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Supply Chain Update – Hint: Disruption is Not Going Away and as The Who Warned Us: Don’t Get Fooled Again
I am traveling for the last time this year and when I am on the road I get to reflect a lot on what is actually going on within supply chains and what we can expect into the future. Here are some things I have reflected on and believe for 2022:
Disruption is not Going Away:
Short of a major economic turndown, the container issues, ship issues, port issues, driver and transportation issues all will continue through 2022 and into 2023. There is no evidence that until significant ship and container capacity comes on line (2023) there will be much improvement. As we have learned this last few weeks, the “appearance” of improvement has been somewhat of a mirage. Ships are slowing down and they are at anchor just further out at sea.
COVID Is Moving from a Pandemic to an Endemic:
The definition of an endemic is something that is around us and never going away. Covid will be around us, at a baseline level for the foreseeable future. The next time you hear someone say to you, “When this is over… “ , remind them we are going into our 3d year. This is the “way it is” and masks, vaccines and therapeutics will be needed likely for the remainder of my life. Supply chains cannot “wait until this is over “ to implement change and execute process improvements. We have to learn to work within it.
Shippers Will Continue To Take More Control of The Assets:
We all have seen the stories of big companies leasing ships but who would have thought a large furniture company would buy a large trucking company? This is a perfect example where shippers will be adjusting their supply chains to deal with the massive margin inflation in purchasing of supply chain services. It takes a while but supply chains will adjust. Product will be on-shored, assets will be insourced, and networks will be redesigned to adjust and mitigate the inflation.
This was started by Amazon when they bought Kiva Robots and they have progressively taken control of their own destiny. Amazon will surpass UPS and FEDEX as the largest package shipper (on their own assets) sometime next year. The massive margin inflation passed to shippers this year is not sustainable and it will end.
We Will See 3 Interest Rate Hikes in 2022:
This is breaking news as it was today the Fed had their press conference after the December FOMC meeting. You decide what this means for your business but suffice to say the “punch bowl” is going to be removed from this economy. I personally believe this will mean a number of “zombie” companies will struggle to survive. The easy money will be gone and companies which generate no profit will not continue to be valued at such high levels as they are today.
A Few Charts:
Those who know me know I track the FRED Inventory to Sales ratios as an indicator telling us what stage the restocking and the “normalization” of supply chain is in. The news is that we are still dramatically lower than we need to be and this means restocking will continue for the foreseeable future (See Disruption is Not Going Away above):
Penske Launches Offensive to Battle Catalytic Converter Theft
Catalytic converter theft has skyrocketed in recent months as organized groups of thieves continue to illegally cut these devices out of cars, SUVs, and rental trucks at an increasingly alarming rate.
While this has been an ongoing issue for several years, thefts have increased exponentially throughout the recent pandemic period.
Penske's corporate security team is now spearheading a significant outreach program to law enforcement at the city, state and federal levels and cooperating with various catalytic converter theft task forces in hotspots around the country.
"We're also undertaking an aggressive effort to use a new etching technology and exploring other methods to better track stolen catalytic converters within our expansive fleet of trucks," said Scott Brunner, vice president of Security at Penske Transportation Solutions.
Catalytic Converter Thefts by the Numbers
Catalytic converters are emission control devices used on vehicles including Penske's rental trucks that help reduce air pollution.
Thieves are stealing these devices because they often contain high-value metals such as rhodium, platinum and palladium. Once removed and stolen, these devices are then sold by thieves to metal recycling and scrap yards netting the thieves a hefty payday.
"Catalytic converter theft is an increasing problem for consumers and businesses," Brunner said. "It's not a victimless crime. The theft of these devices can cause customers great inconvenience, disables vehicles for repairs, and drives up costs for consumers."
A recent State Farm report examined catalytic converter theft claims from July 1, 2020 to June 30, 2021, and found thefts grew nearly 293% nationwide, representing more than 18,000 instances.
Compared with the same time period just a year earlier, theft reports from the last half of 2019 to the first half of 2020 numbered just above 4,500.
State Farm reported the total paid to customers during the most recent 12-month period was more than $33.7 million. In the previous 12-month period it was slightly below $9 million.
When it comes to claims, California leads the way with more than 3 out of 10 claims being filed in the state. Texas is second, with roughly 1 out of 10 claims, followed by Minnesota, Washington and Illinois, according to State Farm's examination of data from the first half of 2021.
While the value of metals contained in catalytic converters is a driver of the increase in thefts, the National Insurance Crime Bureau linked the thefts to the lingering effects of the COVID-19 pandemic.
"We have seen a significant increase during the pandemic. It's an opportunistic crime. As the value of the precious metals contained within the catalytic converters continues to increase, so do the number of thefts of these devices," said David Glawe. NICB president and CEO. "There is a clear connection between times of crisis, limited resources, and disruption of the supply chain that drives investors towards these precious metals."
As of the end of February 2021, 18 states – Arkansas, Georgia, Hawaii, Illinois, Indiana, Iowa, Minnesota, Missouri, New Mexico, New York, North Carolina, North Dakota, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, and West Virginia – are evaluating potential legislative actions to curb the theft problem, according to the NICB.
Protecting Your Fleet
Penske Truck Leasing recommends all fleet operators take note of this trend and to take protective measures including:
- Properly secure vehicles
- Park in well-lit areas
- Use perimeter fencing when vehicles are domiciled overnight
- Invest in parking lot video surveillance
- Train drivers to look for signs related to theft or tampering during their pre-trip and post-trip vehicle inspections
- Inspect the catalytic converter area often
- Report catalytic converter theft to law enforcement immediately
By "Move Ahead" Staff
Impact of inventory shortages on US new vehicle industry market dynamics
As the industry grapples with exceptionally low inventory levels, an obvious question is what else is impacted? Clearly, retail deliveries have been hit hard, as we've seen the SAAR plummet from 18.5 in April down to 12.2 this past September. But a metric that has also been impacted substantially, but one that doesn't get as much visibility as retail deliveries, is brand loyalty. As the chart below indicates, as industry days supply has been declining from its January peak, brand loyalty has followed the same path, starting just one month later. The correlation coefficient between these two metrics is a robust .79, rising to .86 if the March and April 2020 COVID months are removed.
Not surprisingly, not all brands' loyalties have been impacted to the same degree. Among the 19 mainstream brands, Ford, Subaru, and Chevrolet are seeing the greatest direct correlation between days supply and brand loyalty. In contrast, Buick and Mitsubishi are experiencing inverse correlations, implying that as inventories dwindle, brand loyalties actually rise.
Within the luxury space, Lincoln, Porsche, and Mercedes-Benz show the greatest direct correlation between brand loyalty and supply, while Genesis has a mild inverse correlation.
These data identify those brands whose loyalties drop in the most direct correlation with inventory shortages, or those brands most vulnerable to defections in today's environment. An efficient marketing and/or conquest campaign will focus on these marques while bypassing those brands that seem more immune to the inventory shortages.
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