With US transportation costs continuing to soar, driven by the on-going driver shortage, consumers are starting to see those costs being passed on in terms of prices they pay.
Supply Chain Digest Says... |
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| Transport Topics says consumer packaged goods giant Procter & Gamble recently blamed a 25% jump in trucking costs for narrowing margins. |
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The Cass Linehaul Index, which measures US per mile truckload rates, is showing no signs of slowing down, up another 6.4% year-over-year in January.
Despite some indications of a flattening freight environment, the January rise was again substantial, and marks the 16th consecutive month of year-over-year rate gains of at least 5% - compounding on itself every month.
As recently reported on the ATA's Transport Topics web site, "McDonald's Corp.'s longtime distributor Martin-Brower Co. is raising delivery fees, imperiling low menu prices."
Meanwhile, Procter & Gamble, Church & Dwight, and Hasbro are also warning that higher freight costs could be passed on to consumers of everything from Tide detergent to Arm & Hammer cat litter to your favorite toy.
The lack of drivers is the fundamental issue, preventing carriers from adding capacity that would better balance supply and demand, while the shortage also pushes up wages that force carriers to raise prices to shippers.
Transport Topics quotes Jack-in-the-Box franchisee Michael Norwich as wondering how he can keep prices where they are with inbound shipping costs going up and up.
"Distribution costs are huge," Norwich, who owns 14 of the fast-food restaurants in El Paso, Texas, and Las Cruces, N.M, told Transport Topics "I'm scratching my head trying to figure out how $4.99 [for a value meal] is going to work."
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Other factors are in play. Recent US tariffs are increasing the price of many truck parts coming from China, increasing carrier costs. Oil and diesel prices, a huge expense for carriers, have also lately been on the rise.
The Cass Linehaul Index Soared in 2018
What are shippers to do? Greater use of rail is one option, but is simply not flexible enough for many shippers.
Distribution network changes can help. Retailer TJX's HomeGoods furniture chain recently announced that "increased pressure from freight" is weighing on profit margins, so it's opening more distribution centers in the United States to mitigate mounting costs.
Ditto for toy maker Hasbro, which plans to open a DC in Joliet, IL, after its shipping costs surged in 2018.
Transport Topics says consumer packaged goods giant Procter & Gamble recently blamed a 25% jump in trucking costs for narrowing margins. P&G raised prices last year on some products, but has said it is too early to announce its pricing strategy for 2019.
While clearly for parts of 2005 companies we're blaming rising transportation costs as impacting profits, SCDigest doesn't recall a time when such logistics costs were seen as pushing overall inflation higher as they are now (one exception being the rapid rise seen in the oil crisis of the 1970s, which did cause significant inflation, but in a bit of a different way.)
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