Retailers and manufacturers are taking stock of their transportation costs and exploring alternatives as a capacity crunch in freight is driving up prices and causing shipping delays.
A variety of companies, including food producer Hormel Foods Corp. and retailer Dollar General Corp., have reconfigured their supply chains, including building out their own truck fleets, reducing the frequency of pickups and deliveries, and shopping around for better rates.
Freight rates have been climbing in recent months, making it harder and more costly for shippers to book transportation at a time of year when demand is typically lighter. U.S. trucking and rail freight spending rose 17% in May compared with the same month in 2017, according to the Cass Information Systems Inc. index for freight expenditures.
As strong consumer spending and steady economic growth push higher volumes of goods through logistics networks, many truck fleets, facing historically low unemployment, have said they are turning down cargo loads because they don't have enough drivers to haul goods.
Retail and manufacturing businesses that ship lots of goods say they are taking more control over their transportation and warehouse operations, and looking to offset logistics costs with savings from other parts of the supply chain.
“We're thinking about minimizing miles, maximizing weights, how many days a week do you need delivery,” Hormel Chief Executive James Snee told investors during a May 24 earnings call.
Food distributor US Foods Holding Corp. told investors that it is sending its own trucks out to make pickups whenever possible, so it can avoid paying rising fees for third-party delivery.
Analysts expect it will get harder and more expensive for companies to ship goods as demand increases in late summer and early fall, when shipping volumes typically peak.
“Seasonal shippers are struggling to cover volumes as the weather warms up and beverage season unfolds,” Morgan Stanley transportation analyst Ravi Shanker wrote in a research note. Shippers, carriers and brokers polled by the bank expect truckload rates to rise 6.4% on average this year.
To control costs, shippers are “going to have to put more time, energy and effort into it than they have in the past,” for example, by adding more transportation staff, said Paul Thompson, founder of logistics- services firm Transportation Insight LLC. “It's no longer one phone call to find an inexpensive option.”
Dollar General is diversifying the group of trucking companies it uses to drive more competitive pricing. The discount retailer also has been expanding its private fleet of trucks.
Rising transportation costs come as suppliers like Hormel are under increased pressure to deliver goods on time. Retailers like Kroger Co. and Walmart Inc. started narrowing delivery windows — though Walmart subsequently eased up amid the tighter freight market.
—Sarah Nassauer contributed to this article.
BY ERICA E. PHILLIPS AND JENNIFER SMITH