Mondelez sees logistics costs rising worldwide, but not at the same pace as in the U.S. The Chicago-based snack maker cited a severe imbalance between supply and demand for truck capacity and container availability in the U.S. and U.K. Meanwhile, the company’s costs outside of logistics, such as ingredient and packaging costs, are showing more consistent levels of inflation around the world since they are globally traded commodities. The company’s overall cost inflation this year is expected to be in the “high-single-digit” range, and it has about 70% of its input costs hedged this year, in line with last year and above historical norms. The company is guiding investors to gross margin dollar growth for the year that will be most pronounced in the second half, implying that Mondelez’s pricing actions will offset cost inflation on a dollar basis.
While logistics costs are higher in the U.S. and U.K., overall inflation levels have been most severe in emerging markets that have local currencies that have weakened against the U.S. dollar, such as Russia and Brazil. Unlike logistics and labor costs, food ingredients are globally traded commodities so as a local currency depreciates, ingredients cost more in real terms. Mondelez expects ingredient prices to stabilize this year, but areas with inflationary pressure entering the year include transportation, edible oil, packaging and dairy.
Mondelez is seeing less elasticity than what is normal. That comment was similar to a statement from Procter & Gamble last week, which also said that consumers have been accepting of higher prices, at least so far. Mondelez said that it is more at liberty to raise prices in developed markets than in emerging markets. Therefore, maintaining margins in emerging markets may be more difficult in a highly inflationary environment. Mondelez also said that lower-priced private label brands are doing no better than holding market share — I expect that to be a metric that is closely watched this year to see consumers’ reaction to inflation.
One major freight trend that stands out to me in SONAR is the loosening of capacity in the LA freight markets. That was perhaps inevitable given the 14% y/y decline in imports at the Ports of LA and Long Beach in December. A decline in imports is counterintuitive with over 100 ships waiting to dock at the Ports of LA and Long Beach, but the import decline is being driven by inefficiencies from docks that are overflowing with containers and a lack of available workers, equipment and warehousing space.
The loosening in the outbound LA freight market can be seen across modes and in numerous SONAR datasets. For example, the LA van outbound tender rejection rate is 9.6%, compared to 15% three months ago and well below the national van tender rejection rate of 19.1%. The improved carrier compliance suggests that contract rates are getting closer to the market clearing price after rising sharply in the past year. It also suggests that shippers should not have to rely nearly as much on the spot market. On the topic of spot rates, SONAR Market Dashboard shows that brokers are paying an average of $3.71 a mile, including fuel, for on-demand capacity in the LA-Dallas lane, down from $4.05 a mile on Jan. 5. Changes in intermodal spot rates have been more dramatic. The spot rate to move 53-foot containers door to door declined 51%, 47% and 45% in the LA-Chicago, LA-Dallas and LA-Atlanta lanes, respectively. That suggests that carriers have become less concerned with securing capacity for intermodal shippers moving loads under contracts.
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