SEATTLE/BOCA RATON, Fla. (Reuters) – The drive for cost cuts and higher margins at U.S. trucking and railroad operators is pinching their biggest customers, forcing the likes of General Mills Inc (GIS.N) and Hormel Foods Corp (HRL.N) to spend more on deliveries and consider raising their own prices as a way to pass along the costs.
Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.
Two executives told Reuters their companies do plan to raise prices, though they would not divulge by how much. A third said it was discussing prospective price increases with retailers.
RISING COSTS HIT EARNINGS
Global energy prices have risen sharply from 2016’s lows, driving up prices for not only diesel but also packing material like plastics, which are byproducts of crude and natural gas.
“NO SLACK IN THE SYSTEM”
U.S. truck fleets have not kept pace with growing demand for different reasons, industry executives said. The April 1 enforcement deadline for a federal regulation requiring drivers to electronically log their hours has effectively curtailed capacity, adding to a chronic shortage of people willing to drive trucks for the wages offered.
Tight capacity means trucking firms have leverage as they negotiate freight rates. Dry van shipping rates are expected to rise as much as 10 percent in 2018, while “spot” rates for last-minute cargo hit record levels in January before falling slightly, according to online freight marketplace DAT Solutions.
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