FSDs may face cost pressures from upstream supplier issues

New cost pressures on suppliers and distributors are expected to channel down to noncommercial foodservice operations in the months and years ahead, squeezing budgets regardless of how food growers’ prices might trend.

The upstream factors include the impact of President Trump’s tariffs on aluminum and steel, which are expected to drive up equipment and some packaging costs, and a mounting shortage of long-haul truck drivers.

The expected trickle-down effects have not been quantified, but foodservice operators say they are already starting to feel the impact of distributors’ labor struggle. “It’s getting a little bit tougher and tougher to find people to drive trucks,” Gene Lee, CEO of Olive Garden parent Darden Restaurants told investors. “So, we’re seeing a little bit of distribution expense, but that’s driven by labor, not necessarily the food cost.”

Equipment companies are still trying to calculate the effects a 10% tariff on aluminum imports and a 25% charge on inbound steel shipments will have on their operation, says Charlie Souhrada, VP of regulatory and technical affairs for the North American Association of Food Equipment Manufacturers.  The surcharges went into effect March 23.

“It’s very difficult to tell at this point,” says Souhrada. “In addition to an increase in unit pricing, there could be some limited supplies or decreased options in terms of types and models,” a result of not having enough domestic raw materials available to produce everything in the catalog.

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“It’s a point of concern for all parties, not just operators, not just manufacturers, but [also] the dealer community and the people who repair equipment,” says Souhrada.

Beer suppliers have already warned customers to expect price hikes and possible disruptions, given how much aluminum they use for cans. “We buy as much domestic can sheet aluminum as is available. However, there simply isn’t enough supply to satisfy the demands of American beverage-makers like us,” MillerCoors CEO Gavin Hattersley said in statement released when Trump announced his tariffs.

The Beer Institute, a trade group for brewers, has estimated that the aluminum tariff will increase suds suppliers’ costs by about $347.7 million annually.

Wholesale buyers of draft beer are expected to feel the effects from the tariff on steel, the prime component of kegs.   American Keg Co. in Pottstown, Pa., was already exclusively using American-produced steel for its containers. With more manufacturers now vying for that domestic steel as a result of the tariff, American Keg has seen its costs spike. As a result, CEO Paul Czachor told National Public Radio, kegs imported from China are even more attractively priced now than they were pre-tariff, beating American Keg’s price by $20 per unit

Distributors are reluctant to talk about the effects a driver shortage could have on their costs and charges; both Sysco and US Foods declined to comment on the matter.

The median annual pay for a private fleet driver, the class of trucker likely to work for a distribution house, has risen by 18% or $13,000 since 2013, to $86,000, according to American Trucking Associations, a trade group. Freelance-type long-haul drivers have seen their pay rise 15% in that timeframe, to $53,000.

But even at those pay rates, fleet managers are struggling to find drivers. The ATA projected in October that shippers would be operating about 50,000 drivers short of their needs by the end of 2017, and projected that the shortfall could top 174,000 by 2026.

“In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects,” ATA Chief Economist Bob Costello said in a statement. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and for the economy at large.”

The average age of a long-haul truck driver is 55, and 94% are men, according to the U.S. Bureau of Labor Statistics. Transport companies note that young people and women are turned off by the gypsy lifestyle and strict monitoring that are often part of the job.  Legislation introduced in Congress several weeks ago is intended to ease young people’s entry into the field through apprenticeships.

NAFEM’s Souhrada sees an opportunity for relief from the aluminum and steel tariffs through political activism by all affected parties.

“We encourage our members to call their representatives and explain how this could affect them,” he said. “We encourage the operator community to do the same.”