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A year ago, as the pandemic ravaged country after country and shuddering economies, consumers were the ones panicking. Today, on the rebound, it is the companies that are furiously trying to obtain supplies.
Mattress makers, auto makers and aluminum foil makers are buying more materials than they need to survive the breakneck speed at which demand for goods is picking up and allaying this primal fear of to run out. The frenzy is pushing supply chains to the brink of seizure. Shortages, transport bottlenecks and price spikes are approaching the highest levels in recent memory, raising fears that a supercharged global economy could fuel inflation.
Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is apparently low on all of this. âYou name it, and we have a shortage on it,â said Tom Linebarger, president and CEO of engine and generator maker Cummins Inc., on a call this month.
Customers “are trying to get everything they can because they see a lot of demand,” said Jennifer Rumsey, president of the Columbus, India-based company. “They think it’s going to extend to next year.”
The difference between the great crisis of 2021 and past supply disruptions is its scale and the fact that there is – as far as anyone can tell – no clear end in sight. Large or small, few companies are spared. Europe’s largest truck fleet, Girteka Logistics, says it has been difficult to find sufficient capacity. Monster Beverage Corp. of Corona, Calif., is facing a shortage of aluminum cans. MOMAX Technology Ltd. of Hong Kong is delaying production of a new product due to a semiconductor shortage.
An unusually long and growing list of calamities that have rocked commodities in recent months is making matters worse. An abnormal accident in the Suez Canal bolstered global shipping in March. The drought has taken its toll on agricultural crops. A deep freeze and a mass blackout wiped out energy and petrochemical activities in the central United States in February. Less than two weeks ago, hackers brought down the largest fuel pipeline in the United States, pushing gasoline prices above $ 3 a gallon for the first time since 2014. Today , India’s massive COVID-19 epidemic threatens its largest ports.
For anyone who thinks this will all be over in a few months, consider the somewhat obscure US economic indicator known as the Logistics Managers’ Index. The gauge is built on a monthly survey of corporate procurement managers who ask them where they see inventory, transportation and warehouse spending – the three key elements of supply chain management – now and in 12 months. The current index is at its second highest level of records dating from 2016, and the future gauge shows little respite in a year. The index has been shown to be extremely accurate in the past, matching actual costs about 90% of the time.
For Zac Rogers, who helps compile the index as an assistant professor at Colorado State University’s College of Business, it’s a paradigm shift. In the past, these three areas were optimized for low cost and low reliability. Today, with the growing demand for e-commerce, warehouses have moved from the cheap outskirts of urban areas to prime city-center parking lots or vacant department store spaces where deliveries can be made quickly, but with more expensive real estate, labor and utilities. Once considered a liability before the pandemic, larger inventories are in vogue. Transportation costs, which are more volatile than the other two, will not decrease until demand does.
âBasically what people are telling us what to expect is that it will be difficult to get supply to match demand,â Rogers said, âand because of that, we will continue to see price increases over the next 12 months. “
Better-known barometers are starting to reflect higher costs for households and businesses. A consumer price index in the United States that excludes food and fuel jumped in April from a month earlier compared to 1982. Exiting the factory, rising prices charged by producers Americans was twice as large as economists had expected. Unless companies pass this cost on to consumers and increase their productivity, it will eat into their profit margins.
A growing chorus of observers warns that inflation is set to accelerate. The threat was enough to send tremors to world capitals, central banks, factories and supermarkets. The US Federal Reserve faces new questions about when it will hike rates to avoid inflation – and the perceived political risk is already threatening to upend President Joe Biden’s spending plans.
âYou integrate all of these factors, and it’s an environment for significant inflation, with limited leverageâ for the monetary authorities, said David Landau, chief product officer at BluJay Solutions, a provider of software and logistics services based. UK.
Policymakers have, however, set out a number of reasons why they do not expect inflationary pressures to get out of hand. Fed Governor Lael Brainard recently said officials should be “patient during the transitional wave”. Among the reasons for the calm: The sharp increases of recent times are partly attributed to skewed comparisons with the steep drops from a year ago, and many companies who have held the line on price increases for years. remain reluctant about them now. Additionally, US retail sales stagnated in April after rising sharply the previous month, and commodity prices recently retreated from multi-year highs.
Tensions trace back to global commodity production and may persist as the capacity to produce more of what is scarce – with additional capital or labor – is slow and expensive to increase. Prices for lumber, copper, iron ore and steel have all skyrocketed in recent months as supplies contract in the face of stronger demand from the United States and China, the two most major economies of the world.
Crude oil is also on the rise, as are the prices of industrial materials, from plastics to rubber and chemicals. Some of the increases are already on the store shelves. Reynolds Consumer Products Inc., the maker of the foil and Hefty trash bags of the same name, is forecasting another round of price increases – its third in 2021 alone.
Food prices are also rising. The world’s most consumed edible oil, processed from the fruit of oil palms, has jumped more than 135% in the past year to a record high. Soybeans topped $ 16 a bushel for the first time since 2012. Corn futures hit an eight-year high, while wheat futures hit their highest level since 2013.
A United Nations gauge of global food costs climbed for an 11th month in April, extending its gain to the highest in seven years. Prices are in their longest advance in more than a decade amid weather concerns and a crop-buying frenzy in China that squeezes supplies, threatening faster inflation.
Higher-level technologies have the potential to improve transportation safety and efficiency, but it takes a lot of work behind the scenes to bring these ideas from concept to reality. We chat with Christoph Mertz from Carnegie Mellon’s Robotics Institute and Huei Peng from the University of Michigan. Listen to a sample above and get the full schedule by accessing RoadSigns.TTNews.com.
One of the main reasons for the rally is a US economy that is recovering faster than most. Proof of this is floating off the coast of California, where dozens of container ships wait to disembark at ports from Oakland to Los Angeles. Most goods are pouring in from China, where government figures last week showed producer prices rose the most since April 2017, proving that cost pressures for factories in that country pose a problem. other risk if they are passed on to retailers and other customers abroad.
In the global manufacturing hub of East Asia, the bottlenecks are particularly acute. The semiconductor shortage has already spread from the automotive sector to Asia’s highly complex supply chains for smartphones.
Meanwhile, ships, trucks and trains run at full speed between factories and consumers who transport parts through a global production process and finished products to market. Container ships are running at full capacity, pushing ocean freight rates to record levels and clogging ports. So much so that Columbia Sportswear Co.’s merchandise shipments have been delayed for three weeks and the retailer expects its fall product line to arrive late as well.
Rail and trucking fares are also high. The Cass Freight Index spending measure hit a record high in April – its fourth in five months. Truckload service spot prices are expected to rise 70% in the second quarter from a year ago and are expected to rise by around 30% this year from 2020, said Todd Fowler, KeyBanc Capital Markets analyst , in a May 10 Note.
âWe expect prices to remain high given lean stocks, seasonal demand and improving economic activity, all underpinned by capacity constraints related to truck production limitations and challenges. driver availability, âsaid Fowler.
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