Maybe Mr. Market is right for fearing an inflationary outbreak this year that triggers four interest rate hikes from the Federal Reserve
"Depending on package [of food], it [inflation] may not seem that significant but it will cost more," Tyson Foods TSN CEO Tom Hayes told TheStreet. Two of the main culprits for the inflation, Hayes says, are rising wages for workers and a driver shortage in the trucking industry.
"Labor has been going up the last few years, and we have been increasing wages - it started three years ago, but the last two years has been nearly double-digit percentage increases, so that is a cost that we are passing through," Hayes explained.
A fresh concern for Hayes is the trucking shortage in America that is pushing up costs. For Tyson, it expects a $200 million profit hit this year alone due to rising transportation and distribution costs.
The U.S. trucking market, which represents about 70% of all U.S. freight by tonnage, has tightened significantly as a strong economy, new trucking industry regulations and a limited driver supply put pressure on the space, Macquarie Research analyst Caroline Levy wrote this week.
Trucking is in the tightest market seen since 2004, with U.S. truck capacity utilization at 100% in the first half of this year. According to Macquarie, any utilization above 95% is considered a tight market. As a result, truckload rates such as fuel surcharges are expected to rise 10% to 11% in the first half of the year, while diesel prices could gain 20% to 23%.
There exists a limited supply of able drivers, too, Levy wrote. The average age of a truck driver is 55 years, plus the industry is facing increasing competition from construction in attracting young, drug-free workers. Construction typically requires fewer long nights and often pays better, though the two draw from the same pool of workers. That will likely result in the necessity of increasing wages, which will be passed through to shippers through higher rates.
The labor shortage is expected to top 250,000 drivers in the first half of 2018, creating the worst shortage on record. The driver supply is expected to grow a little in the back half of the year, though, as hurricane-related construction projects begin to slow.
Kinsey Grant contributed to this story.
Watch what Hayes told TheStreet about Tyson's search for an acquisition.