Rapidly rising costs caught Walmart off guard in the first quarter, but new supplier charges that go into effect next month are expected to help offset some of those increases.
The new fees apply to Walmart Collect, a supplier service that includes pick-up and transportation to a distribution center or store.
A pick-up charge will be assessed as a percentage of product costs, while a fuel surcharge will go toward transportation fees. The new charges were first reported by the Wall Street Journal, citing a memo sent to suppliers.
Walmart could not be immediately reached Monday for additional details on the new fees and whether their implementation is permanent.
Businesses have been grappling with faster-than-expected increases in their freight and transportation costs, which hit first-quarter profits for some. Retailers, such as Walmart, are now looking to align their fee structures with the changing market conditions.
Walmart president and ceo Doug McMillon told analysts in May fuel prices “accelerated during the quarter faster than we were able to pass them through, creating a timing issue.”
“Fuel ran over $160 million higher for the quarter in the U.S. than we forecasted,” McMillon went on to say said during the quarterly call with analysts. “We made progress matching pricing to the increased costs as the quarter progressed.”
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Costs and just how much they would rise also caught rival Target by surprise during the first quarter.
“We did not anticipate that transportation and freight costs would soar the way they have as fuel prices have risen to all-time highs,” Target chair and ceo Brian Cornell told analysts in May.
The increased prices, in fact, came in much higher than the retailer had projected, Target executive vice president and coo John Mulligan said during that same first-quarter earnings call.
“Coming into this year, we anticipated we’d see continued tight conditions and elevated costs in freight markets,” Mulligan told analysts. “But the actual conditions and costs have been much more challenging than expected. More specifically, first quarter freight and transportation costs came in hundreds of millions of dollars higher than our already elevated expectations. And, for the full year, we’re now expecting about $1 billion of incremental freight costs, even compared to our expectations only three months ago.”
Companies across industries have responded to rising costs by hiking or adding supplier fees in a bid to be more selective about what costs they pass on directly to consumers as they look to maintain market share.
“Fuel, inflation and transportation surcharges are rippling through the economy. Walmart is the latest to add these fees. Amazon, Kroger and most other major retailers have either begun charging for these factors or are likely to do so shortly. If you are a logistics company, retailer or shipper, you should have a strategy for these ever-increasing layers of fees,” Benjamin Gordon, managing partner and ceo of Cambridge Capital and BGSA Holdings, said on his LinkedIn profile in response to Walmart’s news.
Amazon said earlier this year it would begin charging sellers using its Fulfillment By Amazon logistics services a 5 percent fuel and inflation surcharge, citing “significant cost increases” it had been absorbing. The surcharge, which went into effect April 28, marked a first for the e-commerce company.
The surcharge pencils out to 24 cents per unit, bringing the total cost to $2.52 per unit.
On-demand delivery apps added fuel surcharges or gas rewards for drivers earlier in the year, although some of them more recently let those temporary programs expire. Uber Eats’ 45-cent fuel surcharge ended last month. DoorDash’s driver rewards program, which included 10 percent cash back on gas purchases made with a Visa debit card and a $5 bonus each week for delivery drivers traveling 100 miles, expired at the end of April. The 10 percent cash back component of the program was then extended through Aug. 31.