2021: The year of the supply chain domino effect

The economy continues to open at a staggering pace as we enter 2021’s halfway mark. But it’s evident that the supply side of the truckload sector is taking much longer to catch up to surging demand.

The flattening of available capacity is brought on by a combination of:

  • The fourth wave of stimulus checks
  • Alternative employment opportunities in more attractive industries
  • Constrained truck and trailer production lines due to semiconductor chip shortages and other input materials
  • Reduced rate of graduates from driving schools and delays in CDL-processing at DMV’s

Large truckload carriers were already shedding capacity throughout late 2019 and early 2020 and have struggled to add capacity since the pandemic upended the market.

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Dr. Chris Caplice, DAT Chief Scientist, recently noted that supply chains are still in disarray.

“Shortages of raw materials and components plague virtually every supply chain for products and services alike,” says Caplice. “It has shifted from toilet paper (early pandemic) to lumber to plastic resin (after the Polar Vortex hit Texas refineries hard) to ketchup packets. And now teeth whitening and deodorant [are in demand] as people re-emerge from their homes and return to bars, restaurants, and, of course, workplaces.”

The domino effect is dominant. The compounding effect of supply chain disruptions has been fascinating to observe and even harder to predict.

On top of all disruptions, we now have a pallet shortage

Due to record-high lumber prices, there’s a disposable pallet shortage, which further stresses already strained supply chains.

The cause for the high lumber prices?

Low interest rates and urban flight are fueling the housing boom. According to the National Association of Homebuilders, the unprecedented spikes in lumber prices have added nearly $36,000 to the average price of a new single-family home, and nearly $13,000 to the price of a multifamily home since April 2020.”

DIY backyard projects also soared during the pandemic. The frenzy bit deep into the 2020 summer lumber inventory, resulting in a historic lumber shortage.

While pallets are used in many sectors, the produce industry is especially impacted now that its peak harvest season.

In a recent letter to members, the United Fresh Produce Association who represent the full breadth of the produce supply chain, highlighted a multitude of issues impacting pallet availability including:

  • A lack of pallet availability and rising pallet prices add to the stress of already squeezed supply chains
  • Pallet costs are up 400% due to several factors, including high demand and rising lumber costs
  • Wood pallets increased 8% in April (up 14% this year) in the latest Producer Price Index — the largest increases recorded in the last decade.
  • Pallet manufacturers are competing for raw materials with the home construction industry, which has boomed in recent months
    • The shortage of lumber and wood products has increased the cost of raw lumber 200% to 350% and is making the cost of wood pallets increase incrementally
  • Repositioning pallets is a challenge with a strained trucking capacity — not enough trucks and drivers are available to move the pallets from one location to another
  • Pallets may be circulating in the supply chain, but not necessarily in the right place at the right time
  • Dwell time is up for non-perishable inventory, which indicates pallets may be sitting longer at warehouses or loading docks.

Growers need to keep the pallet shortage in mind as they meet the escalating demand for produce. For carriers and brokers, the pallet shortage will also increase loading delays. We may even see hand-stacking cartons and bags of produce like we did in the days before pallets.

DAT