CPG companies ask suppliers to stop buying palm oil from major producer
The International Federation for Human Rights (IFHR) wrote an open letter to the CEOs of numerous consumer packaged goods companies — including Pepsi, Nestle, Mondelez, Unilever, Procter & Gamble and others — imploring them to eliminate palm oil from their supply chains that comes from Indonesian conglomerate Astra Agro Lestari (AAR). Palm oil is used in a wide range of consumer goods, ranging from food and beauty products to biofuels.
AAR is one of the five largest producers of palm oil and second largest in Indonesia. Indonesia and Malaysia account for 85% of global palm oil production. AAR is accused of land grabs and human rights abuses. Specifically, the company is alleged to have illegally occupied 16,000 acres owned by local farmers and had some of its owners imprisoned after they protested. Amid rampant corruption, it appears you can have someone imprisoned for a price.
Pepsi responded to the IFHR letter by stating that, while it does not purchase palm oil from AAR directly, it will ask its suppliers to cease doing business with the company. Other CPGs are responding similarly. Separately, Walmart had previously announced plans to only use palm oil with no deforestation links in its private label products by 2025.
This is an example of the complexities of CPG supply chains that could only get more fraught with rising geopolitical tensions. It also highlights the importance of building redundant ingredients into supply chains. For example, in Oreos, palm oil can be substituted for canola oil.
Palm oil futures have been volatile the past few years. The peak in the first half of 2022 was driven by the Indonesian government’s protectionist policies. (Chart: Barchart.com Inc.)
Regional parcel carriers can offer service advantages over global integrators
On this week’s The Stockout show, I interviewed two sales executives from General Logistics Systems (GLS), a parcel carrier that also provides less-than-truckload, truckload and dedicated services in the Western states. The company is heavily involved in direct-to-consumer shipments, including the fast-growing subscription box segment. In addition, GLS boasts an expertise in wine logistics with a dedicated team of wine logisticians.
Despite the tremendous inflationary pressure on consumers, GLS continues to see growth in parcel and D2C shipments. The company is seeing mixed subscription box volume with continued growth by the large subscription box sellers and volume declines at the smaller sellers. The full episode can be seen here.
Emerge founder and CEO offers advice for shippers
In Tuesday’s FreightWaves webinar, Andrew Leto, founder and CEO of Emerge, a logistics company heavily involved in carrier procurement, described a freight market that is brutal for small carriers given their reliance on the spot market. In addition, Leto described how shippers should best manage their bids.
Large carriers primarily participate in the contract market (dry van linehaul contract rates in white), while small carriers participate heavily in the spot market, where volume and rates (green line) have fallen more sharply. (Chart: FreightWaves SONAR)
Leto’s advice for carrier procurement included:
Three-month bids can lead to better outcomes than annual bids for shippers. There is more competition for shippers’ freight in three-month bids because brokers are able to compete for a shorter duration. Brokers are much less willing to participate in annual bids, while carriers are more willing to enter into longer contracts. Plus, carriers will comply with contracted rates for longer than brokers. When conducting annual bids, shippers typically concede a few hundred basis points in the form of higher freight rates in exchange for a longer contract. But freight contracts are not true commitments, minimizing that benefit.
Maintain relationships with a large number of carriers. According to Leto, some of the largest shippers only allow about 20 carriers and five to 10 brokers to access their requests for proposals. That doesn’t make sense when there are 4,000 trucking companies with 50 or more trucks. Greatly expanding that pool enhances competition and can lead to a significantly lower transportation spend. Technology is the key to adding more carriers into the mix since “a bid with a huge number of carriers can’t be done with a spreadsheet.”
If carrier rates are close to those offered by brokers, give the freight to the carriers. Leto suggests giving freight to brokers if carrier rates are too high and not within 5%-10% of the brokers’ rate. Otherwise, the benefit of maintaining a relationship with carriers likely outweighs a relatively insignificant savings.
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