By Leslie Patton and Matt Townsend – March 1, 2019
America’s trucker shortage is about to hit consumers right where it hurts: in the kitty litter.
McDonald’s Corp.’s long-time distributor Martin-Brower Co. is raising delivery fees, imperiling low menu prices, and Procter & Gamble Co., Church & Dwight Co. and Hasbro Inc. are sounding the alarm that higher freight fees could be passed on to consumers of everything from Crest toothpaste to Arm & Hammer cat litter to My Little Pony figurines. And it’s all because transport companies can’t find drivers.
“Millennials, they don’t want to drive trucks,” said Darren Tristano, CEO and founder of consultant Foodservice Results. “They’re looking at this and saying, ‘I want to be in something more glamorous, more tech-oriented.’”
America simply doesn’t have enough truck drivers to deliver everything its people buy. That’s not new, but many retailers are just now feeling the pain as annual shipping contracts are renewed. That has trucking companies scrambling to find ways to keep costs down. And it has Michael Norwich counting every dime and quarter as he contemplates the $4.99 combo meal whose price is dictated at Jack in the Box Inc. headquarters.
“Distribution costs are huge,” said Norwich, who owns 14 of the fast-food restaurants in El Paso, Texas, and Las Cruces, New Mexico. “I’m scratching my head trying to figure out how $4.99 is going to work.”
The driver shortage is a long-term issue that’s going to get worse, and it’s going to cost consumers money, said Lee Klaskow, a Bloomberg Intelligence analyst. Pay bumps for drivers haven’t moved the needle much. Autonomous trucks are still far off. And even if legislators succeed in lowering the minimum age for long-haul drivers to 18 from 21, as some propose, it wouldn’t help much. Insurance for young drivers would be sky high, making it a tough job most of them would avoid, he said.
The trucking industry is also trying to recruit more women, who currently make up a small fraction of the workforce.
Drivers who own their own trucks and pay their own expenses can make gross pay of as much as $250,000 a year and receive a hiring bonus of $5,000 by joining J.B. Hunt Transport Services Inc., according to the company’s website. The trucking giant is also advertising long-haul positions that pay $65,000 a year plus a $2,500 hiring bonus and require only three months of experience and promise little lifting of freight.
“It’s still difficult to find good quality drivers,” executive vice president Nicholas Hobbs said in January.
Companies are trying to push down costs by using software to optimize routes and moving some cargo to rail. While cheaper, those rates have risen and aren’t as flexible as having a truck travel point to point.
Still, it’s difficult keeping prices down. Tariffs are increasing the price of truck parts coming from China and imported aluminum and steel. Fuel increases, too, are having an effect.
Retail chains are also trying to cut shipping expenses where they can. TJX Cos.’s HomeGoods furniture chain said Wednesday that “increased pressure from freight” is weighing on margin. It’s opening more distribution centers in the U.S. to mitigate mounting costs.
So is Hasbro, which plans to open a new hub in Joliet, Illinois, after shipping costs surged in 2018.
Procter & Gamble, maker of Tide detergent and Pampers diapers, is feeling the heat, too. The company recently blamed a 25 percent jump in trucking costs for narrowing margins. P&G raised prices last year on some products, and has said it’s still too early to divulge its pricing strategy for 2019.
Higher transportation costs are “headwinds that we have to overcome,” Church & Dwight CEO Richard Dierker said Feb. 21. The company identified a bright side to the jump in trucking expenses — competitors are also raising prices.
Walmart Inc., which has its own fleet of 6,500 trucks, offered $1,500 referral bonuses last year and shortened the hiring process to attract more drivers.
For Amazon.com Inc., freight costs consistently outpace online sales growth. The company is trying to find cheaper ways to deliver packages or it may have to hike prices. It already raised its annual Prime membership fee by 20 percent to $120 last year, the first hike since 2014.
And then there’s the McDonald’s menu. Martin-Brower ships to 12,372 restaurants in the U.S. and 20,208 globally, so the sting of higher fees is widespread. Because much of the McDonald’s menu is priced at company headquarters and reinforced by a national advertising campaign, franchisees are looking for places they have leeway to set their own prices and $1 drinks are candidates.
“We must be able to pass these increases along to our customers,” a group of McDonald’s franchisees said in a Feb. 27 website post. “The bottom line is their costs are going up and so are ours.”