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How the Supply Chain Problem Will Affect the Holiday Season

Recently, multiple U.S. ports, which move around 70% of all U.S. trade, have reported record-breaking backlogs that have caused widespread shipping delays across the country. Responsible for approximately half of all U.S. imports, the Southern California ports suffer the most, with over 60 filled cargo ships currently waiting to ship goods. However, other smaller ports throughout the country are also feeling the weight of this issue, including the Port of Savannah, which has over 20 cargo ships waiting to ship.

With the holiday season rapidly approaching, many wonder how this supply chain problem will affect the spirit of the season and if anything can be done to limit the overall impact of this predicament.

What We Can Learn From Amazon Prime Day

What’s causing the supply chain problem?

In comparison to 2017 and 2019, the world’s most influential ports experienced above-average wait times and doubled the amount of time for container turnaround in 2021. For example, at the Southern California ports, it took a single ship approximately 6.4 days to dock and unload, as opposed to the standard average of 3.6 days, nearly five days longer than multiple ports, including a 24/7 port in Asia. Recently, these wait times have increased even more, with some ships waiting as many as three weeks. 

So, what’s responsible for this uptick in times and averages? The Managing Director of Global Energy Strategy and Digital Intelligence Strategy at the RBC Capital Markets found that most container ships carry around 30% more goods than before due to the intense rise in e-commerce. Another cause is the current employment shortage that is crippling many industries worldwide. Both Long Beach and Los Angeles ports found that they rely on approximately 28% fewer employees at their unloading docks. Pair this dip in employment with the increased freight movements, and you get a supply chain gridlock.

Those working through the supply chain crisis suggest that the only way to reverse the issue is for consumers to reduce the number of purchases they’re making significantly. However, industry professionals fear that the exact opposite will occur as the holiday shopping season commences.

Why Owner/Operators Should Run Hard This Holiday Season

How will this impact the holiday season?

With a highly-anticipated increase in in-store and online shopping just around the corner, companies are preparing themselves by stocking up in hopes of avoiding any significant inventory depletions. But with supply chains suffering, most, if not all, industries are expected to be impacted globally. For instance, the US Toy Association, which represents a total of 950 toy firms and sells around $3 billion in toys each year, is anticipating a significant setback in product delivery due to California’s clogged port system. 

Outside of the country’s ocean-side ports, many states and their companies struggle with congestion surrounding trucks and freight rails. However, thanks to solid, annual contracts with dedicated shippers, larger retailers won’t need to worry as much as smaller companies. So, how are companies, big and small, preparing for the holiday shopping season?

How Truckers Can Prepare for the Holiday Season Amid COVID-19

What can we do to prepare?

Acknowledging that the current situation shaking supply chains is not easily fixable, the President of the United States is working with America’s ports, shipping facilities, and companies alike to prepare for what is expected to be a long holiday season. The President announced that the Port of Los Angeles will commence 24/7 operations, unlocking an additional 60 hours of work. Major shipping companies, such as Walmart, Target, Samsung, Home Depot, FedEx, and UPS, will also increase working hours as we move into the winter seasons. The Biden administration enacted this plan to increase productivity and product movement and relieve the bottle-necked supply chains. When it comes to truck drivers and trucking companies, the administration encourages increased productivity, the ability to unionize, and wages. Biden followed this statement by ensuring federal support would be supported if needed, but he urged companies to step up and help this initiative.

Moving forward, the administration hopes to review the “just-in-time inventory” standards and “invest in greater resilience to resist the kind of supply chain shocks we’ve seen year after year, whether it’s weather, climate change, or cyber-attacks.” Biden also encouraged U.S. companies to limit their reliance on foreign countries and supply chains and instead bring this vital production to America. 


Long-Term Effects of the Pandemic on the Transportation Industry

Q&A: Trucking Expert Talks Inventory Shortage

What began as whispers of a potential vehicle shortage quickly became a leading source of concern for fleet owners and operators. This looming threat of operations being forced to shut down over inevitable repairs and mishaps or a lack of vehicles to move freight is troubling in these times of high demand. And with so much uncertainty regarding the issue, many in the industry are left with unanswered questions and concerns.

