The price of goods are starting to increase across the board. In fact, we eloquently explained the future of wood shaving prices back in December (see article here). But it now seems that all items are starting to increase in price. The reason? Trucking and labor.
The article, highlighted below, does a great job in explaining why all major manufacturers are starting to see price increases in their respective industries. Read the entire article below:
Corporate America’s new dilemma: raising prices to cover higher transport costs
FILE PHOTO: Freight trucks are driven on the Fisher freeway in Detroit, Michigan, U.S., March 27, 2009. REUTERS/Rebecca Cook/File PhotoBy Eric M. Johnson and Chris Prentice
SEATTLE/BOCA RATON, Fla. (Reuters) - The drive for cost cuts and higher margins at U.S. trucking and railroad operators is pinching their biggest customers, forcing the likes of General Mills Inc (GIS.N) and Hormel Foods Corp (HRL.N) to spend more on deliveries and consider raising their own prices as a way to pass along the costs.
Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.
Two executives told Reuters their companies do plan to raise prices, though they would not divulge by how much. A third said it was discussing prospective price increases with retailers.
The prospect of higher prices on chicken, cereal and snacks costs comes as inflation emerged as a more distinct threat in recent weeks. The U.S. Labor Department reported earlier this month that underlying consumer prices in January posted their biggest gain in more than a year.
As U.S. economic growth has revved up, railroads and truck fleets have not expanded capacity to keep pace - a decision applauded by Wall Street. Shares of CSX Corp (CSX.O), Norfolk Southern (NSC.N), and Union Pacific Corp (UNP.N) have risen an average 22 percent over the past year as they cut headcount, locomotives and rail cars, and lengthened trains to lower expenses and raise margins.
Quickening economic growth, a shortage of drivers and reduced capacity, and higher fuel prices have driven up transportation costs, prompting some companies to threaten to raise prices on goods ranging from chicken to cereal.
For a graphic, click http://tmsnrt.rs/2oth2Zx
Cream of Wheat maker B&G Foods Inc (BGS.N), Cheerios maker General Mills and Tyson Foods Inc (TSN.N), owner of Hillshire Farms brand and Jimmy Dean sausage, said they will pass along higher freight costs to their customers.
Tyson Chief Executive Officer Tom Hayes told Reuters in an interview that its price increases "should be in place for the second half” of its fiscal year, and that it has begun negotiating price increases with retailers and food service operators. The company declined to specify how much its freight costs increased in recent months, but a spokesman said they are up between 10 to 15 percent for the total industry.
General Mills informed convenience store and food service customers of the price increases directly, a spokeswoman told Reuters in an emailed statement, declining to provide specifics. Chief Executive Officer Jeff Harmening cited logistic costs and wage inflation as factors.
"It feels to me like an environment that should be beneficial for some pricing,” he said in a presentation at last week’s Consumer Analyst Group of New York conference.
Hormel Foods, the maker of Skippy peanut butter and SPAM, has been talking with retailers about raising prices, according to Chief Executive Jim Snee.
“We don’t believe we’re going to recoup all of our freight cost increases for the balance of the year,”
Snee told Reuters in an interview, noting operating margin sank to 13.2 percent, from 15.6 percent due to higher costs - including freight - in the most recent quarter.
Confectionary and snack company Mondelez International Inc (MDLZ.O) halted operations over a weekend late last month at its Toledo, Ohio wheat flour mill - the second-largest flour mill in the United States - because the plant could not get enough rail cars to carry flour to bakeries, a spokeswoman said.
She declined to comment on whether Mondelez would raise prices to cover any higher costs.
A new government regulation for drivers and truck availability are pushing up freight costs at JM Smucker Co (SJM.N). “We anticipate inflationary pressures likely to cause upward price movements in a variety of categories,” Chief Financial Officer Mark Belgya said last week at an analyst conference.
To be sure, transportation costs are just a sliver of the price consumers pay at the grocery store. The U.S. Department of Agriculture estimates transportation represents just 3.3 cents of every dollar consumers spend.
But an increase in truck rates over the next 12 months implies a 15-to-18 basis point gross margin headwind for U.S. food companies on average, according to Bernstein analyst Alexia Howard.
“A lot of the consumer goods companies work on margin,” said Joe Glauber, a former USDA Chief Economist and a senior research fellow at the International Food Policy Research Institute. “They are going to be pushing those costs along” to retailers. Ultimately “consumers end up shouldering more of the burden,” he said.
That would be a change for consumers who have seen years of low-to-negative food inflation, he noted.
RISING COSTS HIT EARNINGS
Prices of key commodity ingredients including corn, sugar and cocoa remain relatively low due to bumper harvests around the globe. But even as companies’ freight costs increase, their packaging costs are also rising, industry analysts said.
Global energy prices have risen sharply from 2016’s lows, driving up prices for not only diesel but also packing material like plastics, which are byproducts of crude and natural gas.
