The Friday Report: July 27th, 2018

Quick wrap up of a few hot topic newsworthy stories in the supply chain logistics industry

U.S. Meat Stockpiles Fill Cold Storage Warehouses

Federal data reveals that record levels of beef, pork and poultry meat is currently being stockpiled in United States warehouses, at levels above 2.5 billion pounds.  Hogs and chickens are being raised for slaughter at rates exceeding the demand by U.S. consumers, necessitating export of the meat.  The largest foreign buyers of American meat, China and Mexico have both established tariffs on U.S. pork products in response to the American tariffs on steel, aluminum and other goods.  Reports indicate that sales have begun to slow for meat products especially U.S. hams, livers and chops which have become significantly more expensive in Mexican and Chinese markets.

In June, Mexico implemented a 10% tariff on pork and increased this to 20% in July.  Despite USDA reports that overall exports to Mexico were slightly higher than last year’s total, as of the week of July 5th, exports dropped to the lowest seen in 2018.

Many cold storage warehouse facilities report that they are at capacity due to the meat stockpiles.  At the end of May, U.S. cold storage warehouses reported an 8% increase above the prior year period, slightly below record rates.  Some cold storage warehouses are taking the opportunity to invest in new technologies for warehouse management to enable better utilization of the capacity of each warehouse.

The increase in meat supply may result in reduced pricing for American consumers however this factor in addition to reduced exports may mean less profitability for meat processors and producers.

The market seems to be making some adjustments. Maschhoffs LLC, a privately held hog farming business in Illinois has suspended $30 million of investments designed to expand breeding operations and biosecurity measures. Other pork processors reportedly have reduced working hours at some plants and turned away goods for processing.

Several factors have led to the increased stockpile of meat. Feed is the single largest cost in raising livestock and poultry for meat production. Bumper grain harvests in the U.S. and other locations reduced grain costs. As the American economy has strengthened, more U.S. consumers have been purchasing meat products. Additionally, rising incomes across Asia and Latin America have led to more met purchases in foreign economies. To meet the increased demand, meat producers built more plants and readied production.

The meat stockpiles are anticipated to continue until market conditions change.

New California Privacy Laws Mean Compliance for Online Businesses

In June 2018, Governor Jerry Brown signed the California Consumer Privacy Act (CCPA) into law in response to the increasing concerns from consumers regarding the need for enhanced means of safeguarding personal information. Because of numerous breaches that have exposed the personal data of millions of U.S. consumers, the new regulation was designed to have extensive consumer protections, one of the most far-reaching in the United States.

CCPA will take effect on January 1, 2020 and impacts companies based in California and with clients or customers in California. The California Consumer Privacy Act provides California residents with rights including:

• Ability to know what personal data is being collected about them
• Access to their personal information
• Ability to request deletion of personal information under specific circumstances
• Notification if their personal information is sold, disclosed and to whom
• Ability to oppose the sale of their personal information
• Provision to receive equal service and price, regardless if the consumer exercises their privacy rights

Determining how CCPA will be enforced is still in the formative stages. Violation of the law could result in fines of $100 to $750 per incident.

Freight Costs Surge Mid-2018

According to the Cass Freight Index, May 2018 data indicated significantly higher pricing and shipping volume, an increase of 17.3% as compared to the previous year.  This is the 8th consecutive double-digit year-over-year increase.  With the price of diesel fuel up 27% at the end of May from last year, fuel and its related surcharges contributed to the increased freight costs.

This increase demonstrates tight industry capacity and strong demand.  Shippers have shown a willingness to utilize all major transportation modes to get goods delivered.

Intermodal freight costs have skyrocketed.  In the continental United States, intermodal freight is primarily truck and rail transportation.  This typically involves hauling containerized goods via truck to an intermodal facility.  It is then loaded on a train then transferred to a truck for final delivery.

With the force of e-commerce and high consumer demand putting more pressure on deliveries as well as the tightened capacity resulting from implementation of the electronic logging devices mandated by the Federal Motor Carrier Safety Administration (FMCSA),  inflation is a concern across the transportation industry.

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