During our April 14 Market Pulse webinar, our panel of experts discussed details pertaining to the recent supply chain crisis, as well as, the latest economic update, small business insights, and consumer credit trends.
This month’s presenters included Daniel Pickett, Chief Data & Technology Officer at Freight Waves; Robert Wescott, President & Founder of Keybridge; Sarah Briscoe, Lead Commercial Statistical Analyst at Equifax; and Tom Aliff, Risk Consulting Leader at Equifax.
Our presenter, Daniel Pickett followed up with audience members’ questions* about supply and demand, and which industries were affected in the supply chain crisis. Daniel Pickett answers the many critical questions below on the recent supply chain.
Watch a replay of our April webinar, “Market Pulse: Combating the 2022 Supply Chain Crisis” or download a copy of the presentation.
Could you give a brief introduction on your background and what you focus on at Freight Waves?
Daniel Pickett: I am Daniel Pickett and I lead the technology and data science team at Freight Waves. Freight Waves is essentially a bloomberg but for supply chains. We bring news, data, and analytics regarding what's happening in transportation inventory level, warehousing globally, and especially domestically. We're about a six year old company. We pull together data that is really fresh up to the minute and what's happening with the physical movement of goods around the world.
What are you seeing on the ground in terms of supply chain issues? What are some of the biggest risks to organizations?
Daniel Pickett: Everybody's heard about some aspect of supply chain lately. It's been kind of a watershed moment for the supply chain to be at the forefront. Unfortunately, it's not been for great reasons over the last two years. What we've seen is inventories starting to stack up, and there's a few things going on there, some healthy, some not so healthy. I think that a lot of companies really got obsessed with maximizing their profitability by having just in time inventory. It was to drive their inventory thinner to get their margins up, and that's been the name of the game since the last recession. COVID-19 obviously threw a wrench into that plan, and a lot of companies said “We want to carry a little more inventory, so we don't have stock out, so we don't have these production line shuts, so we don't miss the sale for some kind of substitute good.” That’s probably a healthy trend for consumers' ability to get the things they order.
The less healthy trend is in really complex manufacturing things like automobiles. This is where everyone’s heard about the shortage in computer chips. There is a shortage in computer chips, but there's a surplus of the 4,999 other parts you need to make a car right now. The auto manufacturers in Europe have been struggling because of metal and supply chain prices. However, it's certainly tough here too. But, these car manufacturers, they have tons of cars that are a few parts away from being ready to be done. Inventory builds some good, some bad, but net, we have been building inventories overall for the last 12 months, and especially the last three months.
The volume of shipments that have been happening nationally have been a big health indicator of the physical goods economy. Some other presenters mentioned that as services shut down, you can't go to the movies, you can't go to the ballpark, you can't go anywhere else, and at the same time, the government's handing out stimulus with want and disregard. People had money burning a hole in their pocket, and so they spent it.
Ultimately, what we saw is with freight shipment volumes, when the first lockdowns happened, there was a run out of toilet paper and any kind of non-perishable food and anything you can throw in the freezer just disappeared, so, then we had a huge bump in freight, as we resupply the grocery stores. Then for about three months, there was really nothing shipping. The consumer hunkered down and they started eating through their freezer and using all the toilet paper in their pantry once they figured out they were not going to run out of toilet paper.
And then government stimulus came out, and that is when we first saw something great, which was the parcel delivery boom. You could start ordering stuff online and at that time we began this amazing rally. In the volume of things we were shipping around the world, everybody saw the container ships outside the port of L.A. At times there were 140 ships waiting to go in and unload. We've seen that come down and it's now in the mid 40s today. But, as far as shipment volumes go, they are still elevated. The reason they've been falling and what we've seen is every time there's a new round of stimulus there's a surge in shipments.
How do you see the automobile industry coming out of its supply chain problems? Do you see motor vehicle production ramping up over the rest of 2022?
Daniel Pickett: Automakers are going to turn out cars as long as demand is sustained. Given a few years of supply side constraints, there is still massive pent up demand. China will recover from the chip backlog slowly, especially with the new BA.2 lockdowns happening right now. I could easily see it taking until the end of this year, and into the next, for chip production to catch up with new car demand.
