• Issue 139 • May 2019
Cheap prices will be the latest casualty of the trucker shortage
The driver shortage is a long-term issue that’s going to get worse, and it’s going to cost consumers money
America's trucker shortage is about to hit consumers right where it hurts: in the kitty litter.
McDonald'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, N.M.. "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 United States to mitigate mounting costs.
So is Hasbro, which plans to open a new hub in Joliet, Ill., 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. 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 United States 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."
Magazine about trucks, cars, and ground transportation. Published monthly and distributed in Greater Toronto Area, Montreal, Winnipeg, Calgary and Vancouver.
Automation's economic upsides for the trucking sector
Full trucking automation could mean huge cost savings.
According to McKinsey & Co., it could reduce operating costs in the U.S. trucking industry by around 45%, for savings of between US$85 billion and US$125 billion.
But the mass adoption of driverless technology will have repercussions beyond the bottom line. There were 3.5 million people in the U.S. employed as truck drivers last year, according to the American Trucking Association.
The Brookfield Institute for Innovation + Entrepreneurship says the role of transport truck driver faces a 79% chance of automation, which would affect 283,000 Canadian drivers.
The minds behind Vancouver-based Switchboard acknowledge that the electronic logging devices they are providing today could become relics of a past when sleep-sensitive humans drove cargo around the continent. Their usefulness as data collectors, however, could remain lucrative in the age of information.
It is unclear when trucking might see such a transition. Dave Earle, president and CEO of the BC Trucking Association, says good work is being done south of the border on interstate highways and terminal-to-terminal trips.
Is it on its way to B.C.?
"The biggest problem we have in B.C. with this is our infrastructure," Earl said. "We are not connected to Canada's multi-lane divided highway system. We still have a two-lane stretch in the Kicking Horse Canyon."
Highway driving between warehouses, ports or terminals is one thing; urban driving is another. But even if technologists perfect city-savvy driverless tech, Earle said, B.C.'s infrastructure is at least a decade away from truly being able to support it.
"Our infrastructure here is hugely problematic," he explained. "Part of it's a legacy of not spending the time, energy and money that we needed to. A large part of it's our topography. To build infrastructure in B.C. is ferociously expensive when compared with the rest of the continent. And we just haven't frankly kept pace."
That creates challenges for drivers today. For example, Earle said, break-bulk cargo cannot travel on Highway 1 because it isn't allowed under highway overpasses.
"It's bad enough that we are seeing about 75% of the oversized, overweight cargo destined for the oilpatch in Alberta and B.C. go through Houston, Texas," he said.
"There's no easy solution, but we've neglected our infrastructure for so long that we are now in a really difficult position of playing catch-up in some of the most expensive geography in the world."