Author: Ryan Goodlett, Vice President of Parts Sales
We went through a period of pricing volatility and product availability that undoubtedly reshaped the trucking business during the pandemic a few years back. Now that we are a few years out, we are all wondering if and when stability will return to the market and why it has not.
The angles you will read about below take a purely economic viewpoint. We will take a short and succinct look at six different areas that broadly cover how supply issues happen, how that affects pricing, and how it is cyclical in nature.
In our blog post – part one, we will cover Supply, Freight, and Parts Production. In part two, posted later we will cover Labor and Inventory, Consumer Behaviors, and Overall Economy.
Supply
From a supply standpoint, we have seen several areas of difficulty. Raw materials have been very volatile with surges in steel, aluminum, copper, and resin costs driving the markets in the structural and electrical part arenas. The media has well documented the scarcity with chips (microcontrollers, semiconductors, and specialized sensors). This shortage has driven up the price tags of not only chip bearing obvious components, but ECMs and modules for trucks as well.
Scarcity of new components has driven consumer requests to repair, rebuild, or remanufacture and while this feels cheaper in the short term, the increase demand for cores, and core acquisition costs, have risen.
Freight
Looking at a place that most of our customer base interacts with quite intimately, freight has been a dilemma to say the least. Higher freight costs have been correlated the oceanic container shortages. First this was global issue then it was followed by a regional shortage. Containers, regionally, collected in areas where the economy had the strongest purchasing power but not necessarily where the manufacturing was. It has taken a while to get these containers spread back out creating a balance in the freight system.
While domestic freight rates have been down for a good while, fuel prices come into play strongly here compounded through surcharges rather than a flat carry over. These fuel surcharges exponentially rise within the bounds of contracts, and this comes out on the end as an uncontrollable fee often seen as freight to the end user.
Additional charges lumped into freight come from port and terminal congestion of imports. The delays cause additional costs due to extended dwell times at port and detention fees. These situations start to cause a shortage, and we see a shift towards the expediting of parts. With shortages of parts and uptime more critical than ever to customers, more parts are ordered emergency or VOR (vehicle off road) adding direct visible cost increases to a fleet directly on the invoice.
And lastly, there is inflated last mile delivery costs related to driver shortages. Some of these costs are directly on your invoice as freight where mentioned, but most are packed into the cost of the part from the OEM or aftermarket supplier.
Parts Production
OEM and aftermarket suppliers are all struggling to meet demands and their unpredictability. Factory allocations that have to be planned ever so far in advance to get in line and secure their spot. It is forcing manufacturers and distributors alike to pay more for today’s product that they did compared to yesterday’s product.
An upwards swing in new truck sales growth through buying cycles can cause a redirection of components to truck production. Other shifts can happen as newly designed products come into play. This shift can drive manufacturing allocation in the wrong direction leading to additional freight costs to get the part needed.
Supplier consolidations have been happening at a rapid pace in the past decade and more so now than ever. Companies are looking to capture more diversity or gain technologies they may be farming out to complete a product, therefore, reducing competition and revising market price floors through limited competition.
Check back for part two of this blog where we discuss Labor and Inventory, Consumer Behaviors, Overall Economy, and how they affect you.
