Rising Shipping Costs Are Companies' Latest Inflation Riddle From Michelin tires to Pampers diapers, transportation expenses are working their way through global supply chains

Rising Shipping Costs Are Companies' Latest Inflation Riddle  From Michelin tires to Pampers diapers, transportation expenses are working their way through global supply chains

A general view shows the busy Tanjong Pagar terminal container port in Singapore Friday.

Transportation costs–typically a fraction of a finished product's price–are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor.

The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another.

“Sometimes the ocean freight now is actually more expensive than the cost of the product,” Chief Executive Officer Wade Miquelon said in a recent interview. The company hasn’t raised any base prices and is hoping the extra supply-chain expenses are temporary. “I think they probably are, but does transient mean six months or 24 months?” he said.

The Covid-19 pandemic has driven a long-lasting surge in transportation costs, putting pressure on many businesses already confronting higher wages and raw-material prices. Some CEOs are saying they expect elevated freight costs stretching into 2023.

The cost of transporting goods is a component in every step in a company’s supply chain. Everything from iron ore, steel, parts and finished products has to move as raw materials are processed in global manufacturing. The cost of shipping containers across the ocean is higher, truck drivers are in short supply, and gasoline is more expensive than many expected earlier this year.

“We are not counting on material improvements in 2022, especially in the first portion of the year,” Michael Witynski, CEO of the discount retailer Dollar Tree Inc., said last month. He noted that experts expect ocean-shipping capacity to normalize no later than in 2023.

Spot container shipping rates from Asia to the U.S. West Coast were five times higher last week compared with the same time last year, according to the Freightos Baltic Index. Those rates are more than 14 times higher than during the same time in 2019.

“It has just gone up so rapidly that it is now becoming part of the narrative here of this supply-chain-driven price shock that is proving to be a lot more intense and a lot more durable than we initially thought back in the spring,” said Brian Coulton, chief economist at Fitch Ratings.

Mondelez International Inc. said last week that global inflation was higher than expected, citing commodity and transportation costs. Molson Coors Beverage Co. said most of its cost inflation came from transportation increases. On Monday, 3M Co. said it is seeing “a lot of pressure” on logistics costs.

The French tire maker Michelin has spent tens of millions of dollars in extra costs to move natural rubber from the tropics to its production facilities to meet customer demand.

A dual shortage of truck drivers and shipping containers has raised the price of moving the company’s products, which for months were even shipped by air. The company is only recently cutting down on its use of more-expensive airfreight and said its supply-chain teams are constantly juggling shipping and transportation companies to keep things moving.

“That’s why we had to raise prices for tires,” Michelin Chief Executive Florent Menegaux said in a recent interview.

Procter & Gamble Co. has announced several price increases for products including Pampers diapers this year, but executives have cautioned that the speed and scope of freight and commodity-cost increases are too great to offset initially. The company is projecting $1.9 billion in added after-tax costs in its current fiscal year, which ends in June 2022.

“The demand for trucks continues to increase at each step of the chain down to delivery to homes,” Jon Moeller, the incoming CEO at the company, said at a June investor conference. “Diesel fuel costs are up more than 25% versus April 2020.”

Dollar Tree warned investors last month that freight-market conditions continued to deteriorate and that costs would be “significantly higher than originally projected.” The company had previously expected its regular freight carriers would meet 85% of their contractual commitments, with the remainder sent at market rates.

“However, we now project that our regular carriers will fulfill only 60% to 65% of their commitments, and the spot-market rates will be much higher than previously estimated,” Mr. Witynski said in late August.

Dollar Tree said the problems stem from equipment shortages, backlogs, port blockages, labor scarcity and Covid-19-related complications. A charter ship was recently denied entry to China because a crew member tested positive for Covid-19, forcing a two-month delay as the ship backtracked to replace its crew. In response, the company is using more domestic suppliers for goods, making seasonal purchases a month earlier than usual, being flexible with arrival and departure ports, and using dedicated space on chartered cargo ships, including one for a three-year term.

After a decade of consolidation among ocean shipping lines, a handful of companies dominate key routes. That means there are generally fewer vessels sailing between ports, leaving cargo owners paying a premium to find space. Both Walmart Inc. and Home Depot Inc. have decided to charter their own boats this year to move goods.

