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.
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.
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.
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?
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.
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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As the coronavirus took its toll on the world in 2020, some industries—like the hospitality sector—were deeply impacted as government-mandated restrictions and virus-related fear prevented restaurants and bars from operating at maximum capacity. E-commerce, on the other hand, saw an enormous surge in demand with companies like Walmart and Amazon seeing record levels of revenue during the pandemic. The trucking industry, too, was not insulated from the impact of the pandemic. Large numbers of jobs lost and new challenges on the roads forced the industry to quickly adopt innovative new technologies in order to overcome the impact of the pandemic. Here are four technology trends emerging in the trucking industry that owner/operators should keep an eye on in the coming months.
1. Autonomous Vehicles
Almost straight out of a science-fiction movie, autonomous—or self-driving—vehicles are becoming a reality as manufacturers like Tesla begin producing more autonomous consumer vehicles. The trucking industry has become an early adopter of autonomous technology for their freight shipments due to an increased demand for shipping and a shortage of long-haul drivers—caused by economic instability and the tough nature of the trucking industry. Autonomous trucks manufactured by Waymo are already in use on the roads today in California, Arizona, New Mexico, and Texas, and Waymo has plans of expanding into more states in the future. Proponents of autonomous vehicles argue that self-driving semi-trucks will eliminate human error behind the wheel, lower costs of shipping, and increase efficiency across the board for trucking companies. There is some trepidation about turning toward autonomous vehicles; some worry about accidents caused by self-driving trucks while others worry about the loss of critical jobs due to the addition of autonomous vehicles. If companies begin turning toward utilizing their own autonomous vehicles, it could have a negative impact on the number of available trucking jobs.
2. Smart Technology
Another important trend to watch out for in 2021 is the use of new and improved technologies to optimize the efficiency of long-haul shipping. Smart technologies on trucks improve safety for lane departure detection, lane keep assist, assisted braking, tire pressure monitoring, and even load stability. Furthermore, logistics companies are utilizing new technology for enhanced tracking and reporting to minimize human error and to have a better grasp of where their freight is at all times. The improved tracking is beneficial for planning when truckloads can be dropped off and picked up, as well as for providing customers with accurate updates. Alongside this technology, owner/operators can use new technology to locate cargo while on the road to reduce the amount of time spent on the road with an empty truck. With freight matching technology, drivers can ensure their trucks are always full and they are maximizing revenue capabilities at all times.
3. Data Analytics
Data analytics has made its way into pretty much every industry, from marketing to manufacturing to the trucking industry. Owner/operators use analytics to capture important data pertaining to their cargo, their trucks, and their routes; using this data, they can make valuable improvements to their performance, thus saving time and money and even helping them to drive more safely. According to Transmetrics, one study conducted by Supply Chain Management World found that “64 percent of executives think that big data and the insights it brings will have a disrupting power that can pivot the industry forever.” Data analytics also provide valuable insights into freight markets that help owner/operators uncover trends and patterns in the industry to pinpoint new opportunities and improve existing ones.
4. Electric Trucks
Electric trucks are making their way into the freight industry. Tesla already designed an electric semi-truck that can travel almost 500 miles on a single charge, and in 2019, Neuron EV released the TORQ, a fully electric semi-truck. With rising fuel costs, electric trucks can save owner/operators money in the long-term, improving their overall bottom line. Additionally, electric semi-trucks are much better for the environment, and companies have begun employing electric trucks to lower their carbon footprints. While electric trucks will not be replacing your entire fleet right away, they might eventually as states like California begin passing legislation to crack down on carbon emissions produced by the trucking industry.
As truckers begin preparing for 2021, it’s important to embrace the new technologies that are changing the long-haul industry for the better. While the trucking industry isn’t going anywhere, we’re seeing the emergence of new technologies that can benefit both drivers and carriers. Autonomous vehicles, smart technology, data analytics, and electric vehicles are reshaping the modern trucking industry, making the job easier, more accurate, and safer along the way.
