Freight Costs Rising: What Does it Mean for Earnings?
High freight costs are starting to weigh heavily on earnings for big consumer-goods companies like Coca-Cola Co. and Hasbro Inc.
The Wall Street Journal reports that freight costs are up 20% for Coca-Cola Co. North American Division. Hasbro Inc, Procter & Gamble Co., Danone SA, Nestlé SA and WD-40 all also report rising freight costs.
Why Are Freight Costs Rising?
The WSJ reports that freight costs are rising due to several factors:
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.
Coupled with a higher demand for truckload services in April 2018, it’s little surprise that freight costs are rising. Whether or not these strains on earnings for larger companies will trickle down to smaller companies or small package shipping remains to be seen.
At MVP Logistics, we’re actively working to keep our finger on the pulse of the rising freight costs in order to provide you with the best, most cost-effective solutions and alternatives available. Concerned about rising costs? Please reach out and let’s see what we can do to help.
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