The extra costs and adjustments that have companies warning investors and working to preserve their profit margins are prompting some economists to shrug. The rebounding economy, they said, came with a surge in demand for goods, which caused a short-term supply crunch that will work itself out with time as higher prices quell demand.

“There is no more transitory price than transportation because the capacity can expand and shrink,” said Steven Blitz, chief U.S. economist at TS Lombard. Trains can get longer, more ships can be built, and truck drivers can be hired to meet the demand to move things, but it just takes some time to happen. Like many economists, Mr. Blitz expects that inflation pressures will fade.

Inflation could also cool if the economy does the same. The spread of Covid-19’s Delta variant has businesses and consumers adjusting to renewed mask mandates, travel restrictions, event cancellations and delayed office reopenings. Consumers are pulling back on purchases, and employers have slowed hiring.

“I think the inflationary pressures are being juiced by the surge in transportation costs,” said Mark Zandi, chief economist at Moody’s Analytics. Using rough estimates, he said that consumer prices have risen 5.3% in the past year and that transportation costs contributed about 10% of that rise.

“If everyone’s having to pay more to ship to the next producer down the chain, when you get to the end user, that’s a fair chunk of change,” he said.

J.M. Smucker Co. recently flagged transportation costs as a major reason for a drop in profitability, along with higher commodity costs. Chief Financial Officer Tucker Marshall said in late August that transportation costs were a challenge in the last fiscal year that continued into the current year.

“As you bring material in, as you produce and you ship material out, the entire network right now is impacted from a transportation standpoint,” Mr. Marshall said. “And it is material.”

Internet Explorer Channel Network
News Related

OTHER NEWS

Intellect Desig Consolidated September 2021 Net Sales at Rs 452.14 crore, up 21.61% Y-o-Y

Reported Consolidated quarterly numbers for Intellect Design Arena are: Net Sales at Rs 452.14 crore in September 2021 up 21.61% from Rs. 371.81 crore in September 2020. Quarterly Net Profit ... Read more »

Transport Corp Consolidated September 2021 Net Sales at Rs 825.14 crore, up 18.4% Y-o-Y

Reported Consolidated quarterly numbers for Transport Corporation of India are: Net Sales at Rs 825.14 crore in September 2021 up 18.4% from Rs. 696.89 crore in September 2020. Quarterly Net ... Read more »

Marico Consolidated September 2021 Net Sales at Rs 2,419.00 crore, up 21.62% Y-o-Y

Reported Consolidated quarterly numbers for Marico are: Net Sales at Rs 2,419.00 crore in September 2021 up 21.62% from Rs. 1,989.00 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

LKP Finance Consolidated September 2021 Net Sales at Rs 21.87 crore, up 138.68% Y-o-Y

Reported Consolidated quarterly numbers for LKP Finance are: Net Sales at Rs 21.87 crore in September 2021 up 138.68% from Rs. 9.16 crore in September 2020. Quarterly Net Profit at ... Read more »

GRM Overseas Consolidated September 2021 Net Sales at Rs 253.00 crore, up 49.14% Y-o-Y

Reported Consolidated quarterly numbers for GRM Overseas are: Net Sales at Rs 253.00 crore in September 2021 up 49.14% from Rs. 169.64 crore in September 2020. Quarterly Net Profit at ... Read more »

MPS Standalone September 2021 Net Sales at Rs 72.78 crore, down 0.16% Y-o-Y

Reported Standalone quarterly numbers for MPS are: Net Sales at Rs 72.78 crore in September 2021 down 0.16% from Rs. 72.90 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

More than 700M people use AR effects across Facebook's apps & devices every month

(Image: Reuters) Facebook said on October 28 that more than 700 million people use augmented reality effects (AR) across its apps and devices on a monthly basis. At its annual ... Read more »

Asit C Mehta Standalone September 2021 Net Sales at Rs 0.50 crore, down 40.83% Y-o-Y

Reported Standalone quarterly numbers for Asit C Mehta Financial Services are: Net Sales at Rs 0.50 crore in September 2021 down 40.83% from Rs. 0.84 crore in September 2020. Quarterly ... Read more »

