Welcome to the month of LOVE!

That’s right, we are in February. One month down, 11 to go in 2019. The year seems to be moving pretty quickly to me, not sure why. Of course, February is the month of love. I am quite disappointed in the Vietnamese for getting suckered into this greeting card “fake” holiday. I guess I should be happy that people are celebrating love, but the consumption aspect of it all maddens me. I’m married, and I don’t think I am getting crap from my partner. And I’m sure as hell not buying anything. [Reader, I do love chocolate, so feel free to send some.]

Anyway, we have a much more important holiday coming up, Tet! There are a lot of stories out about prices in the run up to Tet, like this one about how petrol prices are unchanged.

The retail prices of oil and petrol will be kept unchanged for the next 15 days, the ministries of Finance and Industry and Trade announced on Thursday…The two ministries review fuel prices every 15 days to keep domestic prices in line with swings in the global market…The two ministries decided to maintain the petrol prices to support production of domestic firms and control inflation prior to 2019’s Lunar New Year.

Or this article about how shipping fees are increasing wildly ahead of Tet. Bus passengers have to pay extra surcharges, and the fees for shipping motorbikes have doubled.

But stores are actually lowering prices. Co.opmart and Co.opXtra are discounting goods to get shoppers in the store.

From now until February 4, the 30th of the last lunar month, many fresh and ready-to-eat foods like green-skin pomelo, American red apple, round watermelon, pickled vegetables, shrimp, uncooked pork paste, and braised pork and eggs in caramel sauce are being sold at 12 – 25 per cent discounts.

Of course, the difference between prices for shipping and prices for goods at stores is due to two main reasons: 1) the difference in fixed costs and 2) that there is more of a limit on volumes in shipping.

First, on fixed costs: Trucks/buses have high fixed costs and minimal variable costs, especially for each trip. So a bus with 50 passengers and a bus with 100 passengers will cost the company about the same (minus a bit of a lower fuel bill). For stores, the fixed costs are just being open but their cost of goods are variable, depending on how many goods are sold. So shipping companies have an incentive to raise prices to maximize every space in their vehicle, because they will never get the chance to sell that space again. Airlines face the same issue. They try to sell every seat on every plane, even at discounts, because once that plane takes off, they can never recoup any empty seat’s revenue. It’s gone for all time. They may make some more money on the next flight, but the flight with empty seats will not be maximized.

Second, when we think of volume for shipping and stores, stores have so much more flexibility. They can stock up for weeks ahead of time and drive more and more volume. Of course, there is risk that inventory won’t be sold (and therefore some cash is tied up for some time or lost entirely), but stores can just increase discounts even more to move product. Plus, for goods with a long shelf life, stores can just not order new ones as they sell out their excess inventory, minimizing the impact. Shipping, in contrast, depends on space in the bus or truck or whatever. And for most companies, they can’t increase their bus/truck trips without limit. Store have more room to build up inventory - they could just fill every available space with goods.

As for fuel, well, no government wants to see higher petrol prices, especially at sensitive times. And gas prices aren’t facing a lot of pressure from higher oil prices (although there is likely some).

It is interesting to see the trends around Tet. I wonder if some of these discounts that we see in the stores will continue post-Tet if stores have excess inventory. That’s a good indication of how good their purchasing is.

Anyway, not sure that I have explained all of these perfectly, but I think it is interesting to think of prices ahead of holidays in these terms. If there is scarcity (such as in shipping) and high demand, we should see higher prices. But for goods that are easily supplied, high demand can result in a focus on volume than pricing.