Rising Trucking Costs Amplify Pressure for P&G, Church & Dwight
(Bloomberg) -- Procter & Gamble Co., the maker of Bounty paper towels, Crest toothpaste and Pampers diapers, says the cost of trucking its goods is still on the rise. Whether that leads to more price increases for U.S. consumers on top of last year’s remains to be seen.
P&G Chief Executive Jon Moeller, speaking at the Consumer Analyst Group of New York conference on Boca, Raton, Florida, said trucking costs are currently about 25 percent higher than a year ago. This is putting pressure on P&G’s margins, and the company is focused on productivity improvements to offset the costs, spokesman Damon Jones said.
P&G’s not alone: Church & Dwight Co., the maker of Arm & Hammer baking soda and Trojan condoms, also told event participants that trucking costs are “headwinds that we have to overcome.”
This isn’t a new pressure -- P&G already raised prices last year on some products, and said last month that it’s still too early to say what its pricing strategy will be in 2019. Church & Dwight, meanwhile, said it raised prices for products like cat litter, baking soda and carpet deodorizers last quarter. But the companies’ latest statements on the topic show the dynamic isn’t going away.
It’s unclear how much consumers will end up paying as increases persist. It’s possible the impact will be limited, said Andrew Cosgrove, lead consumer analyst at EY, because companies aren’t confident that people will pay more.
“There’s so much competitive activity, and retail pressures,” he said.
The growth in broader U.S. trucking rates is down from the torrid pace of late 2017 and early 2018, according to data from consulting firm FTR.
Companies that have high U.S. exposure and don’t own their distribution networks are the most impacted by the trend, according to a report last year from Sanford C. Bernstein & Co.’s Ali Dibadj and Ian Gordon. Among household and personal products companies, that could mean Church & Dwight and Clorox are most exposed, they said.
Industry regulations, such as limitations on truckers’ working hours, and increased labor costs are behind the rise in trucking rates, which started in late 2017, Dibadj said. “We are seeing some stabilization in costs right now, although the pressure remains,” he added.
The problem is widespread across the consumer landscape: Coca-Cola Co., PepsiCo Inc. and restaurant operaters such as Yum! Brands Inc. are also being affected, according to recent quarterly reports. It’s also spreading to rail, where freight costs are set to increase above the rate of inflation, according to Bloomberg Intelligence analyst Lee Klaskow.
Still, companies are better positioned to deal with the issue now than they were when prices first surged, said Brittany Weissman, an analyst at Edward Jones.
“Last year, the higher transportation costs caught a number of companies off guard versus this year, they were expected,” she said. “Plus, many companies have the benefit of price increases to help offset input cost like higher transportation cost.”
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