Others companies have blamed freight hikes for lower earnings forecasts for 2018, including U.S. oilfield services company Halliburton Co (HAL.N). It shaved ten cents per share from its earnings forecast last week due to delays in deliveries of sand used in fracking.
"They try to squeeze every dollar for profit rather than provide service," said Robert Murray, the chief executive of Murray Energy Corporation, the largest privately-owned U.S. coal company which relies on CSX and Norfolk Southern to help transport its goods.
Murray said both CSX and Norfolk Southern have lacked rail cars and crew to haul 4 million tons of coal from mines in West Virginia and Ohio to the Port of Baltimore this year.
CSX spokesman Christopher Smith said its service has improved steadily over recent months and it was working with customers to solve problems. Norfolk Southern declined to comment.
At an analyst conference Thursday, Norfolk Southern Chief Financial Officer Cynthia Earhart said that the railroad was looking to raise prices on consumer goods and other truck-competitive freight it hauls in 2018. But she said it had no plans to increase headcount or move equipment out of storage, despite worsening train speeds and rail car idle times in the first quarter.
Earhart said the railroad was moving some employees to problem spots, like its terminal in Birmingham, Alabama, from other areas of its network.
Union Pacific has started pulling stored locomotives back into service and plans to bring back 600 employees in the first quarter 2018 to prevent rail cars from spending too much time in yards, said Union Pacific spokeswoman Raquel Espinoza.
The time UP rail cars were sitting idle in terminals rose to 32.5 hours in the fourth quarter from 29 hours in the year-ago period, and its overall workforce dropped during the last two quarters, according to company data.
Berkshire Hathaway's BNSF (BRKa.N) said winter weather has impacted velocity and fluidity on portions of its primary route between the Pacific Northwest and Midwest, but said it has not been cutting crews and rolling stock.
“NO SLACK IN THE SYSTEM”
U.S. truck fleets have not kept pace with growing demand for different reasons, industry executives said. The April 1 enforcement deadline for a federal regulation requiring drivers to electronically log their hours has effectively curtailed capacity, adding to a chronic shortage of people willing to drive trucks for the wages offered.
Tight capacity means trucking firms have leverage as they negotiate freight rates. Dry van shipping rates are expected to rise as much as 10 percent in 2018, while "spot" rates for last-minute cargo hit record levels in January before falling slightly, according to online freight marketplace DAT Solutions.
Chemical maker Chemours Company (CC.N) estimates 30 percent of its rail shipments have highly unpredictable delivery times, while automaker Toyota Motor Corp <7203.T> has struggled periodically to get rail cars for finished vehicles at plants served by the major railroads.
"If I was to ask for anything, it's consistency," said Lee Hobgood, general manager of Toyota's transportation operations. "I am not feeling cuts. I am feeling imbalance at times."
Agribusiness giant Cargill declined to quantify how much its freight costs are going up and whether it would pass costs on to its customers. But at a soybean processing plant near Lafayette, Ind., Cargill has had such long delays getting loaded railcars moved out, the company plans to buy its own Trackmobile railcar mover to relieve the congestion. One Trackmobile unit can cost at least $250,000.
Brad Hildebrand, Cargill's Global Rail and Barge Lead, told Reuters the Lafayette plant otherwise could shut down.
"When we load a train at one of our eastern elevators it sits for an extended period of time before locomotive power and crews can come in," Hildebrand said. "There is no slack in the system to handle weather problems or even a small uptick in demand."
The entire article is available from it's original source here.
You simply can't buy shavings by weight. Now don't misunderstand what I'm saying here, you can most certainly buy pine pellets and micro-flake shavings (read: sawdust) by weight. But when it comes to those curly and wavy pieces of wood called shavings, you simply can't use weight as a measuring stick of quality. In fact, the complete opposite is true.
Walk down this road with me for a moment. If your goal is to get the most value for your money, usually you would try to buy the largest quantity of an item for the lowest possible price. In most cases, this would mean that I am using weight as the term of measurement (even individually packed items still claim product weight). This technique of selling things by weight has been used for centuries to accurately measure a product's quantity.
But when it comes to wood shavings, weight simply doesn't cut it. High quality shavings are sold by cubic feet and not weight. The reason for this is simple. VOLUME is the only way to accurately compare apples to apples when it comes to wood shavings. By using cubic feet as the term of measurment, we can accurately measure how much of the product you are really receiving in the bale. Unfortunately, it is still a flawed system, but it's still a better option than measuring by weight. But why?
So here's what happens in the real world. A "shady" manufacturer can mix the shavings with smaller shaving pieces (called fines) and increase the weight of the bale quickly. This will increase the bale weight, yes, but it will not help cover more of the stall stall. In order to make sure that people knew how much of something they were receiving, consumers needed a system to compare the multitude of shaving flake sizes on the market. Using cubic feet was determined as the best way to do this.