Transport Corp Standalone September 2021 Net Sales at Rs 736.50 crore, up 20.3% Y-o-Y

Reported Standalone quarterly numbers for Transport Corporation of India are: Net Sales at Rs 736.50 crore in September 2021 up 20.3% from Rs. 612.20 crore in September 2020. Quarterly Net ... Read more »

Geojit Fin Standalone September 2021 Net Sales at Rs 124.54 crore, up 21.17% Y-o-Y

Reported Standalone quarterly numbers for Geojit Financial Services are: Net Sales at Rs 124.54 crore in September 2021 up 21.17% from Rs. 102.79 crore in September 2020. Quarterly Net Profit ... Read more »

MMP Industries Standalone September 2021 Net Sales at Rs 92.41 crore, up 79.49% Y-o-Y

Reported Standalone quarterly numbers for MMP Industries Ltd. are: Net Sales at Rs 92.41 crore in September 2021 up 79.49% from Rs. 51.48 crore in September 2020. Quarterly Net Profit ... Read more »

Uttam Sugar Standalone September 2021 Net Sales at Rs 476.40 crore, up 12.75% Y-o-Y

Reported Standalone quarterly numbers for Uttam Sugar Mills are: Net Sales at Rs 476.40 crore in September 2021 up 12.75% from Rs. 422.51 crore in September 2020. Quarterly Net Profit ... Read more »

LKP Finance Standalone September 2021 Net Sales at Rs 21.09 crore, up 130.07% Y-o-Y

Reported Standalone quarterly numbers for LKP Finance are: Net Sales at Rs 21.09 crore in September 2021 up 130.07% from Rs. 9.16 crore in September 2020. Quarterly Net Profit at ... Read more »

Interglobe Avi Standalone September 2021 Net Sales at Rs 5,608.50 crore, up 104.62% Y-o-Y

Reported Standalone quarterly numbers for Interglobe Aviation are: Net Sales at Rs 5,608.50 crore in September 2021 up 104.62% from Rs. 2,740.96 crore in September 2020. Quarterly Net Loss at ... Read more »

Arvind Standalone September 2021 Net Sales at Rs 1,988.61 crore, up 70% Y-o-Y

Reported Standalone quarterly numbers for Arvind are: Net Sales at Rs 1,988.61 crore in September 2021 up 70% from Rs. 1,169.75 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

DLF Standalone September 2021 Net Sales at Rs 961.90 crore, down 10.06% Y-o-Y

Reported Standalone quarterly numbers for DLF are: Net Sales at Rs 961.90 crore in September 2021 down 10.06% from Rs. 1,069.47 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

HSIL Standalone September 2021 Net Sales at Rs 546.21 crore, up 28.11% Y-o-Y

Reported Standalone quarterly numbers for HSIL are: Net Sales at Rs 546.21 crore in September 2021 up 28.11% from Rs. 426.35 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

Banaras Beads Standalone September 2021 Net Sales at Rs 10.69 crore, up 59.53% Y-o-Y

Reported Standalone quarterly numbers for Banaras Beads are: Net Sales at Rs 10.69 crore in September 2021 up 59.53% from Rs. 6.70 crore in September 2020. Quarterly Net Profit at ... Read more »

MAS Financial S Standalone September 2021 Net Sales at Rs 156.47 crore, up 2.52% Y-o-Y

Reported Standalone quarterly numbers for MAS Financial Services are: Net Sales at Rs 156.47 crore in September 2021 up 2.52% from Rs. 152.62 crore in September 2020. Quarterly Net Profit ... Read more »

Avance Tech Standalone September 2021 Net Sales at Rs 4.87 crore, up 4873650% Y-o-Y

Reported Standalone quarterly numbers for Avance Technologies are: Net Sales at Rs 4.87 crore in September 2021 up 4873650% from Rs. 0.00 crore in September 2020. Quarterly Net Profit at ... Read more »

Umang Dairies Standalone September 2021 Net Sales at Rs 48.53 crore, down 21.99% Y-o-Y

Reported Standalone quarterly numbers for Umang Dairies are: Net Sales at Rs 48.53 crore in September 2021 down 21.99% from Rs. 62.21 crore in September 2020. Quarterly Net Loss at ... Read more »

