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Supply Chain News: Rising US Transportation and Logistics Costs are Hitting the Corporate Bottom Line


Once Again, Companies Blaming Rising Transportation and Distribution Costs for Earnings Misses

Feb. 5, 2018
SCDigest Editorial Staff

Do you remember the 2005-2006 era?

Back then, transportation costs were rising rapidly, with diesel fuel prices soaring and trucking capacity extremely tight. It became common for major US corporations to blame weaker than expected earnings on rising transportation and logistics costs.

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Hershey said last week that higher freight, distribution and supply-chain expenses more than offset benefits from its other cost-savings initiatives in its fourth quarter.

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Those times seem to be back more than a decade later here in 2018.

Mike Regan of TranzAct Technogies, a well-known observer of the US transportation sector, has been warning for the past couple of years that if US started to see stronger GDP growth – and that's what we seen to have right now – that US truckload and LTL capacity would tighten substantially, sending rates soaring.

It took a couple of years to get here, but Regan seems to now be spot on, as US shippers contend with what he calls a "perfect storm" of once again rising fuel costs, extremely tight capacity driven in large measure by the resurgent driver shortage, the impact of the new ELD mandate that will have the effect of reducing capacity, and more.

In fact, Regan believes US truckload rates could rise a whopping 8-15% this year, putting transportation budgets in turmoil.

The Cass Linehaul Index, which measures truckload rates per mile before fuel surcharges, accessorials and other factors, has been up a strong 6.1% year over year in both November and December, with Cass now saying that it's full year rates forecast is for a 6-8% increase – but noting the risk to its forecast "is too the upside."

Adds Andrew Clarke, CFO at freight broker C.H. Robinson Worldwide: "We do expect market volatility and higher pricing to continue throughout 2018 in both contractual and spot market freight,"

What's more, distribution costs are also rising, as lease rates soar in the face of relentless increases in demand, driven by ecommerce, and as wages for warehouse workers at last are really starting to head higher, especially in popular distribution markets from New Jersey to Atlanta to St. Louis, Dallas, LA and Reno.

The executive suite at shippers is again starting to take notice.

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As reported in the Wall Street Journal, over-the-counter drug company Prestige Brands last week said higher transportation and warehousing costs cut into its operating margin in its most-recent quarter, and it expects the trend to continue in the current quarter.

"We started to expand the number of freight carriers that we were using to make sure that we had the capacity needed," CEO Ron Lombardi told analysts on a conference call.

Prestige is hardly the only one. Hershey said last week that higher freight, distribution and supply-chain expenses more than offset benefits from its other cost-savings initiatives in its fourth quarter.

Meanwhile, Packaging Corp. of America said last week that higher shipping costs cut into its adjusted profit by a significant 4 cents a share in the fourth quarter.

We can expect a lot more such reports from public companies as Q4 earnings calls swing into high gear.

Are rising logistics costs hitting your company's bottom line? Is it going to get worse?
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