If the Federal Government keeps raising interest rates over the coming quarters, how do you think the housing sector will respond? Is it possible that housing prices could actually fall?
Daniel Pickett: Interest rates hit housing affordability much harder than they hit auto affordability. Within the country, the areas seeing net immigration are better poised to weather a hit than those with net emigration. I wouldn't rule out price declines in areas where populations are shrinking.
We are hearing more about stagflation risks. What is stagflation? If the Federal Government raises interest rates sharply in the coming quarters, and inflation remains at elevated levels, are you concerned that the U.S. could suffer from stagflation?
Daniel Pickett: Stagflation is stagnant growth (near 0% nominal) while inflation pressures persist. This leads to negative "real" (inflation adjusted) growth. This effectively means that inflation actually makes each of us poorer, because the cost of goods and services increased, but the overall increase in all business activity did not exceed the price increases. Stagflation happens at the personal level when inflation is larger than your annual raise. This means people overall have less disposable income, which is rarely a good sign for the economy.
Who are the firms who are helping companies logistically that you referenced?
Daniel Pickett: Project 44 and FourKites are the clear leaders in tracking/visibility. In my biased opinion, FreightWaves is a leader in the data/analytics space, but DAT, Truckstop, GreenScreens and a few others are also providing solutions. I think Interos and Everstream each have interesting platforms for monitoring specific risks in your supply chain. And I'd be remiss if I didn't mention that our host, Equifax, has done some interesting acquisitions and partnerships in the supply chain data space.
Can you speak to the driver shortage impact?
Daniel Pickett: People get confused about the term driver shortage. Over the longer term, there is a driver shortage. Young people are not choosing the profession at the rate that experienced drivers are retiring. In the shorter term, driver shortage is a convenient way to say "not paying a market rate for this really difficult job." A company driver at most of the enterprise fleets can earn $75,000 or more. The catch is that the driver is away from home, and working 12 hour days or longer, six or seven days a week. And the driver gets no pay when the wheels aren't spinning. In a way, the driver's worst enemy is other drivers. Big fleets have trouble paying drivers more, because raising prices almost certainly means losing volume.
On the other hand, when rates increase company drivers quit, buy a truck and start running their own 1-man trucking company. Some independent drivers have a solid understanding of all the costs of operating a trucking company like a huge depreciating asset, and that you must pay yourself a driver salary, but still charge enough to have money left over as profits. But high rates tend to insulate the less business savvy small carriers. Once rates decline, a race to the bottom happens, as newly minted trucking companies compete against each other to collect enough revenue to make their truck payment, cover repairs. This competition forces the big fleets to keep rates competitive, by holding the line on driver pay. And the cycle repeats.
How easy is it for organizations to gain visibility into their supply chains? What factors go into that and how can they gain greater visibility?
Daniel Pickett: Supply chain and all has really been under invested for the last 30 or 40 years. In the last five, it's gotten a ton of investment and there's some really interesting and innovative companies who are out there, trying to help people see beyond their tier one suppliers, their tier two, and tier three suppliers. There are a number of companies that are doing a better job of track and trace and on time predicted delayed delivery. All these are things that didn't exist 10 years ago in the supply chain. But, if you look at information technology, if you look at financial services, and those industries who have been adopting modern technology for 30 years, supply chain was early in what I would call the modernization journey that a lot of others have gone through, but still, there are some really interesting options out there to help you manage it better because, ultimately, the future is unknowable.
But, the sooner you realize what has just happened and start reporting on daily information instead of monthly reporting, it could really help you make decisions about whether to accelerate or pare back some of that CAP X, or whether to aggressively take market share or prepare for maybe more lean times in your specific industry. The most sophisticated companies are absolutely taking advantage of this information.
I'm with Freight Waves and we help companies that have to transport things around the world, or who are in the business of transporting things to make better decisions, but there are a number of really innovative visibility and kinds of predictive capacity and on time delivery vendors out there who are really helping companies make smarter decisions about how to not waste capital. While we don't have a crystal ball yet, we're getting a lot better at having up to the minute information, instead of you know kind of continuing to row in the wrong direction for months or quarters, at a time.
* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.