Wednesday, June 15, 2011

Growing Logistics Costs Point To Margin Compression

Thank the oil speculators identified in my earlier post today for the growth in logistics costs that is outgrowing the overall economy.  If the cost of moving stuff - a big expense for any company that makes things - is rising while overall revenue growth is stagnant or falling, net income compresses.  Ceteris paribus applies but energy costs are an input to other expenses besides transportation.  The GDP growth figure is that topline revenue number for the economy. 

This is great news only for the transportation sector (one of my favorites, thank you very much).  It is very bad news for the manufacturing sector.  We are in the double-dip recession right now, and declining GDP growth will eventually hit the transportation sector too as customers curtail shipping for lack of sales.  Poor retail sales figures in May show us what's coming.