There is no doubt that the COVID-19 pandemic has had an impact on the vast majority of industries throughout the country; the freight industry is no different. Currently, carrier rates are skyrocketing, surpassing the all-time high for rate prices several times throughout the course of the year. As we enter peak freight season, now is the time for owner/operators to run hard in order to maximize revenue and take full advantage of a unique holiday season where spot rates are at record highs. Traditionally, owner/operators tend to work fewer hours when carrier rates are at their highest. With higher rates, drivers are able to reach their financial goals faster, using the extra time to catch up on rest or family time. A little downtime will always be a good thing, but this holiday season is shaping up to be different; rather than take time off, more and more owner/operators plan to run hard through the new year for multiple reasons.
Possible Country-Wide Shutdown
As COVID-19 infection numbers throughout the United States spike to global highs and the country prepares for a shift in leadership, the economic uncertainty in the air is palpable. The transition from President Trump to President-Elect Biden brings with it a new plan for combating the pandemic, which could mean another country-wide shut down. In November, the president-elect’s coronavirus advisors proposed a plan to shut the country down for four to six weeks at the start of the new year to combat the virus. Shutting down the country has a very real impact on the trucking industry, and owner/operators should understand the possible impact a shutdown could have on business and revenue streams.
Increased Wait Times for Pickup and Dropoff
While on the road, a driver’s livelihood depends on their ability to drop off one load and pick up another quickly and efficiently. Turnaround time for freight drivers makes the difference between a successful season and an unsuccessful one. During the first shut down, many truckers faced drastically increased wait times at pick-up locations due to social distancing measures and decreased on-site staff. For drivers, every hour is valuable and when they spend more time waiting they spend less time driving, or worse, less time resting—a tired driver is a dangerous driver. Ultimately, the increased time waiting leads to less time spent driving and loss of revenue. If another shutdown is on the horizon, owner/operators should use this peak season to prepare their finances to account for delayed travel times or anticipated time off if necessary.
Closed Towns and Changed Routes
These increased wait times weren’t even the worst problem many drivers faced. Many of the towns, businesses, and rest stops long-haul drivers rely on closed as well, leaving drivers with few, if any, options along their routes. Long-haul life can be daunting and dangerous, and with limited access to clean and safe rest stops and restrooms, a shutdown would severely impact a driver’s quality of life while on the road, forcing some to make the decision to avoid those routes completely. When drivers are forced to change their routes navigating unfamiliar routes can lead to increased time on the road, unsafe conditions, and even delays in shipments costing drivers valuable time and money in the long run.
Possible Increase in Industry Unemployment
In the event of a second shutdown, owner/operators should be financially prepared to take time off of work. The first shutdown led to record unemployment rates in the trucking industry, with 88,000 people losing their jobs in the month of April alone. The previous record was set in April 1994 when 49,000 people in the industry lost their jobs. While unemployment numbers have gone down, the industry still faces the very stark reality that a second shutdown could have comparable effects. Owner/operators should take this opportunity to build a nest egg for their families while rates are at their highest and opportunities are available—before the new year brings further uncertainty to the United States economy.
Record High Rates
Even if the country doesn’t enter a second shut down, freight rates will likely never reach today’s record prices again. In October 2020, dry van spot rates were 60 cents higher than in October of 2019—a 30% increase year over year. This rise in prices is only expected to continue through the holiday season as e-commerce sales soar, making this the perfect time to execute one last push before 2021 brings unpredictability and doubt. With the inevitability of either a second shutdown or prices returning to industry norms, owner/operators don’t want to miss out on the current gold rush happening in the industry.
Whether the country faces another lockdown or not, the rates are bound to return back to normal early in 2021. Many owner-operators understand the importance of the next few weeks to reaching their financial goals for the year. As we enter the high-demand holiday season, driver’s should run hard to maximize their annual revenue before the start of the new year.
