Delivering the Goods: Lessons Learned from Direct Delivery of Kentucky Catfish

USDA initiated a pilot study in cooperation with KDA and PAAC that examined the marketing, transportation, and delivery strategies of the catfish processing cooperative. The information gathered should prove useful to many groups involved in this type of enterprise. The study had several emphases: • Describing the marketing channels, customers, and products used by the cooperative in selling catfish. • Describing the procedures and equipment used in PAAC’s direct delivery operation. • Examining the cost components of operating a leased ¾-ton Chevrolet refrigerated delivery truck. • Examining the costs of contracted tractor-trailer delivery of palletized lots of catfish to a large chain store warehouse. Marketing When PAAC began its processing operation, most of its customers were small firms that received regular shipments of small quantities of catfish. PAAC delivered catfish products to a variety of small grocers, restaurants, and retirement homes. Other customers included small wholesalers, restaurant chains, and a major grocery chain. The larger customers bought larger quantities at lower per-unit delivery costs, but were more difficult to serve because of their specific packaging, labeling, and inspection requirements. PAAC passed on some of these costs, such as inspection, to the customer. A major change occurred when a large grocery chain began ordering a large share of PAAC’s output. Smaller customers remained consistent buyers, but adding this single large buyer doubled the demand for the cooperative’s fish products. The introduction of a larger scale buyer not only has the ability to increase demand dramatically, but also to disrupt demand if the buyer curtails purchases. The lack of demand for chilled fish was surprising. Contrary to expectations, the market preferred the convenience and shelf life of the frozen product to the benefits of chilled (never frozen) fish. The cooperative was also surprised by the strong demand for filleted products, which diminished the demand for other products, particularly nuggets. An unexpected assist for the cooperative was the discovery of food banks as a market for excess inventory, or slightly off-grade products. Even though food banks received a discounted price, sales to them allowed PAAC to recover some cost on items that were clogging inventory, adding to storage costs, and that might otherwise be a total financial loss. Delivery During the study, half the fish processed by PAAC was delivered by contracted trucking firms to a single large retail customer’s central warehouse. The other half was delivered directly to many smaller customers by PAAC. The large customer required that the fish be inspected, which necessitated driving loads of fish first to Indianapolis for inspection at a government facility, then to the customer’s distribution warehouse in Louisville. Despite the extra cost associated with inspection, delivering multi-pallet loads of catfish cost between 7 and 15 cents a pound, one-half to one-third less than the 30 cents a pound it cost to deliver small orders. Small orders usually consisted of less than a hundred pounds of fish, delivered weekly with a leased, refrigerated ¾-ton pickup. The annual cost to operate the truck between September 2002 and August 2003 was $53,699, just over 63 cents a mile. The largest part of this cost was for leasing (47%), followed by labor (24%) and fuel (20%). PAAC paid an average of only $8 an hour for drivers, including fringe benefits. In contrast, the median hourly driver pay in 2002 in the specialty food industry was $14.98 (Bureau of Labor Statistics. 2005). This would make the full cost of labor, including fringe benefits, close to $21 an hour. If PAAC had paid this much for a driver, the total operating cost of the truck would have been 91 cents a mile. With the rising cost of benefits and a shortage of competent drivers, higher labor charges would appear to be likely.