Shippers’ transport costs are rising even faster than truckload rates. Since truckload spot rates bottomed at the beginning of May, rates spiked ~82%. While deteriorating routing guide compliance and higher rates are obvious problems for transportation managers, there are other factors involving inventory management that are ballooning costs.
(Chart: FreightWaves SONAR. National tender rejections (white) and Truckstop.com national average dry van truckload spot rates (green).
Darlene Wolf, Senior Vice President of Strategic Partners at Arrive Logistics, drove home the point that one of the key reasons transportation costs were rising for CPG companies was that there wasn’t adequate inventory. Due to low inventory levels and urgent demand needs, CPG shippers have been challenged with shipping full trucks and using more trucks to move the same volume of freight.
A shift in consumer demand in the spring occurred so quickly that companies could not alter production quick enough leading to stockouts for goods such as toilet paper and disinfectant wipes. With coronavirus cases surging across the country, consumers are starting to experience outages that we previously thought had passed us.
Wolf said that companies have expressed difficulties in planning for demand surges in the supply chain due to daily changing dynamics depending on the region. In normal times, companies can depend more so on their forecasting methods but during a pandemic these forecasts are thrown out of the window. It is difficult for companies to model where the next outbreak is going to occur or where consumers are going to rush the shelves and force stockouts.
In conclusion, although CPG supply chains have adapted by focusing on producing high demand goods, companies are still facing a multitude of unknowns in rapidly changing consumer preferences and rising transportation costs. With a resurgence of new coronavirus cases across the globe, stockouts are likely to occur in certain regions for the foreseeable future.
Earnings call mentions of ‘e-commerce’ and ‘delivery’ skyrocket. If there is one clear winner that has emerged out of the coronavirus pandemic, it is e-commerce sales. As coronavirus has spread across the country, more and more consumers are opting to buy their goods online rather than travel to a physical store and heighten their risk of illness.
Company executives are making it clear that they are aware of changing consumer spending patterns. According to CB Insights, mentions of “delivery” and “e-commerce” increased by ~180% from Q1 2020 earnings calls to Q3 2020 earnings calls.
CPG executives are taking steps to better serve their customers and speed up deliveries by investing in micro-fulfillment centers along with automated warehouses. The value in capitalizing on changing consumer behavior hasn’t gone unnoticed in the venture capital industry. The amount of money invested in autonomous last-mile and micro-fulfillment services has exploded higher by ~726% from 2017-2019 with roughly the same number of deals closed.
L’Oréal partners to make a bottle for the future. L’Oréal recently announced a partnership with two other companies, LanzaTech and Total, in order to produce the world’s first packaging made from captured and recycled carbon emissions.
Over the past several years, consumers have become more concerned in both ingredients of their products and how they were made. As we go forward, consumers are likely to demand changes in companies’ supply chains and reward companies that strive to reduce their carbon footprint.
Consumer Brands Association’s latest survey finds that consumers are worried about stockouts. Consumer Brands Association’s latest survey of 1,013 American adults found that 58% reported that they are at least a little worried about the impacts of increased online shopping means for access to essential goods.
In this survey, 46% of respondents are a little worried about access to food and beverage products and 57% say the same about household cleaning products. While this is certainly “soft data” we believe it might signal irrational buying behavior and become a self-fulfilling prophecy, creating stockouts across the country as we saw in the early spring.
