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Don Ake’s take: Bottleneck in the supply chain is an economic threat

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By Don Ake

CV Equipment Expert

FTR Transportation Intelligence

Reprinted With Permission

BLOOMINGTON, Ind. — The Institute for Supply Management’s PMI for Manufacturing (Purchasing Managers Index) jumped to 60.2 in June, up from 58.7 in May and rising for the second straight month.  Considering that anything over 50 represents growth, the 60.2 is a robust reading which means everything must be wonderful in the manufacturing sector, right? Well not so fast, Machine Boy. Literally, not so fast.

A closer look at the numbers shows some disturbing trends. A big jump in the Supplier Deliveries sub-index indicates deliveries from manufacturers to customers slowed tremendously in June.

The primary reason for late deliveries is a lack of manpower. Manufacturers assumed they would be able to expand capacity when they took the original orders, but because the economic recovery is widespread, all industries have been competing for the same labor pool.  That left many companies short on workers.

Even if you have enough workers, there still can be problems if your suppliers are short on staff. If your supply chain consists of 50 vendors, but 10 of these suppliers are delivering late, it’s going to wreak havoc with your production schedule and result in late deliveries.

Another reason deliveries are slow is lack of trucking capacity.  Fleets managed capacity very conservatively after the Great Recession and that worked well in a slow growth economic recovery. But now that commerce has accelerated, there are not enough trucks and trailers to handle the amount of growing freight.  Many companies have been forced to bid for trucks in the spot market for the first time in years.  This is resulting in many late deliveries.

The conditions causing delivery delays detailed above are severely prominent in the Class 8 equipment market.  Specific numbers are difficult to obtain, but industry sources tell me that more than 30 parts are in short supply at truck OEMs. Most of the shortages are the result of Tier 1, Tier 2 and even Tier 3 suppliers not being able to hire enough workers to make the needed components and parts. Companies are in some cases air-freighting parts in from Asia to keep production lines running.

Word on the street is there are over 10,000, and maybe as many as 15,000, semi-completed Class 8 trucks parked, waiting for parts to arrive, so they can be driven off the lots. Component deliveries have been so slow that some of these trucks have sat for over a month.

There is no good way to predict when the supply chain will open up and all needed parts and components will be delivered on time. And even when the key components arrive, all these trucks will need to be delivered to dealers and fleets throughout the country. This presents a logistics nightmare since OEMs were having problems finding drivers to deliver the trucks before the supply chain bottleneck struck.

So ironically, the driver shortage is causing delivery problems in the trucking industry.  The driver shortage has grown progressively worse since the beginning of 2016 and is reaching a critical point. With the unemployment rate at 3.8 percent and the competition for workers from other industries, it gets more difficult for fleets to hire drivers every day.  A recent article in the Washington Post told the story of an 87-year old man who was offered a trucking driving job, provided he obtained his CDL. However, he turned down the $50,000 a year job because he did not want to spend that much time away from home.

Most discussions of the new tariffs involve the impact on prices. However, my sources tell me they will soon negatively affect the supply chain in the short-term.  Aluminum coils from China and steel stock from other countries have been diverted or delayed because of the tariffs. Soon U.S. manufacturers will need these materials to make parts, components and products – some for the truck OEMs.  To a supply chain already performing poorly, the tariffs hitting at this moment just adds to the mess.

The lack of parts and components, for all industries, slows down production. The lack of trucking capacity slows down the movement of goods. At some point, this will slow down economic growth.  Normally, you would expect the economic laws of supply and demand to balance things out. And this will happen, in the long run. In the short run, it’s about to get ugly.

Don Ake can be reached at dake@ftrintel.com

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1 Comment

1 Comment

  1. Melvin M Johnson

    July 13, 2018 at 11:06 am

    I remember reading, listening to someone saying…let things run it’s course and see what happens….oh yes, it is going to more than just ugly…Even the ATA, DOT..and all wanted these elds did not see the tarriffs…Elds will make driving safer…. Einstein…ELDS do not drive trucks…no one is teaching, trainers are all about the money… I walked away from driving.. I could only come back until I had a refresher…found a company…and my trainer was a kid on with 1 1/2 years experience… I started in the 90s.. what could he show me…He sleeps and got paid…why does one think…so many accidents..

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The Nation

OOIDA Foundation issues information it says debunks driver shortage ‘myth’

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Most carriers with high turnover do so by design, says OOIDA President Todd Spencer. “They could deal with driver turnover by offering better wages and benefits and improved working conditions,” he said.

GRAIN VALLEY, Mo. — The Owner-Operator Independent Drivers Association’s research foundation published two new documents it says debunks the driver shortage “myth.”

A fact sheet explains how the industry isn’t afflicted with a shortage of drivers, but is actually plagued with overcapacity and driver retention, the foundation reported.

A second, accompanying document talks about how wages have decreased for truck drivers at large carriers and many have moved toward smaller fleets.

Last year, the association also created a short video that explains why there is high turnover as opposed to a shortage.

“We are concerned about the perpetuation of a myth of driver shortage,” said Todd Spencer, OOIDA President. “This misinformation is used to push agendas that are harmful to the industry and highway safety.”

To address the supposed driver “shortage,” some organizations have suggested that the age requirement to obtain a commercial driver’s license should be lowered from 21 to 18.

“If safety is the top priority when considering a change to a regulation, when it comes to age, the number should be raised, not lowered.” Spencer said.

OOIDA also contends that any issue with retention could be mitigated with other solutions that would be safer for all highway users.

For example, compensation has been shown to be tied directly to highway safety, as revealed in studies that suggest there is a strong correlation between driver pay and highway safety, Spencer said.

“Most carriers with high turnover do so by design,” he said. “They could deal with driver turnover by offering better wages and benefits and improved working conditions. But putting younger drivers behind the wheel of a truck isn’t the solution because it does nothing to address the underlying issues that push drivers out of the industry. It merely exacerbates the churn.”

The Owner-Operator Independent Drivers Association is the largest national trade association representing the interests of small-business trucking professionals and professional truck drivers. The association currently has more than 160,000 members nationwide. OOIDA was established in 1973 and is headquartered in the greater Kansas City, Missouri, area.

 

 

 

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The Nation

Bill to prevent shutdown has benefits for USDOT

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The legislative deal passed to prevent a government shutdown contains $45.3 billion for highways honoring FAST Act funding levels for 2019, plus $3.25 billion in supplemental funding out of the general fund. (AASHTO Journal)

WASHINGTON — As part of bicameral legislative deal to prevent a second partial federal government shutdown while providing monies to build a wall along parts of the southern U.S. border, a total of $26.5 billion in discretionary funds and $60 billion from Highway and Airport and Airway Trust Funds will be provided to the U.S. Department of Transportation, according to an article in the Journal, a publication of the American Association of State Highway and Transportation Officials.

The legislative deal passed both the Senate and the House by wide margins.

This legislation also contains final funding for a series of fiscal year 2019 appropriations bills for nine federal departments and related agencies, including the Department of Homeland Security, Department of Commerce, Department of Justice, the Environmental Protection Agency and the U.S. Department of Transportation.

Some of the USDOT appropriations measure include:

  • $45.3 billion for highways honoring FAST Act funding levels for 2019, plus $3.25 billion in supplemental funding out of the general fund.
  • Of that $3.25 billion in supplemental highway funding from the general fund, roughly $2.7 billion will be apportioned to the states as if it were Surface Transportation Block Grant Program funding, while $475 million will be for a Bridge Rehabilitation and Replacement program.
  • $900 million for Better Utilizing Investments to Leverage Development or BUILD discretionary grant program grants, divided evenly between rural and urban projects.
  • $2.55 billion for the Capital Investment Grant program, including $1.27 billion for “new starts,” $635 million for “core capacity” and $527 million for “small starts.”

“This legislation makes a significant down payment on the border wall and provides a bipartisan path forward to complete the remaining FY19 spending bills,” Sen. Richard Shelby, R-Ala., chairman of the Senate Appropriations Committee, said in a statement.

“Our bipartisan efforts have been essential in securing the passage of this bill and completing the FY19 appropriations process,” he said. “It is my hope that we will all continue to work together as we turn to the FY20 appropriations bills.”

“This is not the agreement I would have reached on my own [as] there are things in this bill that I support, and things that I disagree with – but that is the nature of a negotiation,” said Ranking Member Sen. Patrick Leahy, D-Vt. “This agreement funds nine federal departments and their related agencies. Everyone had to give something to reach a bipartisan compromise.”