Schaeffler Ind Standalone September 2021 Net Sales at Rs 1,487.58 crore, up 32.74% Y-o-Y

Reported Standalone quarterly numbers for Schaeffler India are: Net Sales at Rs 1,487.58 crore in September 2021 up 32.74% from Rs. 1,120.65 crore in September 2020. Quarterly Net Profit at ... Read more »

HIL Standalone September 2021 Net Sales at Rs 422.41 crore, up 21.45% Y-o-Y

Reported Standalone quarterly numbers for HIL are: Net Sales at Rs 422.41 crore in September 2021 up 21.45% from Rs. 347.82 crore in September 2020. Quarterly Net Profit at Rs. ... Read more »

Medinova Diag Standalone September 2021 Net Sales at Rs 2.81 crore, down 35.58% Y-o-Y

Reported Standalone quarterly numbers for Medinova Diagnostic Services are: Net Sales at Rs 2.81 crore in September 2021 down 35.58% from Rs. 4.36 crore in September 2020. Quarterly Net Profit ... Read more »

Silgo Retail Standalone September 2021 Net Sales at Rs 8.70 crore, up 38.05% Y-o-Y

Reported Standalone quarterly numbers for Silgo Retail are: Net Sales at Rs 8.70 crore in September 2021 up 38.05% from Rs. 6.31 crore in September 2020. Quarterly Net Profit at ... Read more »

Laurus Labs Standalone September 2021 Net Sales at Rs 1,176.20 crore, up 4.34% Y-o-Y

Reported Standalone quarterly numbers for Laurus Labs are: Net Sales at Rs 1,176.20 crore in September 2021 up 4.34% from Rs. 1,127.30 crore in September 2020. Quarterly Net Profit at ... Read more »

Mahindra Finance Q2 net jumps over three-fold to Rs 1,103 crore

Mahindra & Mahindra Financial Services (Mahindra Finance) on Thursday reported an over three-fold rise in consolidated net profit at Rs 1,103 crore for the September quarter, boosted by healthy operating ... Read more »

T-Mobile also removes phones from some stores after robberies

T-Mobile does not state exactly what the risk areas are. Customers who order telephones in the store will receive them at home the next day, the company writes. T-Mobile also ... Read more »

IKEA gives transgender staff leave for gender reassignment

Furniture store IKEA Netherlands now gives paid leave to transgender employees who want to change gender. The chain has made agreements about this with the trade union FNV. All IKEA ... Read more »

Hertz says it may expand supply of Teslas to Uber to 150,000

Rental car company Hertz said on Thursday it could expand plans to supply Tesla vehicles to Uber to 150,000 during the next three years from an initial fleet of 50,000, ... Read more »

Budget 2021: Sunak's budget was progressive - but that doesn't mean you will feel better off

This was a progressive budget. But it won't change the squeeze on living standards that has been a feature of this country’s economic landscape for half a generation now. Read more »

Ikea transgender staff gets paid leave for gender reassignment

People who want to change their gender can take a total of 24 weeks of leave for medical and non-medical treatment over a period of ten years, FNV said. They ... Read more »

Karnataka Bank Q2 net profit up 5% at Rs 126 crore

Private sector Karnataka Bank on Thursday reported a moderate rise of 5.17 per cent in its net profit at Rs 125.61 crore in the second quarter ended September 2021. The ... Read more »

Stocks making the biggest moves midday: Ford, eBay, Apple, Tesla, Merck and more

Ford Motor Co. CEO Jim Farley walks to speak at a news conference at the Rouge Complex in Dearborn, Michigan, September 17, 2020.Rebecca Cook | Reuters Check out the companies ... Read more »

Fino Payments Bank mobilises Rs 538.78 crore from anchor investors ahead of IPO

Representative image Fintech company Fino Payments Bank on October 28 garnered Rs 538.78 crore from 29 anchor investors, ahead of its initial public offering (IPO). The offer will open for ... Read more »

Tesco and Gorillas partner for rapid grocery deliveries

The company is one of a number, like Zapp, Weezy, and Getir, currently burning through investor money in a battle for supremacy. Read more »

As 100 ships idle offshore, California communities see rise in toxic pollutants

"We can’t forget that when we’re talking about air pollution and air quality, this comes down to people’s longevity.” Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic