ILMA Compoundings - June 2021 - 27

The driver situation isn't going to improve anytime soon,
and shippers play a critical role in helping carriers attract
and keep drivers, Costello said. " A big thing shippers
can do is provide a nice environment for drivers, treat
them well and get them unloaded or out of their facilities
quickly, " he explained.
GROWTH IN CONSUMER SPENDING AND
MANUFACTURING
Consumer spending affects freight, and demand for durable
goods has increased. " We have to go back to 2004 to find a
stronger market for consumer spending, " Vieth said. " The
pandemic just absolutely lit a fire under the goods-producing
segment of the economy. "
In addition to consumer spending increases, Vieth said
there has been an increase in the manufacturing industry.
" When we came into the pandemic, we were in a manufacturing
decline that was six quarters long. Now the decline is
rolling off, " he said.
Vieth said millennials are entering the age range where
people typically get married, have kids and buy their first
homes. " That has been driving strong demand for housing,
and that is reflected in housing prices and is aided and
abetted by very low housing rates, " he said.
Lumber and steel have been at record high demand,
which drives machinery demand and generates a lot of
freight, Vieth said.
DEMAND FOR TRACTORS
Vieth said demand is " white hot " for Class 8 trucks right
now, and the manufacturing industry's ability to satisfy that
demand is constrained. " Class 8 demand is in fine fettle, and
trailer demand is equally the same, so the challenge is on the
industry to ramp up production in a capacity-constrained
marketplace, " Vieth said.
A global shortage of computer chips has added to market
constraints. " This global chip shortage is challenging, " Vieth
said. " To build vehicles today is to use a lot of chips. "
In March, Volvo announced that it would implement
stop days across its global truck manufacturing operations
because of the shortage of semiconductors. " In total, these
are currently estimated to between two and four weeks
depending on production site, " Volvo said, adding that the
effect on output would be " substantial. "
Steel availability is also a challenge, as is the availability
of oxygen, which is used for cutting, bending and welding
steel. " At the end of January, the Mexican government told
oxygen suppliers in Mexico that they were to send oxygen
supplies to medical demand instead of industrial demand.
Seventy percent of what is traditionally industrial oxygen in
Mexico has been diverted to the medical side of the demand
spectrum, " Vieth said. " There are a lot of constraints that
would appear to be sticky at least through the first half of
2021 in terms of the industry's ability to ramp up Class 8
production as rapidly as they would like. "
IHS reported that Class 8 registrations decreased to
197,000 in 2020, compared to 269,000 in 2019. That is
expected to recover to 226,000 by the end of 2021, and
registrations are expected to increase to 231,000 in 2022.
" Currently, we have seen a
minimal impact to rail. However,
with the increase in pressure
on the trucking market, I
expect to see an increase in rail
shipments through the U.S.,
which will drive higher cost and
capacity in the rail market. "
Ricky Adkins, Senior Supply Chain
Logistics Manager, Manufacturing,
Idemitsu Lubricants America Corp.
" We've seen a sharp recovery in truck sales at the back half
of 2020 and in early 2021, " Divis said. " I can tell you that
so far, that recovery has been mostly driven by replacements
as opposed to capacity expansion by fleets. "
However, some capacity expansion is going to be necessary
to handle the expected increase in economic growth, Divis
said. " The other supply chain issue is really the fact that when
we look at 2020, production, in general, got cut for Classes
4 to 8 a lot more than demand, " Divis said. " So, to really
achieve the upside for demand, production is going to have
to ramp up much more quickly than demand for a period of
time. And it remains to be seen if that can be done. "
RATE INCREASES
Adkins said he saw freight rates start trending up in 2019,
and he expects to see increases for the next couple of years.
The percentage increases vary by region, but some lanes have
doubled in cost. Adkins said he typically budgets for a 3%
rate increase each year but anticipates it will be much higher
right now.
" For me, the bottom line is everyone should expect, plan
and budget for a minimum 6% increase in 2021 and 2022,
27
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