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FILE PHOTO: Freight trucks driven on the Fisher freeway in Detroit, Michigan, U.S., March 27, 2009. REUTERS\/Rebecca Cook\/File Photo<\/span><\/strong><\/span><\/p>\n

T<\/span>he<\/strong> drive for cost cuts and higher margins at U.S. trucking and railroad operators is pinching their biggest customers, forcing the likes of General Mills Inc and Hormel Foods Corp to spend more on deliveries and consider raising their own prices as a way to pass along the costs.<\/p>\n

Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.<\/p>\n

Two executives told Reuters their companies do plan to raise prices, though they would not divulge by how much. A third said it was discussing prospective price increases with retailers.<\/p>\n

The prospect of higher prices on chicken, cereal and snacks costs comes as inflation emerged as a more distinct threat in recent weeks. The U.S. Labor Department reported earlier this month that underlying consumer prices in January posted their biggest gain in more than a year.<\/p>\n

As U.S. economic growth has revved up, railroads and truck fleets have not expanded capacity to keep pace – a decision applauded by Wall Street. Shares of CSX Corp, Norfolk Southern, and Union Pacific Corp have risen an average 22 percent over the past year as they cut headcount, locomotives and rail cars, and lengthened trains to lower expenses and raise margins.<\/p>\n

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Quickening economic growth, a shortage of drivers and reduced capacity, and higher fuel prices have driven up transportation costs, prompting some companies to threaten to raise prices on goods ranging from chicken to cereal.<\/p>\n

Cream of Wheat maker B&G Foods Inc, Cheerios maker General Mills and Tyson Foods Inc, owner of Hillshire Farms brand and Jimmy Dean sausage, said they will pass along higher freight costs to their customers.<\/p>\n

Tyson Chief Executive Officer Tom Hayes told Reuters in an interview that its price increases \u201dshould be in place for the second half\u201d of its fiscal year, and that it has begun negotiating price increases with retailers and food service operators. The company declined to specify how much its freight costs increased in recent months, but a spokesman said they are up between 10 to 15 percent for the total industry.<\/p>\n

General Mills informed convenience store and food service customers of the price increases directly, a spokeswoman told Reuters in an emailed statement, declining to provide specifics. Chief Executive Officer Jeff Harmening cited logistic costs and wage inflation as factors.<\/p>\n

\u201dIt feels to me like an environment that should be beneficial for some pricing,\u201d he said in a presentation at last week\u2019s Consumer Analyst Group of New York conference.<\/p>\n

Hormel Foods, the maker of Skippy peanut butter and SPAM, has been talking with retailers about raising prices, according to Chief Executive Jim Snee.<\/p>\n

\u201cWe don\u2019t believe we\u2019re going to recoup all of our freight cost increases for the balance of the year,\u201d Snee told Reuters in an interview, noting operating margin sank to 13.2 percent, from 15.6 percent due to higher costs – including freight – in the most recent quarter.<\/p>\n

Confectionary and snack company Mondelez International Inc halted operations over a weekend late last month at its Toledo, Ohio wheat flour mill – the second-largest flour mill in the United States – because the plant could not get enough rail cars to carry flour to bakeries, a spokeswoman said.<\/p>\n

She declined to comment on whether Mondelez would raise prices to cover any higher costs.<\/p>\n

A new government regulation for drivers and truck availability are pushing up freight costs at JM Smucker Co. \u201cWe anticipate inflationary pressures likely to cause upward price movements in a variety of categories,\u201d Chief Financial Officer Mark Belgya said last week at an analyst conference.<\/p>\n

To be sure, transportation costs are just a sliver of the price consumers pay at the grocery store. The U.S. Department of Agriculture estimates transportation represents just 3.3 cents of every dollar consumers spend.<\/p>\n

But an increase in truck rates over the next 12 months implies a 15-to-18 basis point gross margin headwind for U.S. food companies on average, according to Bernstein analyst Alexia Howard.<\/p>\n

\u201cA lot of the consumer goods companies work on margin,\u201d said Joe Glauber, a former USDA Chief Economist and a senior research fellow at the International Food Policy Research Institute. \u201cThey are going to be pushing those costs along\u201d to retailers. Ultimately \u201cconsumers end up shouldering more of the burden,\u201d he said.<\/p>\n

That would be a change for consumers who have seen years of low-to-negative food inflation, he noted.<\/p>\n