Could there be a silver lining to component shortages?

Ron Rindt can’t get his truck.

The owner of Lavington Turf Farms in Vernon, B.C., ordered a Kenworth T680 with an anticipated delivery of July. But his dealer sales rep recently told him Allison is experiencing a shortage of microchips and can’t deliver to the Kenworth plant in time to meet Rindt’s delivery expectations.

“There is zero ETA given,” a frustrated Rindt told me. “We don’t want a delivery delay on the truck we spec’d.”

Unfortunately, he’s not alone. Truck and trailer manufacturers are struggling with supply chain challenges and component shortages while demand for new trucks is surging.

Steel, microchips, wiring harnesses, castings and forgings are among the materials OEMs are struggling to procure. Trailer manufacturers can add wood to the list.

“Currently there are shortages of raw materials and component parts, which will result in supply being unable to meet the demand of Class 8 trucks in the short-term,” says Don Ake, vice-president, commercial vehicles with industry analyst FTR. “Class 8 suppliers are working diligently to ramp up production but are hindered by the pandemic and material shortages. In addition, imported parts deliveries are being delayed up to two weeks at the ports.”

(Photo: iStock)

Meanwhile, about 44,000 Class 8 trucks were ordered in February, a 209% year-over-year increase, according to preliminary data from FTR. Like Rindt, large fleets are desperate for trucks. Capacity tightness is improving trucking conditions to “near record” levels, according to the latest Trucking Conditions Index from FTR, and fleets are eager to take advantage.

As for semi-conductor chips, it’s a global shortage expected to last into next year. It was caused by shifting consumer buying habits as the Covid-19 pandemic drove skyrocketing demand for computers and home electronics, leaving automakers short of supply. (Anyone with a teenager knows how difficult it has been to get a PS5 – thank Sony for adding to the problem).

The supply crisis is affecting almost every manufacturer, so we’re by no means picking on Allison or Kenworth here.

The problem is most acute in the automotive industry. General Motors has announced it is slashing production at several plants and has warned the shortage could cut US$2 billion from its earning this year.

Truck manufacturers are doing their best to manage the supply chain issues.

“It’s a battle every morning,” outgoing Daimler Trucks North America CEO Roger Nielsen told me in a recent interview. “The demand in the marketplace for new trucks is much higher than this industry is able to supply.”

Ake tells me the OEMs take various steps when parts and components are in short supply, essentially putting customers on “allocation” and only shipping them part of their requirements.

“This is happening right now with a variety of products,” he said. “Companies use a variety of factors in allocating products to customers and it varies greatly by company.”

Factors may include: supply contracts; exclusivity deals; length of the busines relationship; percentage of business done with the company; size of the customer; and profitability of the customer.

Unfortunately for the single-truck operator like Rindt, he’s not likely to be too high on the priority list. But there’s a silver lining to all of this. In past upturns, fleets have rushed to add capacity to their own detriment. Surging freight demand and rising prices were therefore shortlived, leaving truckers with too many trucks when demand turned south.

That’s not likely to happen this time around. Fleets are struggling to get the trucks they need to add capacity and those trucks don’t come with drivers in the seat. Covid-19 social distancing requirements have curbed the number of new entrants into the industry while at the same time older drivers have exited to protect their health.

Eventually, the component shortages and supply chain challenges affecting truck and trailer manufacturers will be resolved. Rindt will get his truck. And hopefully the restraint this shortage will have imposed on carriers will result in stronger pricing and improved profits in the meantime.

 

James Menzies

James Menzies is editor of Today's Trucking. He has been covering the Canadian trucking industry for more than 18 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.

Have your say

We won't publish or share your data

*