Freight Costs Weighing on Earnings at Consumer-Goods Makers
Date: Wednesday, April 25, 2018
Source: Wall Street Journal
High freight costs are weighing on earnings at big consumer-goods companies as they try to get products from soda and toys to deodorant and household chemicals to stores.
Some companies and analysts expect the pressure on shipping, which began late last year, to extend into the spring, when the seasonal growth in volumes of produce, food and beverages could place additional strain on already-tight trucking capacity.
Freight costs were up 20% from a year ago in the first quarter at the Coca-Cola Co. North American division, the company said Tuesday. “Like other [consumer packaged-goods] companies, we face significant freight headwinds in North America this year,” Kathy Waller, the company’s chief financial officer, said in a call Tuesday on the company’s first-quarter earnings.
Increased transportation expenses also hurt first-quarter profits at toy maker Hasbro Inc.,HAS +0.71% which said Monday it expects the issue to persist through 2018 as shippers compete for a limited number of available trucks.
Procter & Gamble Co. PG -0.26% and food companies Danone SA and Nestlé SA all cited rising freight costs in recent earnings calls, as did lubricant-maker WD-40 Co.
“Everybody is seeing an increase,” Graeme Pitkethly, chief financial officer at Unilever PLC said in an earnings call last week. The seller of Dove soap and Lipton tea expects U.S. freight costs to rise by the “high-single digits to high-teens,” Mr. Pitkethly said, on higher demand and requests by retailers for more frequent deliveries.
Manufacturers and retailers have been scrambling to book transportation in recent months as freight volumes have expanded in a surging U.S. economy. Bad weather, high turnover among truck drivers and a new federal rule requiring drivers to electronically track their hours behind the wheel have contributed to the tighter capacity.
“It’s really coming from the trucking industry and…the new electronic logging-device rules and driver shortages,” Hasbro’s chief financial officer, Deborah Thomas, said Monday. “The contracting supply and increasing demand is expected to manifest itself really kind of throughout 2018.”
Truck capacity loosened up somewhat in February and March, which tend to be slower shipping months. But demand was still elevated compared to prior years, according to online freight marketplace DAT Solutions LLC. Last month, there were 6.9 loads to be moved on the spot truck transportation for every available dry van, the most common type of big rig, compared to 3.2 loads in March 2017.
Freight rates also remain elevated. In March, the average rate on the spot market for dry vans was up 32% year-over-year, according to DAT.
Spot rates are a leading indicator of the contractual rates that shippers set with large trucking companies. With capacity tight as those negotiations get underway, some in the industry now expect contract rates could increase by as much at 9.2%, according to KeyBanc Capital Markets Inc.
At Werner Enterprises Inc., a large truckload carrier based in Omaha, Neb., higher contract rates contributed to a 10% increase in average revenue per total mile in the first quarter, compared to the same period in 2017.
Demand for truckload services “was much stronger than normal for the first quarter,” Werner said in an earnings release last week. “Freight volumes thus far in April 2018 continue to be much stronger than normal.”
Click here to read the entire article from the original source.
Have the News Delivered to you
Like what you see here? Why not let us send it directly to you?
Sign up to receive our Weekly Industry Newsletter, a compilation of all news articles that matter to you and your business.