To answer the main questions surrounding the inventory shortage, we sat down with Charles Smith, Regional Business Development and Marketing Manager for Mission Financial Services. As an auto finance institution operating across the country, Mission Financial has provided Smith a unique opportunity to see behind the curtain on many of the industry’s pressing topics.

Exclusive Interview with Charles Smith

Q: What has been the most significant hardship for Mission Financial Services during the shortage, and how have you dealt with it?

A: The biggest hardship here at Mission Financial is the lack of applications being funded.

With the current situation, dealers just don’t have the inventory to meet the demand of the customer, which trickles down to financial institutions that are used to funding deals on a regular basis. One way we’ve dealt with this is to keep knocking on doors and letting my customers know that Mission Financial is still here for them.

Charles Smith, Mission Financial

Q: What has been the most considerable hardship for the dealers and/or others in the industry?

A: The biggest hardship for my dealers would be the lack of inventory. Now, the supply can’t keep with the demand. Not only is the trucking industry feeling the heat, but other industries are as well.

Q: Was COVID-19 the only cause of the vehicle shortage?

A: Yes, COVID-19 was the driving force of the shortage. When the pandemic hit China, the production of automotive microchips experienced a major decline, because that is where they are produced. Without these chips, manufacturers can’t produce new units, which is why we are where we are today. What we are currently experiencing is the result of a global domino effect.

Q: When and how do you think it will end?

A: Unfortunately, at the moment, I see no end in sight. According to recent market analysis, it may be another year before we can see some relief from this devastating virus. However, some of my dealers remain optimistic that we could feel some ease by the second quarter of 2022.

Q: Any advice for drivers, fleet owners, and other industry members?

A: To my drivers out there: keep your equipment well maintained so you can keep moving freight until you get the new rig you’ve probably already ordered. Plus, with spot rates at an all-time high, there’s a lot of money to be made out there. Just keep on truckin’ because we need you.

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Used truck prices continue to skyrocket

Where Did All of the Trucks Go?

Inventory Shortage Continues to Disrupt the Auto Industry

The COVID-19 pandemic has affected numerous industries and led to several issues, including a vehicle shortage that has rocked the automotive industry. To combat financial loss due to global shutdowns, dealers pushed incentives and financing offers to encourage buyers. Once government stimulus checks were distributed, consumers were more than happy to invest in new and used rigs. While this feeding frenzy helped dealers keep their heads above water during the stay-at-home orders, they didn’t anticipate a global microchip shortage that would cause significant production delays upon reopening. 

With this supply not keeping pace with demand, and manufacturers prioritizing smaller vehicles for individual buyers, commercial fleet operators are left feeling the sting from this shortage. So, what can we expect moving forward? Let’s find out. 

-> Used Truck Prices Continue to Skyrocket

What’s causing the vehicle shortage?

There are a few things responsible for the current state of the automotive industry. For starters, the microchips used in many vehicle components are manufactured overseas, with Taiwan contributing 63%, South Korea at 18%, and China at 6%. With the world being globally affected by the pandemic, many manufacturing plants ceased production until cases slowed down. Natural disasters have also impacted the domestic inventory. In February of 2021, Texas was forced to halt production and close a Samsung plant due to severe freezing.

Aside from the microchip insufficiency, dealers have also played a role in this vehicle shortage. At the start of the pandemic, many sellers struggled to move inventory due to quarantine restrictions and stay-at-home orders. Instead of losing their businesses, they chose to offer extreme incentives and too-good-to-be-true financing plans. Unfortunately, they kept these deals running for a little too long, and their inventory was cleared out or severely depleted. And before the stock was able to circulate back into the lots, the semiconductor shortage hit and took down new vehicle production with it. So, where do we go from here?

-> How the Gas Shortage has Affected the Trucking Industry

How is the auto industry responding?

As we navigate the lingering effects of the COVID-19 pandemic, manufacturers and the U.S. government are working to solve this shortage issue. Below, we will break down their plans.

