Comment / Shipper radar: We put a value on Costco's charters but don't forget the consumer

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29/09/2021

The Q&A part of Costco Wholesale Corp’s earnings call last week revealed – as widely reported everywhere within and outside logistics – that the wholesaler has become the latest shipper to charter its own vessels to mitigate the continuing transpacific container supply chain crunch.

But how much the deal is worth didn’t seem to receive the attention it deserved, neither in absolute nor relative terms against its heavy capital spending (aka capex) plans – as well as versus its dividend and ...

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John Snow
October 06, 2021 at 1:19 pm
Great work here! I believe, though, that shipping costs are booked to Merchandise Costs (COGS) on the income statement instead of capex on the cash flow statement at Costco. In FY21, Merchandise Costs were $170.7 billion, so $100 million as a percentage of that is even more irrelevant!

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- Alessandro Pasetti
  October 06, 2021 at 1:45 pm
  Hi John,
  
  Many thanks for the feedback, it also helps explain why we specifically referenced capex as well as other cash outflow items (acquisitions, dividends), rather than COGS, knowing that COGS was a massive number. We probably should have said that.
  
  Certainly they aren’t capex and we didn’t mean to suggest that – yes, it’s COGS, as you said, although merchandise expenses are all grouped under “operating costs”, so there may be a non-COGS component too in those charters. Also to say, we wanted to show that tiny cost “investment” against all different capital allocation levers… essentially the added cost budgeted for the charters is irrelevant and doesn’t affect cash flows, that was the purpose of the exercise.
  
  In other words, should this situation become permanent, its capital allocation will very unlikely be affected, unless we believe it could charter a significantly larger number of vessels of that kind.
  
  Hope it helps.
  
  Best regards,
  
  Ale
  
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