Nogales accounts for three out of four truckloads of fruit and vegetables entering the U.S. from Mexico, but that volume could plunge if fuel prices don't come down.

Higher prices at the gas pump aren't the only threat to Southern Arizona's economy as soaring fuel costs, as well as a shortage of trucks, have shippers and buyers re-examining their transportation options, even as truckers look for ways to cope.

Prices of diesel fuel have been steadily increasing over the last several months. In the aftermath of Hurricane Katrina they have spiked upward, soaring to more than $3 a gallon. At the same time, spot shortages have been developing, making it uncertain whether sufficient supply is available to all destinations.

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For the trucking industry, which burns more than 35 billion gallons of diesels fuel every year, the fuel bill for 2005 is expected to top a record $80 billion, or more than 25 percent greater than 2004, said the American Trucking Association.

For Arizona trucking, which carries 87 percent of the state's commodities and consumer goods, the price increase is more than an expense. If it is sustained, it could change the market for the state's fruits and vegetables, minerals and manufactured products.

Karen Rasmussen, president of the Arizona Trucking Association, said, "Everybody has been impacted by it." She said the situation for trucking companies and the business that relies on them were already coping with escalating costs and shortages, before the current crisis. "At this point, we don't know what the impact of the hurricane will be, but it won't be good."

Trucking companies have been offsetting the fuel cost increase with surcharges. As a result, Rasmussen said the full impact has yet to be felt throughout the economy. "Virtually everything is moved by truck. So, as trucking costs go up, so do consumer prices."

While surcharges can pass along some of the additional costs, trucking companies pay the rest, said Greg Gibbons, chief executive officer of CTI, a Casa Grande based bulk commodity carrier. "Fuel surcharges always lag behind," he said. "The faster that prices go up, the worse it is for us."

How high shipping costs can go is another story, Gibbons said. Low-value commodities, especially bulk minerals, are only valuable if they're cheap enough. "We haven't reached it yet, but there will be a breaking point," he said.

For agricultural products from Sonora and Sinaloa, there are indications that they are beginning to reach that ceiling, said Lee Frankel, president of the Fresh Produce Association of the Americas in Nogales. He said growers generally sell "freight-onboard," which means the buyer pays the shipping, however, "the issue becomes one of lost sales rather less margins."

If fuel costs stay high, growers in northwestern Mexico could begin to lose customers to other regions with better access to the Gulf of Mexico.

Although trucking produce has been the dominant means of transportation for decades, Frankel said, "Expectations are that prices will stay high and the availability of trucks, at any price, will continue to be a problem, since the risks of transporting produce mean there's not a lot of interest in getting into the business."

That's why there's renewed interest in rail, he said. "We're seeing interest in piggyback rail shipments from Nogales, especially for fruit and vegetables being trucked in from farms in Sonora and Sinaloa. We're working with Union Pacific to set up a yard in Nogales, Ariz., but the railroad has enough issues about getting capacity through Tucson, they don't know what they can do."

Contact Philip S. Moore at

pmoore@azbiz.com or at (520) 295-4238.