Since the latter part of last year, North American heavy commercial truck orders have been extremely strong as freight rates remain very high. Both contract rates and spot rates are in record territory, primarily driven by consumer spending, a strong housing market and an improving manufacturing sector.
The anticipation of the stimulus spending and increasing vaccination rates for Covid-19 are also driving optimism in the economy. However, rising inflation could derail the improving economy.
Supply chain issues, particularly with regard to semiconductors, will be the biggest obstacle for sustainable production this year. Relatively low production capacity and high demand in numerous applications outside of the automotive segment are primarily driving this disruption.
The semiconductor shortage was spurred by chip manufacturers who pivoted toward consumer electronics during the worst of the pandemic as truck and auto sales sharply declined. Vehicle orders rebounded quicker than expected, leaving a shortage within the automotive segment. It can take several weeks – if not months – for semiconductor manufacturers to switch between production of different types of chips.
According to a survey by the Technology & Maintenance Council of American Trucking (TMC), respondents claim the ongoing shortage of semiconductors along with scant availability of other parts and supplies are causing delays for trucking fleets. The survey found that 73% of respondents have experienced delays in taking delivery of new vehicles due to the semiconductor shortage. The shortage is affecting light, medium and heavy-duty vehicle classes.
The TMC report found that the shortages are extending beyond microchips. One respondent said a shortage of foam for reefer bodies is impacting deliveries of new units and repairs to existing equipment. Exhaust gas recirculation coolers are also reportedly in short supply.
While the pandemic brought the semiconductor issue to light, the increased demand for these components not only in the automotive segment but also other industries such as consumer electronics will continue to be a risk moving forward. Most of the OEMs believe the semiconductor shortage will impact all of Q2 2021 and likely extend into Q3 2021. However, it is uncertain what the total impact will be.
The ports of Los Angeles and Long Beach continue to be a bottleneck to the supply chain. While backlogs at the ports are not uncommon, the result of the pandemic has significantly increased this problem. Not only are the ships delayed in reaching the ports, freight is being further delayed after being off-loaded onto trucks or railcars to exit the ports. The West Coast Ports account for one-third of U.S. imports and this problem is expected to last until late this year or even early 2022.
Supply chain disruptions are not uncommon when demand quickly goes from very low levels as seen during the first three quarters of 2020 to very high demand which started in the fourth quarter of last year.
The OEMs have implemented strategies to cope with the supply chain disruption. In March, Volvo implemented “stop days” across its global truck manufacturing operations. According to Volvo, their New River Valley plant in Virginia, is affected by the supply chain constraints facing the industry, including semiconductor shortages, as the truck demand is exceeding the supply. Mack believes there will be non-production days in the second quarter. Volvo production was also disrupted by a two week strike in April which affected shipments in the second quarter.
Daimler has implemented a process of revolving downtime for medium duty production in Mount Holley and Santiago Mexico due to the global shortage of semiconductors. The revolving downtime is used to maintain a reduced level of output, maintain employment levels and allow the company to move back to full-scale production immediately when needed.
Navistar and PACCAR are facing the same issues and are adjusting production schedules accordingly. The semiconductor shortage reduced PACCAR’s truck deliveries in the first quarter of 2021 by approximately 3,000 vehicles. However, these deliveries will likely rebound later this year.
Basically, the OEMs currently plan to maintain employee and capacity levels to be prepared for an uptick in production when the supply chain disruptions improve. PSR
By Chris Fisher, Senior Commercial Vehicle Analyst
