CPG price gouging?
Vice President Kamala Harris made a political move that might win her votes but seems misplaced. As part of her economic plan, she is calling for a federal ban on “price gouging.” This, of course, is in response to attacks on the current administration over food prices, which remain a sore spot since they are 25%-30% higher than they were in 2019, even as the rate of food inflation has come down to about 1%.
Cocoa price shocks were extreme earlier this year as a result of poor growing conditions in part of Africa. Hopefully, any proposed price controls for food would take ingredient inflation into account. (Chart: Barchart.com Inc.)
No details have been released so it’s unclear how price controls on food prices would potentially work. When would higher prices be considered gouging? Would it involve bolstering the Federal Trade Commission, which has already been very active of late in blocking recently proposed mergers? In the past few years, the food industry has faced rising prices for many cost components, including ingredients, contract manufacturing, labor and packaging. Ingredients that rely on growing conditions in a particular region of the world are particularly vulnerable to price shocks following droughts, floods or other events. Recent examples include palm oil, cocoa, sugar, coffee and almonds. As weather patterns get more extreme, ingredient price shocks will likely be more frequent. Also, recall that most CPG companies saw their margins contract sharply when ingredient inflation accelerated in the early days of the pandemic as their costs rose faster than prices. Empty shelves during the pandemic are evidence of a lack of price gouging – a term normally associated with instantaneously raising prices in response to a natural disaster. Since then, the CPG industry has endeavored to regain that lost ground on margins with higher prices. Now, CPG companies are facing pushback from retailers, and many consumers are trading down to cheaper private label brands and/or discount retailers. As long as it’s a competitive marketplace, which it appears to be, it seems best to let the market sort out the food inflation.
For more opinions on this topic, check out the latest What The Truck?!? episode, which tackles the question of whether there should be a cap on trucking spot rates. Just over 80% of those polled by Tim Dooner said no. I imagine the other 19.6% were shippers.
Canadian rail work stoppage gets closer
Intermodal volume outbound from Prince Rupert, British Columbia, is running below recent years due to vessel diversions to avoid potential work stoppages both on the rail and at the ports. (Chart: SONAR)
As covered by Stuart Chirls here, Canada’s labor minister is meeting with the two Canadian Class I railroads, union representation (Teamsters Canada Rail Conference, or TCRC) and federal mediators to push for getting the sides to an agreement. On Sunday, both Canadian Class I railroads issued formal lockout warnings to the TCRC to be effective Thursday at 12:01 a.m. Also on Sunday, the union warned of its intention to strike at the same time Thursday. The railroads have embargoed shipments as part of an orderly shutdown. In the event of a work stoppage, CN has said there will be only in-yard train movements, no intercity shipments.
For continuing coverage, check out FreightWaves.com and Chirls’ articles page.
Shippers should protect against a turn in the freight market
(Image: FWTV)
Monday’s The Stockout show featured Thomas Wasson, who hosts the truckload-focused Loaded and Rolling show. The Stockout is the FreightWaves show that views freight and supply chain issues from shippers’ perspectives – particularly those in retail and CPG (as subscribers to this newsletter should know by now).
On the crossover episode, I interviewed Wasson, asking him questions that are currently of interest to shippers. Topics included how shippers should position themselves in the current freight market, how to effectively use brokers, how to make themselves preferred shippers and the merits of using carriers that are multimodal.
Wasson believes that the freight recession is nearing its end and shippers should position themselves accordingly. That means having rates in place to ensure they will receive adequate service levels, perhaps accepting a low-single-digit contract rate increase ahead of an obvious turn in the market. It also means providing carriers with realistic forecasts for capacity needs rather than overly ambitious ones that could end up hurting carriers’ fleet utilization.
See the full show here and check out The Stockout YouTube page here.