  • Automaker Action Plan: Currently, automakers are working to fulfill dealers’ needs and buyers’ wants by continuing to build out vehicles and forgoing the components that require the semiconductor microchip. Manufacturers are also allocating what they have in the way of microchips to high-demand vehicles and adjusting the availability of certain automobile features, packages, and options. While this action plan offers some much-needed relief, it is not enough to solve commercial fleet operators’ problems. 
  • Government Action Plan: Fortunately, the U.S. government recognized the geopolitical nature of this scarcity and acted early in resolving the issue. With the majority of the microchips being produced in China and Korea, our government needed to invest in domestic semiconductor production to regain the upper hand in inventory levels, which is precisely what they did. The U.S. Senate passed a $190 billion legislation package to compete with foreign tech, with $54 billion allocated to domestic manufacturing of semiconductors and telecommunication equipment. While the bill still needs to survive the House of Representatives, President Biden has voiced his support for the bill.

When will fleet inventory return to normal?

Within the first half of 2021, auto sales have mostly recovered despite the technology shortage. Unfortunately, the sales of commercial vehicles have not responded in the same manner. So far, only 14% of vehicles were sold to fleet consumers. Now, automakers are having to prioritize microchip distribution to recuperate inventory levels. Many are allocating supplies to higher-end models and leaving commercial operators at the mercy of a waiting list.

Moving forward, it’s unlikely that we will ever surpass the industry’s previous standards or return to normal inventory levels. According to industry insiders, the microchip shortage could last another four months, and while recovery efforts are vast, they’re not enough to meet the ever-increasing demand. However, companies and manufacturers are predicting supply improvements by the first quarter of 2022. While there is no sure way of knowing the exact numbers, operators should be prepared to face this shortage until 2023. 

-> Owner Operator’s Guide to Financing During a Pandemic

What We Can Learn From Amazon Prime Day

Supply Chain Lessons to Remember

Amazon Prime Day has become one of the most popular shopping days of the year, growing since its inception in 2015 to rival Black Friday when it comes to money spent and overall excitement among consumers looking for deals.

The annual Amazon shopping extravaganza provides an opportunity for small and medium-sized businesses to increase sales and promote their goods in front of a larger audience. While Amazon Prime Day helps create excitement and generate revenue, it also challenges the global supply chain, which has been under increasing stress for the past two years.

From a lack of certain raw materials to a shortage of truck drivers, along with lingering issues from the COVID-19 pandemic, supply chains struggle to keep pace. These problems become exacerbated during busier times, causing further delays and item shortages.

While the supply chain struggles can – in many ways – be traced directly to the pandemic and the ensuing fallout, there are lessons that parts of the supply chain, retailers, and even consumers can learn from this time to improve performance in the future and to better plan for surges.

Lessons for Retailers

Prime Day is estimated to have brought in $10.4 billion globally in 2020 alone, according to Digital Commerce 360.

Retailers will want to ensure they have as much inventory as possible, although that can be difficult for smaller companies. These businesses may not have the available cash flow to purchase additional inventory months in advance or have the resources to store excess products.

Part of this issue can be mitigated through predictive analytics. Retailers can try to use past sales records, predicted sales, estimated marketing impact, and other important metrics to better gauge the number of supplies that will be needed. While this is an imperfect science, it can provide retailers with a way to better plan for these surges in activity to ensure customers are happy.

For retailers that find themselves falling short on deliveries, it is critical to remain in communication with customers. Let those that made a purchase know of possible delays before a sale is made and make every effort to keep them informed as to potential delays in their delivery. Customers will be more understanding if they know beforehand that delays are likely and will feel more at ease if they feel informed throughout the process.

Additional Supply Chain Issues

To stay in step, shippers, carriers and other members of the supply chain should closely align themselves with the operations of business and vendors. They can do so using business intelligence software as part of an enterprise resource planning solution to better forecast potential hiccups. These systems can help track available resources, following the movement of products and purchasing trends, along with allowing for time to switch gears if needed. While there is no perfect solution, advanced technologies can help supply chain members stay on top of the latest needs to anticipate problems in the future.

Supply chain firms should also understand the changing global economic environment. Even as shoppers begin to return to stores, e-commerce delivery will remain a priority. Businesses should better anticipate large online shopping holidays such as Target Deal Days. These events help drive increases in business volume and have grown in importance as more consumers become comfortable shopping online.

Consumers still expect their e-commerce shipments to arrive in a timely manner. While delays could be expected during the pandemic, consumers have also grown accustomed to same-day service from some retailers. The speed at which merchants can get goods to consumers will be one of the most critical factors of their success.

The Ongoing Driver Shortage

For trucking companies, the ongoing challenge remains staffing. The trucking industry has struggled to employ enough drivers to meet demand, causing additional stress on the supply chain and delivery. Trucking organizations continue to make recruiting pitches to drivers – in particular highlighting the safety and security of truck driving – but still, find themselves in need of qualified applicants.

Both retailers and delivery providers need to plan for these spikes in demand. The logistics ecosystem features many pieces that right now face several obstacles. Businesses cannot just assume the system will work without a hitch. There must be planning and organization to ensure that retailers have the raw goods needed to make their goods and that those goods can be delivered to customers once complete. Customers will have some patience, but businesses – and the logistics companies that support them – should not get too comfortable.

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5 Largest Infrastructure Projects Happening Now

Why Transportation Funding Requests are the Highest

Congressional lawmakers submitted nearly $2.8 trillion in total requests for infrastructure projects to the House Committee on Appropriations at the end of April. These requests stem from the limited return of earmarks, which the parties agreed to earlier this year.

These requests should come as no surprise. Political leaders have long championed infrastructure projects as a way to provide for their constituents. Infrastructure projects are geared to benefit a majority of the community and provide a tangible accomplishment for politicians’ time in office.

Overall, transportation earmarks dominated spending requests in this latest cycle. Spending for labor and health projects was second at $832 billion, followed by interior at $697 billion. It is likely this is just a starting point as more transportation projects will continue to be proposed. 

Let’s look at some of the biggest transportation infrastructure projects lawmakers would like to undertake in the coming year.

Interstate 69

This massive project will one day span more than 2,400 miles from Texas to Canada. It currently features multiple disjointed sections, bringing in concerns regarding its safety and efficiency. One of the significant needs for the project is a bridge over the Ohio River that would carry a planned I-69 extension between Evansville, Indiana and Henderson, Kentucky.

Both Kentucky and Indiana have pledged to spend $850 million on the bridge but requested federal funding to speed up the process.

Hudson River Tunnel

Politicians in New York and New Jersey have long fought to get funding to repair the existing tunnel, which was damaged by saltwater intrusion during Superstorm Sandy in 2012. Local leaders argue the cost is more than the two states can afford and need help from the federal government, which has, at times, supported and rejected the project. An environmental impact statement is expected to be finished soon and could give new life from the project, something Transportation Secretary Pete Buttigieg has signaled as a priority.

Minnesota Bridges

The collapse of the I-35W bridge in 2007 remains one of the most harrowing disasters in recent memory. That bridge collapsed during rush hour traffic, killing 13 people and severely injuring countless more. 

The American Society of Civil Engineers gave America’s infrastructure a poor grade and identified 46,000 bridges in deteriorating conditions. Approximately 600 of those bridges are in Minnesota; these need restoration and repairs to withstand the harsh weather and ensure another accident never happens again.

Ohio Hyperloop

Along with repairs and maintenance, there are funding requests for more ambitious projects. One is a hyperloop in the Midwest that would use a system of sealed tubes with low air pressure to transport passengers rapidly in pods mostly free of friction. Inventor Elon Musk has championed this technology that one day could dramatically improve public transportation and reduce the burden on roads, bridges, and other forms of infrastructure.

Washington Bridges and Transit

A recent Seattle Department of Transportation report found that 65% of the city’s bridges were in fair condition and 6% were poor. Lawmakers would like funding to improve the bridges, invest in public transit and a light rail, fund infrastructure projects in small and medium-sized cities throughout the state, and improve earthquake resilience.

One important project is the West Seattle Bridge, which is the most used in the city. It was closed in March 2020 after cracks were discovered, causing a ripple effect throughout the local transit ecosystem. The results are expected to worsen as more people resume commuting to work as COVID-19 restrictions are lifted.

Finding a Path Forward

These are only a handful of essential infrastructure projects that Congress would like to complete. Major traffic centers, such as Los Angeles, Washington D.C., and Austin, have different projects in the works as well, along with major interstates such as I-95 on the East Coast and I-10 in the South.