However, using cubic feet is still a flawed system. In order to measure in cubic feet, you must calculate the length, width, and depth of coverage. So if you were buying a bagged shaving with 8 cubic feet of UNCOMPRESSED shavings, it should cover a 4' x 4' square at 6 inches deep. This measurement is taken when the flakes are uncompressed and fluffed. The problem with simply using cubic feet as the measuring stick is that smaller flake sizes cover much less area than bigger flakes, so larger flake sizes appear to stretch your dollar farther than buying smaller flakes. There is still one major issue with that math though; NEITHER weight or cubic feet actually matter what is most important to stall/pen maintenance; ABSORPTION.
Have I lost you yet? Crazy, I know. When the shaving is produced, or the process of being "shaved" off the tree or boards of lumber, the shavings are really wet. In fact, most shavings are at 100% moisture after this process. In order to dry the shavings out, most shavings are "kiln dried" prior to bagging. But how much they are dried can be a highly speculative number. Some manufacturers dry to 18% moisture, some as low as 6%. The amount of moisture that the shaving contains is the most important number when it comes to the absorption level of the shavings. See the note below:
"A highly absorbent bedding is more likely to keep urine off the hooves, reducing associated hoof illness. It can also be useful if your fields are wet, as it will dry off the hooves better (constantly wet hooves are more prone to a variety of illnesses)."
Long story short, the next time you are looking at bagged shavings that are for sale locally, consider the much bigger cost of how many times you have to clean and muck the stalls or pens (thus replacing all the shavings). You will most likely find that even if it costs more upfront, a better quality (read: drier) shaving will last a lot longer in the stall or pen.
Pine River Bedding
What type of bedding you choose to use for your baby chicks is an important decision. Pine wood shavings are the obvious choice, but there are a few other things you should also consider before you just fill your brooder boxes with pine shavings each week.
In most instances, you should wait until your new chicks are 3-4 weeks old before placing ALL pine shavings in the brooder. Most chicken farmers use big plastic storage bins for brooding chicks in their early life. They seem to work really well for brooding There is one major caveat, however. The bottom of the plastic bin is usually just a smooth plastic and it is too slippery for the chicks to get decent footing without some assistance. This is why most people choose to put pine shavings in the brooder box. It helps with footing AND messy cleanup.
Your first priority should be to your animals. When choosing a proper bedding type, you should be concerned about whether that specific bedding is providing enough support for leg and foot development in your chicks early lives. Chicks grow really fast, and if they don’t have good, firm footing, they can (and will) develop permanent leg and foot issues. Just placing loose pine shavings over a slippery and slick plastic base, can be a bad choice.
Our reccomendation is to start by placing just 1-2 inches of pine shavings in the bottom of the brooder box. Then, try laying some old bath towels or dish rags over the shavings so that the shavings are covered up. We have also heard of some people using a rubberized shelf liner, or a rubberized gripping mat under a samll layer of shavings as well. You can even use paper towels in a pinch. The purpose of the towel or mat is to help the chicks get a good, solid grip on the walking surface with their toes and nails.
Additionally, the pine shavings underneath your walking surface will still provide moisture absorption and help with masking odor from urine and feces.
Sometimes young chicks will get confused and try to eat the pine shavings which can lead to some digestive issues. Always make sure that the shavings are covered up, no matter what "walking surface" you choose. Within a week or so, some of the shavings will come loose from under the towel or mat, and the chicks will investigate them. Fortunately, by the time chicks are about one week old they know better than to eat the shavings.
To clean up during the first couple weeks, just add fresh paper towels on top of the original towel. This gives the chicks a nice new clear area. If you use a rubberized mat, just completely wash and rinse off once a week to avoid disease. After 2-3 weeks of raising your new chicks, you should empty the whole bin, thoroughly clean it, and then refill with fresh shavings and new toweling or mats. After approximately 4 weeks, the chickens will begin scratching up the toweling to the point of not needing it at all. At that point, you should start using straight pine shavings as bedding for your chickens.
One thing that should never be used is newspaper. Newspaper can be slippery to very young chicks (especially those glossy inserts), and it is not as absorbent as towels and/or shavings. Newspaper also tends to get packed down easily and may turn moldy fairly quickly.
Also, make sure you buy good quality pine shavings (see our article here). Make sure to use 100% pine that is not blended with any other wood. Please don’t ever use cedar shavings. Yes, they smell very nice to us humans, but the natural cedar oil is irritating to the baby chick's skin. It may also cause breathing issues as their lungs can not handle the strong scent. Also, please don’t use sawdust or wood chips of any kind. It just doesn't work as well as shavings will.
Great pure virgin wood shavings, pellets, and sawdust. Pine River Bedding.
As the month of January has now come and gone already, Pine River Bedding has officially turned 21 years of age. We can now legally have a drink tonight!
All kidding aside, we are super blessed to be thriving after 21 years of business and know that our great friends, retailers, partners, and team of support staff have made this possible. It truly does take a team effort to grow a brand and product bigger every year. Thanks to you all.
Here's to a prosperous and healthy 2018!
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