- A trucking shortage in the United States has caused freight prices to soar upwards of 20%, extending the year-over-year spot market gains to an unprecedented 17 straight months, according to The Wall Street Journal.
- With shipping costs rising and freight volumes outpacing the supply of available trucks, food distributors are scrambling to find a solution to slow the financial burden on their overall earnings.
- Many manufacturers — including Dean Foods, Tyson, Del Monte, Kellogg and US Foods — said higher transportation and logistics costs weighed on earnings in the most recent quarter.
Although freight can often take a backseat when it comes to thinking about food manufacturing trends, it is a powerful force that can — and will — dictate the prices of products in the future.
After paring down their fleets in the last several years, when the freight market began to rebound in mid-2017, both transport companies and manufacturers found there were not enough heavy-duty trucks to go around.
The Wall Street Journal reports that carriers now are ordering new equipment at record levels, but they are also having trouble hiring additional drivers to drive the new freighters. And the financial costs are staggering.
"Rising freight costs have been a challenge for all of our businesses. We now expect freight to be about $270 million more this year compared to last year,” Tyson CEO Thomas Hayes noted in an earnings call.
Similarly, Dean Foods cut its full-year earnings outlook in part because it simply can’t move its goods for anything close to what it expected to pay this year.
Rising transportation costs have been especially complicated because they coincide with a volatile period in the food industry, when changing consumer tastes and increasing commodity costs are already squeezing companies. At the same time, the food industry is competing with everyone else for the use of trucks.
Although shipping costs are cyclical, there are indications that these higher fees are here to stay.
"The increases aren’t coming as fast as they were a year ago, but it took us a solid nine months to realize...that these increases are indeed being permanently secured with metal bolts to our costs," J&J Snack Foods Corp. Chief Executive Gerald Shreiber said in an earnings call last month.
To cope, some manufacturers are passing the costs along to their customers, some are taking the hit on their quarterly earnings, and others are taking the matter in-house. Dean Foods CEO Ralph Scozzafava said in an earnings call that the company's goal is to centralize shipping and make sure that trucks "do it with the fullest trucks traveling the shortest distance as possible."