Days are becoming colder and shorter, festive lights are appearing on every street, and fleets of semi-trucks are working to move holiday goods in tandem with their essential deliveries. This peak season, you can anticipate a 10-20% increase in your mileage as you travel the U.S. to transport products and meet high consumer demand. The combination of demand, winter road conditions, and the restrictions of the COVID-19 pandemic can lead to truckers feeling more pressure than usual.
Not to mention, this year, companies like Amazon and UPS plan to fill over 100,000 seasonal distribution jobs throughout the United States. As these large retailers hire seasonal workers, the demand for shipping providers will mirror the growth—which means you need to prepare yourself and your rig before starting on a busy haul during peak season. In this blog, we will discuss how you can prepare, get ahead of your competition, and reach your maximum earning potential while staying safe and enjoying the holidays.
1. Preventative Maintenance
Caring for your rig is crucial to the survival of your operations. A great way to start the caretaking process and prepare your truck for peak season is through preventative maintenance. If your truck has recently been idle for an extended period, you could be looking at rusted parts, sludge where there once were fluids, and other potentially critical issues. With the holiday season approaching, take your semi to a mechanic to perform a full inspection; they can then handle any necessary maintenance, like an oil change or hose replacement. While this may seem like a costly process, it could mean the difference between a successful season and a broken-down rig. In the long run, taking care of your truck will keep you safe and your truck running smoothly all season long—which means more jobs and greater revenue.
2. Vary Freight Sources
When COVID-19 forced America to shut down, around 88,300 drivers lost their jobs in April alone. This hit was devastating to the trucking industry, and it caused many owner/operators to reevaluate how they run their fleet. As technology progresses, mobile apps and load boards are on the rise in popularity among drivers. A source like DAT keeps up with the industry’s varying factors, like the economy or the weather. Technology can also provide real-time updates and insights to keep you in touch with your supply chains and help obtain your maximum earning potential.
On top of mobile apps and load boards, you can work with companies like Amazon, Walmart, Target, and more. As e-commerce demand sets new records year after year, the holiday season continues to see spikes in spot rates as companies meet their contract limitations but rush to keep up with shipping demands brought on by the COVID-19 shutdown. Spot rates have hit a record high of $2.37 per mile this year and will most likely surpass that number in these next few months. Keep an eye out for these job openings over the next couple of months.
3. Revisit Your Insurance
Another way to prepare for this unique holiday season is to revisit your insurance. The COVID-19 pandemic brought immeasurable amounts of uncertainty, and it’s during times like these that insurance becomes crucial. While commercial trucking insurance is one of the more expensive components of owning and operating, it reduces the majority of your expenses and covers you in the event of an accident. With the winter weather bringing harsh weather conditions, your chances of an accident increase, making peak season the perfect time to reach out to your provider and reevaluate your damage and rental coverage.
4. Practice COVID-19 Protocol
Possibly the more obvious way to prepare for the COVID-19 holiday season is to familiarize yourself with the standard protocol. As you travel, you’ll find yourself in unfamiliar locations; plan your route by keeping in mind where you can eat, sleep, and refuel. Restaurants and fast-food locations across the country have had to change their operation hours, so you’ll need to consider that when planning your route. On the bright side, some of these restaurants are providing discounts and other offers for the inconvenience. These can be found under the International Franchise Association at franchise.org.
The same restrictions and benefits go for accommodations as well. Try to limit your exposure by decreasing the number of times you interact with frequently touched objects and disinfect these objects and surfaces when you can. Stay socially distanced from others during stops or when loading and unloading, and use a proper face covering in public. Wash your hands after visiting a location or handling items like clipboards or other frequently touched objects. To keep up with state and local regulations, use government resources like the CDC, ATA, CVSA, FMCSA, FHWA, and the SBA.
Now that you know what it takes for a successful peak season, it’s time to get to work.
While this year has higher shipping demands due to COVID-19, the holidays have always come with their own set of challenges. Read our post, How the Holiday Season Impacts the Trucking Industry, to see what obstacles the holidays present and how to overcome them.