TORONTO, (Dec. 20, 2004) — Stand on the pier at any major Pacific port — B.C., Washington, or California — and watch how every day a queue of freight carriers peel out of the dock and head west. Their destination — as described by the flat earth perspective — is actually the Far East; a.k.a., China.

In fact, it’s estimated that on any given day, as high as 20 per cent of bulk freighter capacity in the world is booked for China. On those ships is much of the developed world’s raw material exports — mostly steel, scrap metal, aluminum, copper, cement, and oil.

And as it plows ahead to modernize its infrastructure, the colossal state’s appetite for more commodities shows no signs of receding.

A few years ago, the big issue concerning China was it being a source of deflation because it was flooding world markets with cheap exports. But almost overnight — and perhaps fueled by the awarding of the 2008 Olympics — demand began outpacing exports.

The fact that the People’s Republic hasn’t been very loose with hard numbers has also exacerbated uncertainty over market stability. Still, most economists guess that it currently swallows about 20 per cent of aluminum, 40 per cent of world steel exports, and even more than that in cement. It is also the second-largest importer of oil behind the U.S.

The result — commonly dubbed the “China Syndrome” — has been a ripple effect on commodity supplies and prices all over the world. North American supply chains, including in trucking and automotive sectors, have been pinched as hard as anyone. Truck makers, as well as parts and component suppliers, are having some trouble getting steel, and when they do get their hands on it, its price can be as much as 40 per cent higher.

However, some in the industry say China disproportionately gets a bum rap. While it’s still the largest factor for the strained North American supply chain, it’s not the only fast-developing part of the world that’s increasing demand, says Mark Purtilar, vice-president of procurement for ArvinMeritor’s Commercial Vehicle Business.

“China is a subject that everyone can rally around, and obviously it’s the largest one when you consider that they’re the world’s largest importer of scrap,” he says. “But just take a look at Eastern Europe. Russia, for example, five years ago was consuming only 20 per cent of its domestic production of steel. That has exactly flip-flopped and they are now consuming 80 per cent, and they’re hoarding scrap as well. Then there’s Iraq, and there’s a significant amount of steel that’s going to be needed to rebuild that country.

“The truth is it’s become a global commodity and a global price is being set, where as it didn’t used to be.”

Moreover, as the global economy swells, consumer demand for vehicles increases all over the world. “You’ve got the European truck market, the North American truck market, South American, and even the Asian truck market all rising at the same time,” Purtilar explains.

“And guess what? So are all the automotive markets. So you have all the main possible consumers of steel in the world are up at the same time.”

The resulting shortage in raw material both for production parts and replacement parts is holding back the output of many manufacturers. For carriers, that means more expensive trucks (somewhere around $1,000 more) and longer delivery times of up to six months.

Freightliner LLC president and CEO Rainer Schmueckle estimated a couple of months back that another 25,000 class 8 trucks would be sold in North America by year’s end if not for the high cost and scarcity of raw material.

Ironically, some industry analysts are predicting that the raw-material issue may indirectly keep a lid, or at least soften, the impending pre-buy leading up to the launch of new EPA-mandated ’07 engines.

“Even if there is going to be a pre-buy in 2006, the industry can only support so much, and I’m not sure it can handle numbers any more than what they are today,” Cummins Canada General Manager Alasdair McNellan told Today’s Trucking.

In fact, McNellan agrees that the conditions might actually throw a dent into any pre-buy ambitions for carriers who wait too long. “If people don’t have their orders locked in pretty soon, they’re going to be in trouble if they think they’re going to be able to pre-buy for 2007,” he says. “There are already some OEMs that right now can’t build a truck until June or July.”

In order to offset costs, component manufacturers, truck and trailer companies — which utilize about 8,000 pounds of scrap and steel on even an aluminum trailer — have implemented steel surcharges to recoup some of the added expenses.

Other suppliers are putting more time and money into R&D in search of cost-effective alternative materials. Tire makers, for example, are beginning to experiment with synthetics in order to alleviate dependency on natural rubber.

Purtilar agrees that with Chinese demand not likely to yield significantly until about 2008, such trends will continue throughout most of the supply chain. “Our engineering teams are working on more cost effective grades of steel, alterative materials, and composites to some product lines. We’re looking at alternatives when ever an opportunity exists for them.”

— Read the complete article in the Dec. print edition of Today’s Trucking