeves and packaging, and finally packing product into display boxes that can be put straight onto shelves. They will gradually evolve from being transport companies that also strip, pack and label to become processing companies that also transport the goods to the shop door.
Such a transition may, in time, be seen at a company such as Fowler Welch (FW). Although sales and marketing director Richard Slater hints at plans for the future, the company is not yet prepared to talk about them.
FW imports products from all over the world for customers – the source shifting with the harvesting season – and consolidates loads, using partitioned fridges at two or three temperature settings.
Slater says scale gives FW the ability to collect and deliver with geographical density. Its customer mix is diverse, ranging from small independent farmers to multinationals.
FW’s aim, says Slater, is to always convert its contracts from “transactional relationships to strategic relationships, which is what happens if you communicate well, execute well and understand your marketplace”.
Adding haulage to the mix
These strategic relationships – and the diversification they imply – will become more important if the trend in the arable markets proves significant.
Over the past 20 years, co-operative or multi-user grain storage organisations have been emerging to allow farmers to store, mix and organise sales of their grain with greater economies of scale. A quick survey of the market shows that more of these organisations are now adding haulage to their list of member services.
Cambridgeshire-based PX Farms offers crop storage, contract farming and other agricultural services. In 2005, it revived the family grain haulage business, which had ceased in 1948. It now has seven 44-tonners running in a 100km radius.
Similarly, last year Hampshire Grain, which offers consolidation and central co-operative storage for local farmers, posted on its website: “Better late than never, but Hampshire Grain has finally dipped its toe in the haulage business. As from January 2012, we are operating two vehicles delivering Hampshire Grain produce to our customers. The fleet will increase to six vehicles for harvest. This venture provides the store with an income stream as well as securing vehicles for the busy period.”
Adding value
Clearly, other players in the agricultural sector are seeing transport as part of their added value. The successful companies in this arena will be those that invest and extend their value-added offerings as far as they can to bridge the gap between producer and those who sell or process the food, whether it is a retailer, grocer or baker.
FROM FIELD TO SHELF
UK food self-sufficiency is decreasing and the latest Defra data suggests the UK imports up to 60% of all fruit and vegetables consumed. In 2012, the UK was a net importer of wheat for the first time in 20 years and, with UK farmers planting 18% less winter barley and 19% less winter wheat this year, we will be a net importer again in 2013.
Lucia Zitti, an economist at the National Farmers Union, says demand for grain haulage is dictated by volume, and transport rates are affected, among other things, by the price of wheat. “Far less ground area was planted with arable crops in the UK this year, largely because the harsh winter left the soil quality too poor,” she says. “Our harvest also started two weeks later than usual. However, there have been good reports of harvest in the US and Europe and this suppresses futures prices. The UK will now be a net wheat importer for the second year running in 20 years.”
Most imported produce travels by road and sea with only 1.5% going by air. From field to packing location to UK port can take up to six weeks in the case of Braeburn apples, brought from South Africa by sea. Product might also have been stored locally for a number of weeks. There are many variables to this journey that reflect the response to demand.
Fowler Welch says products such as avocado and pears from South Africa, or green kiwis from Chile, arrive by sea in modified-atmosphere containers and are typically collected within three days and enter its network the same day. The product is then consolidated with other products and transported to a processor, packer or directly to the retailer or wholesaler. Produce grown in Spain, such as avocados, would normally be delivered using the road networks due to a three-day lead time on delivery compared with 18 days from Cape Town or 28 days from Chile by sea.
With UK-grown product, the route to market is much quicker, although this might also be affected by how long the product has been stored post-harvest.
On lines with the shortest shelf-life, for example watercress, produce could be on retailers’ shelves within three days of harvest. Processing centres that clean, grade and pack product are generally close to source for efficiency of movement and shelf life.