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The Nation

Driver Ronald Feimster hopes to take the freedom of the road to the next level in 2019  

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Ronald Feimster tried working in other kinds of jobs, but he found he likes the freedom and independence truck driving offers. His goal for 2019 is to get his own truck and become an owner-operator. (The Trucker: KLINT LOWRY)

You don’t head out on the road without an intended destination, and the vast majority of the time you have a route planned out. And it’s not a bad idea to approach life goals the same way.

Ronald Feimster has begun 2019 with a clear idea of where he wants to get to within the next year.

“My goal is to be an owner-operator and to drive for Oakley Trucking,” he said.

Feimster was finishing breakfast at the Iron Skillet at the TravelCenters of America/Petro truck stop at I-40, exit 161, just outside Little Rock, Arkansas. He’d struck up a conversation with a fellow driver, Tim Plubell, who’s been an owner-operator for nearly 20 years (A story about Plubell can be found in the XXX edition of The Trucker), so Feimster’s career goals were at the front of his mind when The Trucker caught up with him.

He’s done his homework, he said. He knows a lot goes into being an owner-operator.

“I drove for a lease operator before,” Feimster said. “He was the owner-operator. And I loved it. I loved the freedom of it. I know you have to pay for your own maintenance, but a lot of these companies nowadays, they help you with the maintenance, so that cuts that in half. Then you have that fuel surcharge, so that cuts that in half.”

Feimster, who hails from Rogers, Arkansas, has also done his homework on Oakley Trucking, a subsidiary of Bruce Oakley Inc., a commodity trading, distribution and transportation company based in North Little Rock, Arkansas. Oakley Trucking specializes dry bulk transportation throughout the Lower 48 and Canada.

“And Oakley, they pay excellent, but the catch is you have to own your own truck,” Feimster said. “Pull their trailers, but you own your own truck. That’s my goal.”

Long-term, he said, at 47, if all goes as he’s envisioning it, if he gets in at Oakley, it could be the kind of situation where he could spend the rest of his career there.

Not that he’s unhappy where he’s at. Feimster drives for Southern Refrigerated Transport, popularly known as SRT.

“They’re a good company,” Feimster said. “I’d recommend them to anybody.”

He runs a dedicated route pulling reefer for Tyson Foods. His route keeps him within the neighboring states of Arkansas. But, as he explained, he generally gets home about every three weeks.

“I could get home every weekend, but you don’t make any money like that,” he said. “You have to stay out here for a little while. Unless I were an owner-operator. Then I would do it differently.”

Feimster first got into trucking in 1998. Before that, he said, “I wasn’t really doing nothing.” In other words, he had jobs, but he didn’t have a career. “I was doing factory work. It wasn’t that good. So, I got into trucking, basically, to start making more money. I went ahead and got my CDL.”

He started out hauling logs. Since then he’s “been around,” he said, gaining experience working for Panther 2, Swift Transportation and Covenant Transport, which owns SRT.

At one point, he tried to get out of trucking. “I was over-the-road, and I was tired of going through those snowy mountains” in Colorado, he said. The job wasn’t worth risking his life.

“I said, ‘I have got to get out of this,’ because I had just gotten married, and then we had our first child. I’ve got to go home and be a dad,” Feimster said.

He went back to warehouse work and even became a supervisor. But he came to realize that he just wasn’t a company-culture kind of guy. One of the best things about truck driving, Feimster said, is there’s “no one breathing over your back.” Even after having been the one doing the breathing, he hates that kind of work environment.

He said he didn’t want to publicly describe the straw that broke the camel’s back and sent him to trucking. The short version of the story is he was told to fire an employee that he firmly believed didn’t deserve it.

“I said, ‘you know what? This is not a good way to treat people,’” he said. “That was enough for me. I talked to my old lady. I said, ‘I’m going to go back to truck driving.’ She said ‘OK, that’s what you want to do?’ I said I was going to be away from home, but our kids are grown. Everything’s fine. She said go for it. Here I am.”

Trucking may not be perfect, but he needs to feel that independence.

Sure, there are a few ways the job could be better. “We would like more pay,” he said, then quickly added, “who wouldn’t?”

It also bothers him that society in general doesn’t value what truckers do.

“If trucks stopped delivering for just a couple days, the country would come to a standstill,” he said. “Why isn’t the profession held in higher regard?”

Well, there isn’t a whole lot he can do about that. He appreciates what the profession means to him, and he intends to make the most of it.

 

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