Truck rates continue to slip (UTZ)
Contract rates for van trucks averaged $3.28 per mile in April, up 2% from March and 25% YOY according to DAT Freight & Logistics. Spot rates fell 7% to $2.81 per mile in April from March and were up 8.5% YOY as seen in the chart below. The average rates include fuel surcharges, implying lower spot rates YOY excluding fuel surcharges. The average rate has fallen 9% since the peak in January. For the week ended April 24 van spot rates fell 1.8% from the prior week. Lower spot rates will lead to lower contract rates in 2023. Truck freight costs have been a sizable margin headwind for the CPG companies. Shippers have been negotiating contracts more frequently in the past year which could result in contract rates more rapidly reflecting the weakness in the spot market than in prior years.
More ethanol (PPC)
On Friday, the Biden Administration issued an emergency fuel waiver allowing E15 gasoline this summer. E15 is a 15% ethanol blend. The administration said E15 can save drivers 10 cents per gallon on gas on average. Ethanol blended fuel is slightly cheaper, but it is difficult to find. Only 2,300 gas stations or 1.5% of the country's refueling stations carry it. Current rules for two-thirds of the U.S. do not permit E15 during the summer due to smog concerns in high temperatures. E15 fuel is generally safe for vehicles manufactured in 2001 or later. About 40% of the U.S. corn crop is used to produce ethanol. The price of corn is above $8 per bushel, at record highs, making substitution less attractive.
Consumers are even more sensitive to inflation in food than fuel as seen in the chart below. Ethanol also contains less energy than gasoline, so whether the rule change will save consumers anything before accounting for higher corn prices or smog levels is difficult to promote. The causes of inflation are more complex than simple gimmicks can alter. Poultry prices are highly correlated to corn prices, farmers jokingly refer to chicken as corn with wings.
Beer shipments (BUD)
Domestic beer shipments increased 2.9% in March YOY, accelerating from -5.8% in February. Shipments have decreased YOY since June 2021 as seen in the chart below. Inventory levels at the distributors have been too high, but shipments in March suggest it has been corrected.
