The $10B shipping inflation cost problem; Brexit's oil, luxury car problem

The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains and draws from global shipping and freight data.

The $10 billion shipping inflation problem and corporate cost concerns

Consumer and industrial supply chains are facing cost inflation in shipping and commodities. This report looks at the causes and corporate reactions using data from S&P Global's Panjiva, Platts and Capital IQ products.

Shipping cost inflation has been a result of rapidly rising demand for goods in the wake of the coronavirus pandemic, shown most recently by a 20.0% year over year surge in U.S. seaborne imports in January.

Combining S&P Global Platts container rates with Panjiva's shipping data shows that the hypothetical cost of importing goods to the U.S. by sea rose to $6.36 billion in January from $2.46 billion a year earlier. In the fourth quarter of 2020 as a whole, the cost rose to $15.8 billion from $6.29 billion, a $9.53 billion increase.

Commodity cost inflation is also increasing including oil, metals and timber, which, when combined with the shipping cost increase, is leading an increasing number of corporations to highlight inflation in their earnings reports since the start of 2021.

Panjiva's analysis of S&P Capital IQ transcript data shows 24.9% of calls mentioned "freight" in January 2021 compared to 15.0% a year earlier. By comparison, mentions of "tariffs" reached a peak of 46.3% in July 2018 during the peak of the U.S.-China trade war.

The greatest uptick in mentions of "freight" was among technology hardware companies, with 35.3% of calls mentioning the word in the three months to Jan. 31 from zero a year earlier. Meanwhile, the sector discussing the issue most frequently was household durables, with 55.2% of calls mentioning the word in the past three months from 21.2% a year earlier.

While companies are facing higher costs, few are scaling back their use of shipping in response. Spectrum Brands Holdings Inc. faced freight and cost inflation increases of $80 million in the fourth quarter of 2020, compared to $267 million of pretax profits. U.S. seaborne imports linked to the company climbed 16.5% year over year in January. Battery producer Energizer Holdings Inc. faced $12 million of additional costs, around 10% of pretax profits, with imports linked to the company up by 261.3% year over year in January.

Computer-peripheral supplier Corsair Gaming Inc., meanwhile, has faced increased costs both for shipping in parts, where it had to "expedite because of short supply," as well as raised shipping costs for sending products to customers. It expects normalization "in the back half of the year." U.S. imports linked to Corsair fell by 11.2% year over year in January. The one topic that has not yet been discussed broadly is whether consumers will end up paying the higher prices or whether they will be absorbed into profits.

(Panjiva Research – Logistics)

Chinese oil, U.S. luxury car buying a bigger issue than Brexit for U.K. trade

The fallout from the U.K.'s exit from the EU is being felt more on the export side of the economy than imports currently. Sports retailer JD Sports Fashion PLC will set up a warehouse in the EU to avoid customs challenges while the British Meat Processors' Association has said exports have halved due to the added complexities of trading with the EU under the EU-U.K. Trade and Cooperation Agreement, or TCA. The British Chambers of Commerce has also flagged that 49% of companies are "facing difficulties adapting to the changes."

Further uncertainties are likely given the EU wants to extend the ratification process for the TCA while the U.K. government wants a longer phase-in period for customs restrictions. A meeting on Feb. 24 is the next change to resolve those issues. U.K. exports fell by 2.2% year over year in December 2020. Trade with the EU improved due to stockpiling while exports to outside the EU slumped 33.4% year over year in the same period. 

The latter was driven largely by an 85.8% slump in exports of crude oil to China due to lower prices and substitution of U.K. oil for U.S. oil as a result of the phase one trade deal signed by the Trump administration. There was also a 26.2% year-over-year slide in exports of autos to the U.S., including shipments of luxury brands owned by Tata Motors Ltd., Bayerische Motoren Werke AG and Volkswagen AG.

(Panjiva Research – Policy)

Callaway Golf empties its bag as freight costs, supply constraints overshadow 2021

Callaway Golf Co. reported 20.1% year-over-year revenue growth in the fourth quarter of 2020, beating analysts' estimates by 11.0 percentage points as golf became more popular during the pandemic. The company has aggressively managed its inventories down to 133 days of sales from 190 days a year earlier. 

The company has, however, faced "increased freight costs associated with higher rates and higher mix of air shipments in order to meet demand," and faces "temporary supply constraints caused by COVID-19 during the first quarter," CFO Brian Lynch said during the post-earnings call.

Freight costs are set to remain elevated by $13 million in 2021, according to Lynch. The use of air freight, reduced inventories and incipient supply chain problems can be seen in U.S. seaborne imports linked to the company that fell by 23.8% year over year in the fourth quarter of 2020 and dropped by a further 25.3% in January. 

Other golf equipment importers may be doing better, with total U.S. imports up by 29.7% year over year in the fourth quarter of 2020, led by a 108% surge in imports by DICK'S Sporting Goods Inc. and a 97.1% rise in imports linked to PUMA SE.

(Panjiva Research – Consumer Discretionary)

Starbucks needs fresh supplies once Brazil's coffee export surge slows

Brazil's coffee farmers are reportedly hoarding supplies after a surge in exports in the fourth quarter of 2020 and ahead of weaker expected harvest conditions. Official data shows Brazil's exports climbed 38.7% year over year in December 2020 with global coffee shipments up by just 4.4% as a result of lower exports from Colombia and Vietnam. 

The major coffee buyers face a difficult choice as the Brazilian coffee rush slows down. Brazilian exports linked to Starbucks Corp. climbed 58.3% year over year in December 2020 while those linked to The J. M. Smucker Co. increased by 23.5%.

(Panjiva Research – Agriculture)

Christopher Rogers and Eric Oak are researchers at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

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