February 16, 2024

Amazon and the FTC don’t agree on much


FTC, Amazon far apart on lawsuit issues

(Federal Trade Commission)

It’s clear from the latest on the Federal Trade Commission lawsuit against Amazon that (1) it’s likely to be ongoing for a long time, and (2) the parties don’t agree on much. The FTC asked the court to set a deadline to start the trial in May 2026, while Amazon asked for a December 2026 start date. What takes so long is the massive scale of the information involved — upwards of 100 terabytes’ worth, or the equivalent of 50 million pages.

The FTC says Amazon is abusing a monopoly position that harms consumers; Amazon says it lowers prices for consumers. The FTC wants to depose over 100 Amazon witnesses while the retailer wants it limited to 10. The FTC claims that Amazon illegally destroyed documents, which Amazon denies. Amazon claims that its practices are common in the retail industry, which the FTC disputes. Amazon believes that Project Nessie (the algorithm by which Amazon predicted competitors’ pricing actions in response to its own) should not be part of the lawsuit because it was shut down in 2019 — despite its being the topic of many of the pages of the FTC’s lawsuit.

The FTC is presumably seeking an unwinding of the Amazon practices that it takes issue with. Therefore, if the FTC’s lawsuit is successful, it could result in requirements such as Amazon not being able to punish third-party sellers for refusing to buy advertising space or offering lower prices on competing online marketplaces. Also, Amazon might not be able to require the use of its own fulfillment centers in order to qualify for Prime. Therefore, the lawsuits have implications for Amazon suppliers — currently, many manufacturers of consumables struggle to sell profitably on Amazon due to its myriad of rules and fees.

Cocoa prices break records

(Chart: Barcharts.com Inc.)

Cocoa prices have more than doubled in the past year and are up 37% year to date, breaking all-time records set in 1977. Cocoa supplies are constrained from harsh growing conditions in West Africa, where most cocoa is grown. Challenges have included massive rains, dry spells, pests and diseased crops.

CPG companies that buy cocoa are also major purchasers of sugar, another commodity that remains at historically high levels (although sugar prices peaked in November). For some CPG companies, this will lead to margin pressure and to asking retailers for yet another round of price increases. Barron’s expects that Hershey could face a 30%-90% increase in cocoa costs, depending on its inventory and forward coverage. The company reported earnings last week, and the impact could be seen in its forward guidance. Hershey expects its fiscal 2024 earnings to be flat despite an expected 2%-3% growth in sales due to 200 basis points of expected margin pressure as input costs rise faster than costs are passed on.

Retail prices don’t move as quickly as commodity prices do, so last-minute Valentine’s Day shoppers were not impacted. However, consumers may have sticker shock when it comes time to buy sweets later in the year.

Ocean bookings data suggests continued import volume strength

SONAR tracks the volume of containerized imports passing through U.S. Customs via the CSTEU.USA data set and also measures containership bookings at point of overseas origin via the Inbound Ocean TEU Volume Index (IOTI.USA). 

Containerized maritime import twenty-foot equivalent units (CSTEU.USA) are up 8% y/y year to date, and the SONAR Inbound Ocean TEUs Volume Index (IOTI.USA — shown below) is up 38% y/y year to date, against an easy year-ago comp. In contrast to last year, ocean booking volume at point of origin showed a sharp seasonal spike in recent weeks right before Chinese New Year in a manner similar to 2021 and 2022. The healthy bookings volume appears to reflect retailers’ efforts to replenish inventory levels — the retail inventory-to-sales ratio was just 1.17 in December, well below the ratios of 1.4-1.5 that were more normal before the pandemic.

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