Wholesale Prices Still High as Looming Rail Strike Threatens Shortages of Critical CPG Inputs
ARLINGTON, Va. — The Consumer Brands Association warned that slowing wholesale prices in the latest Bureau of Labor Statistics readout are still significantly higher than last year and that the consumer packaged goods industry continues to face steep production costs. The August Producer Price Index (PPI) declined 0.1% from last month but was 8.7% above last year. For the CPG industry, key commodities are still coming in higher than overall wholesale prices, as the food PPI rose 12.2% over the same time last year.
“Sky-high wholesale prices are a familiar refrain, but what’s different now is that we are seeing less cost from pandemic ripple effects and more from a supply chain that has been hammered by crisis after crisis,” said Katie Denis, vice president of communications and research. “Problems like extreme weather and geopolitical dynamics are not in our control, but our level of preparedness is. We shouldn’t be scrambling at the eleventh hour. We can better absorb shocks to the system — like the looming freight rail strike — by passing policies that give us greater visibility into the supply chain and more response time to accommodate issues before they become crises.”
BLS attributed 40% of the August decline to the 11.4% drop in diesel fuel prices. For many of the CPG industry’s key commodities, there were slight drops from the month before, though prices are still notably above the same time last year and significantly greater than pre-pandemic norms. For example, eggs dropped by 25% from July to August, yet are still 104.7% higher in wholesale price than last year, and cooking oils declined 1.7% in the last month, yet are still 13.4% above last August. Some commodities did not have any decline and remained well above last year, including pasta, which is 33.3% higher than August 2021.
August’s wholesale prices come as a national freight rail strike slated for Friday threatens major supply chain disruptions that would upset availability of key inputs and cost $2 billion in lost economic output a day. Last week, Consumer Brands called for congressional intervention if the Biden administration cannot successfully finalize negotiations in time to divert a national rail shutdown.
“Any moderate easing threatens to be upended by a rail strike. This is the fragility of our supply chain and the subsequent cost environment. Even if the strike is avoided, there will still be consequences as rail service is proactively reduced in anticipation of the strike,” said Denis.
Bracing for a strike, U.S. railroads are poised to stop shipments of crops as early as Thursday, and shipments of crop fertilizers are already being delayed ahead of the fall harvest. The White House is negotiating with other transportation modes on a contingency plan, but an additional 467,000 long-haul trucks would be required each day to divert rail shipments to road transportation, which exceeds availability amid a longstanding truck driver shortage. Further, trucking costs are 22% greater than last year and will be driven higher if rail loads are forced onto trucks.
“The crescendo of challenges, from rail strike to truck shortage, should be enough to motivate Congress to jump on forward-thinking policies that will better prepare us to manage crises rather than react to them,” said Tom Madrecki, vice president of supply chain and logistics. “The choice to not vote on badly needed supply chain policy does not have to be a permanent failure. Congress can and should take existing language and create a standalone bill to be voted on this session. With bipartisan support, there is no reason to believe Congress can’t get this done.”
Consumer Brands supports immediate congressional action to ease supply chain pressures, enhance visibility, allow more efficient movement of goods and enable data sharing at the federal level. Unlike companies that only see their own operations, the federal government is uniquely positioned to see across the supply chain, spotting and mitigating challenges early and, ultimately, easing consumer concerns over supply chain disruptions revealed in a recent Consumer Brands/Ipsos poll.
Consumer Brands also continues to support expanding labeling flexibility that allows companies to make necessary ingredient substitutions that help keep products on shelves in the event of supply chain disruptions, such as a rail shutdown. A recent letter to the Food and Drug Administration requested an extension of what proved to be a safe and effective enforcement discretion of labeling requirements that has been successful in preventing shortages of essential products.
“Companies are applying lessons learned from the pandemic and building resiliency into their respective supply chains. The federal government must do the same. Each new crisis is a stark reminder that waiting is not a strategy,” concluded Madrecki.
The Consumer Brands Association champions the industry whose products Americans depend on every day, representing nearly 2,000 iconic brands. From household and personal care to food and beverage products, the consumer packaged goods industry plays a vital role in powering the U.S. economy, contributing $2 trillion to U.S. GDP and supporting more than 20 million American jobs.
Published on September 14, 2022
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