Big Rig orders reach 12 Year High

A Wall Street Journal article published shortly after the holiday season highlighted the severe, ongoing shortage of 18-wheeler trucks. This led to logistical nightmares during the holiday season, sending shipping costs soaring in addition to forcing shippers to either postpone orders or pay astronomical prices to have their orders fulfilled on time. The article used Michelin, a tire manufacturer as an example; “Michelin North America Inc. cut its daily shipments of synthetic rubber from one plant by a fifth earlier this month and is at times paying double its usual price for temperature-controlled trucks, said Eric Stuch, a logistics manager at the tire manufacturer.” Despite some manufacturers cutting their shipments, the overall number of shipments in the market is steadily rising. For the week ending January 20th, there were about 10 truck loads waiting to be moved for every truck that was on the road, up from 3 the same week a year earlier. Many companies have cited the cost of freight in recent lower than expected earnings reports.

According to a more recent article, the markets seem to be adjusting. Orders for big rigs hit a 12 year high in the first month of 2018, fueled by a booming demand for freight and a recent tax overhaul. Unfortunately, the distribution bottleneck is not solved by simply placing an order for a truck. The truck manufacturing industry as a whole currently has a backlog of nearly 160,000 trucks. The good news is that production is expected to increase 25% this year, representing a daily production increase to 1,300 trucks from 1,100 trucks this past December. The increase in production is attributable to moves such as the ones Diamler Trucks North America is making. The company is relying on a flexible manufacturing system, where orders are distributed to various plants dependent on the available capacity, with the goal of alleviating bottlenecks.

Another issue contributing to the reduction in freight capacity is the lack of drivers and trouble recruiting drivers. A low current unemployment rate further inhibits the ability to recruit drivers. This has led to many companies having their orders shipped by rail, which almost always much slower than by truck.

So what does this all mean? In a globalized world, supply chains stretch far and long. The supply chain for the iPhone spans across 30 different countries. When raw materials or finished products reach the American coast, they rely on these freight companies to move their goods to their next destination. Logistically, a shortage of freight can lead to waiting lines or bottlenecks in processes where outside sourced parts are added, if the parts have not arrived on time. On the other end of production, a shortage of freight can lead to a bottleneck at the distribution stage, if there is no truck available to move the goods out of the warehouse or factory.

 

https://www.wsj.com/articles/trucking-companies-ordered-most-big-rigs-in-over-12-years-1517913000?mod=searchresults&page=1&pos=10

https://www.wsj.com/articles/a-shortage-of-trucks-is-forcing-companies-to-cut-shipments-or-pay-up-1516789800?mod=searchresults&page=1&pos=5

https://www.wsj.com/articles/trucking-companies-race-to-add-capacity-drivers-as-market-heats-up-1516453200?mod=searchresults&page=1&pos=20

 

 

 

9 thoughts on “Big Rig orders reach 12 Year High

  • February 27, 2018 at 3:58 pm
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    You have well identified the bottleneck of the process, and, also some solutions. But, I was thinking about a post done a couple of weeks ago about automates tracks and I think that this would be a better solution to eliminate the bottleneck of this process. It is seems that there is not enought truck drivers to meet the demand, so intentory is been acumulated in this step. So, if Micheline would opted for automation they could be able to deliver all the inventory that is being hold. They would increase their cost at the beginning, but they would also be able to meet all the demand.
    Also, automation does not end here, othere companies are going beyond that. Yes, they do deliver their products through automation, but they also use these technology to prove their delivery operations in the moment; they do not need to make contact with the driver in order to make sure that the inventory is where it has to be. They can visualize and track the path of the inventory; so they also improve the control system.

  • February 27, 2018 at 8:26 pm
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    Fixing the bottleneck that is occurring due to the shortage of drivers will be hard since the U.S. is so dependent on drivers. Other countries probably don’t have this much of a problem because other countries aren’t as big as the U.S. and don’t have miles and miles of highways that need to be travelled in order to deliver products. Companies have come up with some solutions to the trucking shortage problem, such as the use of drones. The only problem with drones is that they can’t compete with the scale that trucks can deliver. Until another solution can be worked out, I think the truck driver issue will have to be resolved. This article (https://www.cbsnews.com/news/america-faces-shortage-truck-drivers/) talks about how some fleets are offering to pay training and licensing costs for new drivers to incentivize them to become drivers. However, covering those costs aren’t enough since the current wages do not make it easy to cover the cost of living. I wonder if putting more money into paying higher wages would actually increase overall profits by fixing the bottleneck problem and ultimately selling more products.