These latest budget requests, combined with the Biden administration’s proposed infrastructure spending legislation, could dramatically change the nation’s transportation system over the next several decades.

Infrastructure spending has long been seen as a positive use of public funds. These projects help create jobs, spur future economic growth, and create long-term investment opportunities. The nation’s infrastructure has been built over the last century and needs to be refreshed for today’s current world.

The COVID-19 pandemic showed that changes would come to how people work and gather. Improved electric vehicle technology, ride-sharing, and new public transit methods will also alter future needs.

Used Truck Prices Continue to Skyrocket in 2021 – Here’s Why

The market for used trucks has hit one of its highest points in history—with no sign of slowing down.

ACT Research reported that in March the average used Class 8 truck brought the third-highest price on record, jumping to $52,388 per sale from $43,791 just a year before. The all-time high of $55,000 was recorded in 2015 and may be in jeopardy over the coming months and years. Technavio, a global technology research company, estimates that the used truck resale market will expand at a compound annual growth rate of more than 4% between now and 2025.

But what’s driving this growth, and why do experts believe it will continue for the immediate future? Let’s look deeper at this explosive growth in used truck prices.

A Shortage of New Trucks

The COVID-19 pandemic created shortages and delays throughout the supply chain, including the raw materials and parts needed to build new Class 8 trucks. Meanwhile, demand for new trucks continues to rise. FTR Transportation Intelligence reported that more than 42,800 new trucks were ordered in January, up 144% from the year before.

With more trucking companies looking to purchase vehicles and manufacturers unable to keep pace, the secondary market for used trucks has increased. There is hope, however, that as the pandemic fades away, the supplies needed to build new trucks will return to normal levels—but it may take some time for the price of used trucks to recover.

Strangely, it’s one of the smallest components that’s holding up production. A shortage in the semiconductor supply chain has reduced the availability of computer chips, which are used in both tractors and passenger vehicles. The average tractor can use anywhere between 15 to 35 chips, but pandemic-related slowdowns, two factory fires, and congested West Coast ports have greatly decreased availability.

While things like wiring harnesses, foundry parts, axles, or tires can be added after a truck is assembled, a lack of microchips can slow the entire assembly. These challenges combined with increases in new orders have created an unbalanced market.

As of March 1, the reported backlog of trucks ordered and waiting to be built stands at 228,000. At the current build rate, it would take almost a year to simply clear the backlog if no other orders were placed. Part of that problem is also staffing. The COVID-19 pandemic impacted the ability for manufacturing workers to be on-site, resulting in a labor shortage.

The Benefits of Used Trucks

Auction and retail prices for late-model, low-mileage used trucks, in particular sleep truckers, are up. These models are at their highest point since J.D. Power began tracking the segment in 2015. Used trucks tend to hold their value more than other vehicles as drivers must adhere to strict standards to stay on the road. A lot of truckers also invest in their vehicles, adding amenities once they own the truck—both to make it more comfortable while on the road and to increase potential resale value.

According to J.D. Power, the average sleeper tractor retailed in March was 68 months old and had approximately 458,000 miles on it. Its selling price of $57,489 cost almost 30% more than just one year ago. Due to new truck shortages, companies that traditionally cycled trucks out on a three-year or five-year cycle may hold on to them longer, further reducing the availability of used trucks.

High Demand + Low Supply = Pricey

The need to carry freight has remained strong, and trucking companies with staffed drivers on the road can start charging higher fees. Those extra funds could, in turn, be used to purchase more expensive vehicles if and when they become available.

Contract freight rates are near record levels, as are spot rates, after season adjustment. This has been exacerbated by people leveraging online ordering and delivery, along with the distribution of stimulus checks that provided many families with additional income.

That said, the trucking industry as a whole finds itself in an odd predicament. There is a strong need for drivers and trucks but not enough of both. Companies and owner/operators will have to decide if they want to invest in a newer used vehicle, make improvements to their existing ride, or get in line for a new truck now. With the end of the pandemic hopefully in sight, there is hope that the production of new trucks can increase in the coming months.

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