PKG Packaging Corp

By Paul Page 

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Trucking's capacity crunch is starting to squeeze earnings across corporate America. Companies including candy sellers, pharmaceutical distributors and agriculture suppliers have been pointing to higher shipping costs that shaved profits in the most recent quarter, and the WSJ's Austen Hufford writes that several businesses say they are girding for still higher costs this year. Tight trucking capacity is only part of the story: Shippers including Prestige Brand Holdings Inc. and Hershey Co. also point to pressures from higher warehousing costs and rising diesel fuel prices that are trimming margins. Cardboard maker Packaging Corp. of America says higher shipping costs sliced 4 cents a share from its adjusted fourth-quarter profit. The companies are moving faster to tap into growing U.S. and global economies but the transportation costs probably haven't peaked yet. While truckers are adding capacity, they're also setting plans to embed the higher rates in the spot market into new shipping contracts this year.

United Parcel Service Inc. is trying to ensure it isn't caught short-handed again by unexpected surges in volume. The parcel giant is scaling up its capital spending to $7 billion this year, the WSJ's Paul Ziobro reports. The company is moving to bolster its operations in the air and on the ground after a tough fourth quarter that saw the company whip-sawed between fast-rising demand and the soaring costs of handling a flood of packages. UPS says it spent an extra $125 million as it scrambled to lease trucks and planes while clearing away backlogs early in the peak season. The company's overall operating profit rose 3.2% in the fourth quarter, well behind the 11% gain in revenue. New upgrades include expanded automation at sorting centers and 18 jumbo jets, including 14 Boeing Co. 747-8 freighters. That will give UPS more capacity to handle any growth in the near future, and it will speed up an digital commerce-driven overhaul of U.S. distribution networks.

Amazon.com Inc. is starting to focus on reining back costs now that it's built an online juggernaut. The Seattle company's quarterly profit during the all-important holiday quarter topped $1 billion for the first time, as Amazon demonstrated a stronger fiscal discipline that it plans to extend this year. The WSJ's Laura Stevens reports the strong performance came with better efficiency at the company's burgeoning network of fulfillment centers, and that Chief Financial Officer Brian Olsavsky expects more cost cutting and productivity moves, "specifically in our warehouses." The company is still expanding at a rapid rate, but revenue growth in the fourth quarter still outpaced costs, while the 31% increase in shipping expenses was slower than the growth in recent quarters -- a notable achievement during the busy holiday period. Shipping costs have more than doubled in three years but Amazon now wants to keep its sales expanding at a fast pace while pulling back the cost of getting goods to customers.

E-COMMERCE

China's biggest digital commerce business wants to use its online payment operation to open doors to the physical retail world. Alibaba Group Holding Ltd. is taking a 33% stake in its financial services affiliate Ant Financial Services Group, a move that could set up the payments operation for a public offering and signals broader changes as Alibaba expands and redraws its digital commerce platform. The WSJ's Liza Lin reports that the tighter tie-up with Ant may allow Alibaba to build up services such as mobile payments and linking them to traditional brick-and-mortar businesses. It would also give Alibaba more firepower to expand in overseas markets such as India, Japan and South Korea, where payment methods are a critical piece of online retail sales. Its expansion into physical retail business is expensive, as well. Alibaba put $2.9 billion in Chinese big-box retailer Sun Art Retail last year, and more investments likely are on the way.

QUOTABLE

IN OTHER NEWS

U.S. worker productivity grew below its long-run average for the seventh straight year in 2017. (WSJ)

The U.S. manufacturing sector maintained its momentum in January. (WSJ)

U.S. car sales rose 1% in January in an underwhelming start to the year. (WSJ)

Apple Inc. is lowering sales expectations after higher iPhone prices helped deliver record revenue and profit in the past quarter. (WSJ)

Consumer-goods supplier Unilever PLC bucked a trend roiling its American rivals by selling more products at higher prices in the fourth quarter. (WSJ)

Mattel Inc. posted a steep sales decline during the key holiday quarter. (WSJ)

Lenovo Group Ltd. says a semiconductor shortage that weighed on its supply chain last year is easing. (WSJ)

Tesla Inc. sold $546 million of bonds backed by vehicle lease payments, extending a search for cash to ramp up production of its mass-market sedan. (WSJ)

A federal study shows a widely-accepted industry estimate of U. S. truck driver jobs could be over-stated by as much as 40%. (Trucks.com)

Sears Holdings Corp. laid off about 220 employees at its corporate headquarters. (Chicago Tribune)

Canadian grocer Metro Inc. says its buy of meal-kit company MissFresh drove more traffic to its stores in last quarter. (Financial Post)

Norway's DNB Bank cut it bad loan portfolio by $1 billion as shipping and offshore markets started turning around. (Shipping Watch)

China will expand freight rail capacity by 5% this year to ensure flow of coal supplies. (Reuters)

BNSF Railway will hold its capital spending steady this year at $3.3 billion. (Railway Age)

Workers at three Cargill soy processing plants and ports in Argentina went on strike. (World-Grain)

Toyota Motor Corp. is moving to a cloud-based supply-chain management system called RapidResponse. (Automotive Logistics)

Global air freight volume rose 9% in 2017, three times more than capacity growth, the International Air Transportation says. (Air Transport World)

Roadrunner Transportation Systems Inc. issued re-stated financial reports that included a $360 million net loss for 2016. (DC Velocity)

Truck-trailer volume in U.S. intermodal operations jumped 12.2% in the fourth quarter. (Logistics Management)

Massachusetts-based Road One IntermodaLogistics is merging with North Carolina-based Robin Hood Container Express. (Fleet Owner)

ABOUT US

Paul Page is deputy editor of WSJ Logistics Report. Follow him at @PaulPage, and follow the entire WSJ Logistics Report team: @brianjbaskin , @jensmithWSJ and @EEPhillips_WSJ. Follow the WSJ Logistics Report on Twitter at @WSJLogistics.

Write to Paul Page at paul.page@wsj.com

(END) Dow Jones Newswires

February 02, 2018 06:47 ET (11:47 GMT)

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