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When I listened to Dollar General’s analyst call last week, I had to double-check the date to make sure I wasn’t listening to a recording from a year earlier. That’s when Walmart and Target were discussing their own inventory issues and their associated corrective actions — Walmart now talks about its inventory being in “good shape.” Also in contrast to Walmart, Dollar General reported sales trends in the quarter that were below expectations, whereas Walmart reported a more resilient consumer than expected in its most recent quarter. Maybe the more rural consumers are the ones struggling the most.

A few takeaways from Dollar General’s call: 

• Adding tractors to its private fleet saves 20% when compared to for-hire carriers. The company currently utilizes its private fleet of 1,800 tractors for 50% of its transportation capacity needs with plans to increase that portion. 
• Total inventory of $7.5 billion at the end of the quarter was an increase of 11.4% year over year (y/y) on a 5% y/y increase in average store count.  
• The company is pursuing large-scale automation for store fulfillment. That is expected to improve the efficiency of processing a larger number of SKUs while also reducing warehousing costs. 

Both dry van tender rejections (white) and reefer tender rejections (green) have increased since midsummer with reefer tender rejections having an outsized impact from the hurricane season. (SONAR: VOTRI.USA, ROTRI.USA)

Next year freight markets might look much different

For now, shippers retain pricing power over carriers, which FreightWaves expresses via the quantitative Supply Chain Pricing Power Index (SCPPI), which currently stands at 30/100. (Values below 50 indicate that shippers have the pricing power.) 

But the SCPPI is today’s weather report. For a look ahead, I recommend reading FreightWaves CEO Craig Fuller’s article published over the weekend that suggests that the freight market in 2024 may look nothing like the past 18 months. Capacity is coming out of the market (you might say the truckload capacity bubble is bursting) while freight demand has increased throughout this year. Shippers’ financial results this year have been mixed — some are seeing sales holding up and have already rightsized inventories while others are struggling with depressed sales and still-elevated inventories (an example is Walmart versus Dollar General). But most shippers have benefited from a cooling in the rate of inflation in their costs and some of the loosest freight market conditions that supply chain professionals have ever seen. In addition, consumer spending has held up better this past quarter than most would have expected after two years of steep inflation and sharply rising interest rates. 

Shippers’ primary objective now should be positioning themselves for a potential tightening in the freight market, which will come sooner or later. A few ideas for shippers along those lines include: 

• Lock in contract rates. (Even if freight contracts ultimately don’t have teeth, carriers may be inclined to comply with contracts to maintain relationships with preferred shippers.)
• Benchmark freight costs against industry data, such as contract rates paid by other shippers in the same industry verticals, to prepare for upcoming bids.

Use index-linked contracts to manage rate and capacity risk. While freight has historically been a cost category that is difficult or impossible to hedge, FreightWaves is currently working with more than two dozen shippers on freight rate indexing. Click here for more detail.

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