Walmart and Trucking Issues (Short Grocers)

Walmart Inc. ($WMT) reported earnings on Tuesday and promptly got battered in the market.

While the behemoth retailer’s comp sales numbers rose 2.6%, e-commerce demonstrated some considerable cooling and EPS missed by $0.04.

Take a close look at the company’s earnings and you see that gross margin shrank, “due primarily to price investments, higher transportation expense as a result of the higher volumes and fuel costs, and mix effects from our growing eCommerce business.” There’s a lot to unpack here. For now we’ll just focus on transportation costs.

The trucking industry is in a state of transition. With aging drivers, high licensing fees and increased regulation, the United States currently suffers from a shortage of drivers. Its a grueling life on the road and in an effort to make matters better for drivers, regulators instituted limits on the number of consecutive hours a driver is allowed to be on the road. Indeed, trucks are now equipped with ELDs or “electronic logging devices” to ensure that drivers adhere to rules. The ELDs have compounded the shortage problem. Considering that 70% of all freight is moved by truck - including produce and packaged goods - this shortage creates product shortages, delivery delays and higher prices. Given the ongoing grocery price wars, those costs are getting absorbed by companies rather than consumers (so far, anyway).

As you know, Walmart is a pretty damn big grocer. If, considering its scale, there are transportation troubles that it doesn’t have the leverage to work through (though it is trying with fines), imagine how some of the smaller grocers - say, Tops Market and Bi-Lo - are faring. Hmmm.

Why can’t trucking companies appeal to additional drivers? In addition to the brutal lifestyle, it probably doesn’t help that trucking is almost always atop the list of professions soon to be automated away. Query what happens in the gap period between now and full-on automation? More shortage-induced pain for retailers? Or will equilibrium strike?