By Molly MacKay Zacker

I sat down with Bob Dieli this morning to see what is topping his list of current concerns about the economic outlook. There were three.

1. The supply chain, by itself.

2. The supply chain and its effects on inflation.

3. The supply chain and the F-Bomb. 

As to the supply chain, an issue that is front and center in the trade press these days, you know how much of a problem we face. I asked Bob when we may see some relief. He said not before mid-year 2022, but it may be even later because unwinding the current mess will involve unwinding several messes inside the mess. For example, there is a significant imbalance between the volume of freight flowing from west to east because the two largest ports are Long Beach and Los Angeles. The problem is that a truck that takes a load from, say, Los Angeles to Dallas, has little incentive to return to Los Angeles for another load because it will have a hard time finding a load from Dallas to Los Angeles to cover the cost of the trip. So, the issue is not an absolute shortage of trucks, it is having trucks in the right places.

Bob also mentioned that the long line of ships you have seen pictures of anchored off Long Beach and Los Angeles may actually be helping to solve the problem. How? They can’t go back to get more freight until they unload this round which will cause a lull in deliveries on our end while the ships go back to Asia to get the freight waiting for them there, and bring it here. We need to take advantage of that pause.

The interruptions to the supply chain have created problems all through the system. Producers can’t get parts. Retailers can’t get stock. And, not surprisingly, this has led to higher prices. So, yes, we can blame some of the price increases we have seen on the supply chain. But, there are other elements at work.

Which brings us to inflation and the F bomb – Fuel, Food and Forts (housing).

Let’s start with fuel. During the pandemic months, gasoline prices dropped to a national average of $1.87 per gallon in April of 2020. When we checked the other day, the national average was $3.41. And that was largely because gasoline consumption has been rising steadily as the economy reopened. While crude oil prices are also up, most of the change in the pump price is the result of higher demand. So far, supply chain issues here are relatively small, with local delivery issues being the most affected by the shortage of tanker truck drivers. The petroleum production and refining system is largely independent of the other supply chains.

The food supply chain was disrupted during lockdown (and most of us experienced this as it was, at times, difficult to find our desired food items in the grocery store). Many of us did not realize that the food supply to grocery stores and the food supply to restaurants are quite different. During the pandemic, very little food supply was needed for restaurants, so the supply went to the grocery stores. But, the meat that goes into a hamburger you cook at home does not come in a 50 pound bag like the meat used to cook the hamburger you have from a restaurant. Food suppliers had to adjust for that difference, and that also caused supply chain problems. Now that both channels are more or less in full swing, the two are competing for the same product, driving prices up at the wholesale and at the consumer level. When was the last time that hamburger was $6.00/pound? That is mostly the result of the pressure from the demand side. Now, throw on top of that the supply constraints stemming from the labor shortage that meat packers and slaughter houses are experiencing, and you have a perfect storm.

Forts (housing) is the third piece of inflation. The real estate market is hot in many areas of the country. Supply is low and demand is high, and prices are rising. The end of the rent moratorium is going to revive the rental market as landlords seek to get back-rents and also seek higher rents because of strong demand. This process is likely to continue into next year.

Bob closed with a reminder that inflation this time is different and bears little resemblance to the double-digit inflation we’ve experienced in the past. It would take an extraordinary set of circumstances to take us there, starting with gross negligence by the Federal Reserve.

What will be the biggest challenge in the new year? The supply chain. 

E-commerce Parts Purchasing Study

Our 2022 E-Commerce Parts Purchasing Study has launched! We are nearing completion of surveying fleets and distribution channels on their current e-commerce practices. Our report will explore issues from current online purchases, obstacles preventing online purchasing, favorite online sources, website and parts attributes desired by online purchasers, best and worst online experience, frequency of ordering and much more. Please reach out to John Blodgett or Travis Kokenes to learn more about this Study.

Ag AND CE DISTRIBUTION STUDIES ARE ON THE HORIZON

We are pleased to announce that MacKay & Company is offering an Agriculture Equipment Distribution Report with research to start this month. Similar to what we currently provide for the DataMac Truck & Trailer market and we previously provided in the agriculture and construction equipment markets, our report will be based on an extensive survey with agriculture farm equipment parts distributors (OE & Independent) that sell parts into the agriculture farm equipment aftermarket. We will profile where these businesses source parts from, margins, pricing, inventory levels, service labor rates, percent business online and a number of other factors including your input if we hear from you soon.

We plan to have the survey to Agriculture Farm/Field Equipment Parts Distributors this month. If you would like to provide input for this survey, have questions, or want to purchase the report, contact John Blodgett.

Additionally, if there is enough interest, we will also complete a similar report for the Construction Equipment market. If this is of interest, or you have questions, please contact John Blodgett.

WHAT’S COMING IN 2022??

DataMac Mexico 2022

Since MacKay & Company’s initial study of the Mexican heavy-duty market in 1992, many of the economic – and vehicular – differences between Mexico and the United States have become less significant. Vehicle maintenance practices, for example, are changing to mirror those practices more common in the United States. And parts purchasing practices have also shifted, again to more closely resemble those in the U.S. 

The most recent Mexico Study was completed in 2018. At that time, the Mexican truck and bus markets were growing, as was the aftermarket. Total medium- and heavy-duty truck and bus parts potential in Mexico was positively impacted by growth in both power transmission and undercarriage components. At that time, vehicle operators utilized the independent garage channel to purchase the largest percentage of the parts required on medium- and heavy-duty vehicles. 

What has changed in four years since our comprehensive evaluation of the Mexican market? A new look into the truck and bus market in Mexico will be a key factor in planning for growth in Mexico. How has the pandemic impacted the market? If you have areas of interest or input for our upcoming DataMac Mexico Study, please contact John Blodgett. 

Tool Study

While MacKay & Company can tell you, in detail, how many Class 6-8 trucks, school buses and trailers operate by vocation in the United States and the expected amount of money spent on parts, tires, lubricants and service labor hours to support these vehicles, we have never addressed how much is spent annually on the tools and equipment purchased by the fleets operating their own shops and the shops that repair fleet vehicles and technicians who purchase on their own.

The goal of this research study is to profile the current market size of shop equipment and tools in detail. How much is spent annually on these items? Where are they purchased? Who purchases them and what are the preferred brands? If there are specific topics that your team would like addressed, now is the time to get on-board with the Tool Study; your participation at the time of this study’s inception will allow your input into the topics addressed.

Please contact John Blodgett for more information.