Reefer and dry van markets diverging
(Chart: SONAR)
Showing signs of capacity tightening, the reefer tender rejection rate has risen to 14% while the dry van market remains muted at 5%. Spiking reefer tender rejection rates outbound from Florida were a major part of that. While reefer rejections have been rising for months, hurricane relief efforts appear to have had more impact on the reefer market than on the dry van market, suggesting that supply and demand in the reefer segment is much more balanced.
For additional detail, see Tony Mulvey’s Pricing Power Index article Hurricane Milton helps boost rejection rates.
J.B. Hunt hints that intermodal contract rates may renew higher
(Chart: SONAR)
On its third-quarter analyst call Tuesday evening, J.B. Hunt’s management gave commentary on intermodal pricing in 2025 that I considered constructive. Darren Field, president of intermodal, said, “We just kicked off our 2025 bid season, and we do like our position given our service levels and ability to handle customer surge demand that we have been experiencing.” Several analyst questions centered on whether BNSF’s (J.B. Hunt’s Class I railroad partner in the western U.S.) hiring of railroad industry veteran Ed Harris, a proponent of precision scheduled railroading, as a consultant would negatively impact intermodal service levels. Hunt’s management team is adamant that it will not.
For additional detail, see Todd Maiden’s earnings writeup here.
Retailers beware – Amazon is opening a supercenter
(Photo: Shutterstock/OlegKovalevichh)
On Monday’s The Stockout show, Grace Sharkey and I interviewed outspoken independent retail consultant Brittain Ladd. Ladd had just broken news on his LinkedIn page that Amazon has plans to open a physical supercenter at a location that has yet to be announced. He likes the move and considers it necessary to compete with Walmart in grocery, a segment where Walmart has a commanding lead.
This week’s The Stockout show also touched on numerous other retail topics, including what Costco is doing right, what Whole Foods is doing wrong and Kroger’s proposed acquisition of Albertsons. Ladd believes that Kroger is overselling its claim that the deal will lead to lower retail prices. He also doesn’t think C&S (a wholesaler with plans to buy divested Kroger/Albertsons locations) would be a strong retail competitor to the combined company. While he sees holes in several of Kroger’s claims, he believes there is a 50/50 chance of the courts allowing the merger to proceed.
Monday’s show can be viewed here, and the entire The Stockout playlist can be found here.
Mattel employs familiar supply chain strategies
Over the weekend, The Wall Street Journal published an article providing insight into the supply chain of toy maker Mattel. Management has been under pressure from activist investors that are pushing for pursuing strategic alternatives of certain well-known product lines.
What struck me was just how similar many of the techniques were to actions taken by CPG companies that sell everyday items, such as foodstuffs. Mattel is moving to simplify and streamline its supply chain by producing a smaller number of SKUs – a whopping 45% decline since 2018. Many food companies have taken similar actions by focusing on their highest-velocity items.
Reducing SKUs brings quick benefits – it makes inventory easier to manage and allows production facilities to run longer production lines with fewer changeovers, improving efficiency. Mattel is also outsourcing a portion of its production to enhance flexibility given the unpredictable nature of its demand. That reliance on contract manufacturing was employed heavily by CPG companies during the pandemic when it was unclear whether the elevated demand of the time was sustainable. (Turns out it was but mainly in certain segments like snacking and pet food.)
So far, the strategies seem to be working, with Mattel posting increases in gross margins despite flat sales. The risk I see is that cutting the toy line by too many SKUs could mean the elimination of certain toys that might otherwise turn out to be breakout hits – something even the best forecasting models can’t account for.