    • February 28, 2018 at 9:32 pm
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      During my study abroad experience in UK, I was amazed at UK’s rail system’s efficiency and how it connects the whole country. I am aware that such a system of rail network cannot be implemented in the US due to its exorbitant size but at least companies can take advantage of the rail network available and use it to ship its products. If more companies use trains, the system might improve over time and become more efficient. This use of rail networks will decrease the pressure on truck companies to hire more workers since some of the burden will be shared by shipping products through trains.

  • February 28, 2018 at 1:45 am
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    Interesting topic Sam. It seems that you have identified a bottleneck that has led to other bottlenecks. The most logical solution to alleviate this problem would be to hire more drivers. I am sure this has been tried, but in order to be efficiently employed trucking companies will need to negotiate higher wages and better benefits for their drivers. The increase in freight cost is to be expected during the shortage. Creating the good is only half the battle, I am glad you wrote about this topic because getting the finished product or raw materials to the customers is the other feat that companies must overcome.

  • February 28, 2018 at 5:12 pm
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    Like others have mentioned it seems the two main ways to alleviate the bottleneck is to hire more employees and to buy more trucks to put on the road. Obviously if this were a simple fix we wouldn’t be having this discussion, but it seems there is more going on that is causing this labor shortage and lack of available trucks. Clearly trying to incentivize more people to apply to be truck drivers is important but in order to prevent future shortages it’s important to predict industry trends like this to make sure the supply of trucks can meet demand. These days the online industry is booming. This means more and more people are wanting things to be shipped to them, causing an increase in the required number of trucks to ship these materials. Staying ahead on industry trends is extremely important. Shipping companies should likely follow the shipping patterns of some larger companies like Walmart and Amazon to monitor the increase in shipping in the industry. An article that I have linked below discusses how Amazon has been investing in a fleet of trucks themselves that go along with their shipping drones. If Amazon sees the need to increase their number of trucks, then it’s likely they are not the only ones. Staying ahead of demand is a great way to prevent backups and bottlenecks and could help alleviate some of the problems faced by shipping companies in the future.

    https://www.wired.com/2015/12/amazon-buying-trucks-is-boring-but-absolutely-necessary/

  • February 28, 2018 at 11:13 pm
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    Regarding the United States, trucking has been established as the prioritize shipping tool. Freight flying is too expensive, tracks do not cover the terrain sufficiently, while highways and other roads essentially connect every corner of the states. With that said, it is infeasible to transfer shipping method, so as this bottleneck problem becomes even more of an issue. In my opinion, I see this shortage as an opportunity for new freight production companies to enter the competitive market and ramp up national production levels. The WSJ states that supply materials for trucks have maintained their levels, meaning that more companies can potentially enter the market and commence production to normalize the demand and supply. However, I do think the higher level of unemployment causes some problems. In the medium-term though, as inflation is balanced with unemployment, I think more jobs will be demanded again and the industry should be back on track.

  • March 1, 2018 at 12:00 am
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    A factor that could be contributing to decreased production is an increased emphasis on technologically advanced trucks. As some other blog posts have mentioned, moves such as Amazon’s to acquire Whole Foods signify a shift in the grocery industry away from brick-and-mortar. With the rise of e-commerce, shipping, on the whole, is increasing, and along with it, shipping with specific technological needs. In the food example, this means the trucks must have refrigeration and/or freezing capabilities to ensure that foods do not go bad while in transit. Truck producers may be spending more time looking into how to expand their production of more advanced trucks, in turn taking resources away from their current production.

  • March 1, 2018 at 8:31 am
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    This is certainly a complex problem, one that does not have an easily attainable solution. As Carmen mentioned, the post from a couple weeks ago about automated truck drivers is where I think we will ultimately find the answer. However, we really have no idea when automation could become a reality, not to mention any sort of regulation that may arise. It is becoming almost impossible to incentivize individuals to become truck drivers at the rate needed to comply with high levels of e-commerce demand, so when you have a bigger, market-wide issue, I’m not sure simply trying to hire more drivers is a viable solution. An article I looked at broke down the shortage and gave some potential solutions. The sense I got is that the only solution consists of altering the perception behind truck driving in some way. Besides driverless vehicles, the other solutions were based on targeting different demographics, ranging from age to gender to race. This is certainly no easy task, to appeal to entire demographics to spur interest. However, I do think trucking companies and manufacturers need to try other strategies to find employees, rather than simply trying to hire more people.

    Source: http://ltxsolutions.com/truck-driver-shortage-causes-problems-solutions/

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