The first Half of 2022 hasn’t provided much relief to Wisconsin businesses who are still navigating supply chain and logistics challenges. Looking at the second half of the year, there may be even more issues to address.
Of course, the spike in gas prices is one of the issues at the forefront of business owners’ minds.[caption id="attachment_552841" align="alignright" width="300"] Neal Kedzie[/caption]
Neal Kedzie, president of the Wisconsin Motor Carriers Association, explained most semi-trailer trucks on the road use diesel fuel and it’s costing almost 40% more than a year ago to fill them up. On average, that’s about $1,200 per fill-up. Even before a new truck hits the road, the cost of getting the appropriate permitting and licenses is approximately $17,000.
To help address fuel prices, WMCA members are focusing on truck maintenance to make sure each vehicle is getting the greatest fuel efficiency each trip. Several carriers are also running shorter, more regional routes to avoid states with higher fuel prices. Reducing idling time is another way to save money.
The WMCA has seen some smaller companies shut down part of their fleet because it’s no longer cost effective. Others are putting off buying new trucks to minimize costs. At the same time, for companies looking to purchase a truck, it can be incredibly difficult to do so.
Kedzie predicts that some smaller operators will not be able to survive current operating cost increases and that there will be an increase in trucking company mergers and buyouts.
“It’s going to be a rough additional six months here,” Kedzie said.
While rising fuel costs have been a drag for a good portion of southeastern Wisconsin businesses, some have remained almost immune to the problem – at least for now. Such is the case for Waukesha-based Z.T. Distribution, a full-service, direct store distribution company for the grocery trade.[caption id="attachment_552843" align="alignright" width="300"] Scot Trojanowski[/caption]
“Historically, we’ve been relatively recession-proof, and now we’re pandemic-proof,” said Scot Trojanowski, president of Z.T. Distribution.
The company is seeing organic growth and, with costs of goods on the rise, an increase in revenues.
“The increase in units is sort of exaggerated a little bit because of the price increases on top of that, so we benefit from that,” Trojanowski said.
That doesn’t mean there haven’t been challenges elsewhere. The company had to wait over a year to welcome a new semitruck to its fleet. Prices on trucks are also increasing rapidly. One truck Trojanowski looked at last November saw a price increase of more than $17,000 in a four-month period.
“The type of investments we have to make in overhead – labor, fuel, those sorts of things – those are all up double digits. It’s sort of relative. Because those costs are going up, so are the costs of goods, which increases our revenue supply,” Trojanowski said. “If those were out of sync, we’d be in big trouble.”
However, Z.T. Distribution can’t stay on this route forever. Company leadership is constantly monitoring what their margins need to be moving forward. It’s not feasible for the company to continue absorbing costs in the long run.
“You can’t keep taking on higher wage rates, higher fuel, higher costs of machinery and not increase your margin at some point, but the increased sale dollars helped us soften that blow,” Trojanowski said.
Long-term strategies Z.T. Distribution has used to tackle some of these issues include investing in inventory to help prevent delayed product arrivals. The company has increased its inventory by 50%.
One of the most common supply chain issues companies continue to face is simply moving freight along. Sandi Siegel, president and managing partner at Milwaukee-based logistics services firm M.E. Dey & Co., said it is a little easier to find space for your goods now than it was at the start of the year.
Spot rates – the rate you get if you ask for space without a contract – have gone down significantly.
Freight carriers are still seeing record-breaking profits because of recent contract rate negotiations. They’ve been able to lock in more contracts at higher rates, making up for the drop in price for spot rates.
“Importers were really anxious to sign contracts this year to try to lock in a rate with such a volatile market. You also get a better likelihood of getting space,” Siegel said.
The biggest unknown now is whether the union representing West Coast longshoremen will decide to strike. Their normal contract includes a no strike clause, but that contract has expired. Siegel said not too many people in the industry are expecting a strike, but a slowdown is still a possibility.
“They keep working, but you can’t force how fast they load containers or move goods around,” Siegel said. “Any kind of disruption or slowdown, which has been a previous tactic, would be really challenging to the already congested volumes.”
The union is still in negotiations and a sticking point continues to be automation. While port operators see increased automation as a way to address congestion and help with the ongoing worker shortage, longshoremen see it as a threat to their employment.
Siegel said automation would allow containers to be stacked higher and more densely, and workers would have a better way to track what’s inside each container.
To help combat the effects of a possible slowdown, importers can split up their freight so a portion of goods avoids West Coast ports.
“The whole rhythm of supply chains was disrupted, and it’s still disrupted,” Siegel said.
She predicts congestion at ports will start to ease up by the end of the year and said there’s already indication of more available space on the market, however, getting back to pre-pandemic levels of moving freight and costs might never happen.
Infrastructure issues will continue to be a long-term issue to resolve.
“We need some more investments in automation to be able to handle our cargo more efficiently,” Siegel said. “We need to build more infrastructure, and that includes our terminals, our highways, … the ability for truckers to move around and deliver freight more efficiently. It’s still a really fragile supply chain.”
Brian Sprinkman, chief executive officer of Port Washington-based Molded Dimensions, said the company wasn’t having the same supply chain issues other manufacturers were seeing until the past six months. What has hit the company hardest is hiring challenges.
“If anyone thinks in five years we’re going to solve this labor problem, it’s actually going to be worse,” Sprinkman said.
To address the worker shortage, Molded Dimensions brought on a full-time recruiter. Boosting marketing efforts have also helped attract talent. In 2021, the company had approximately 85 employees. Then, they hired another 85 people, with 40 staying on. The company has also welcomed a full-time logistics coordinator.
While Molded Dimensions has been investing in recruitment efforts, the company is also looking at introducing more automation to make things more efficient and cheaper, Sprinkman said. Since Molded Dimensions also does business overseas, the company produces 30% of its goods in other countries to keep prices competitive.
Employee wages have increased by 15% over the past year, and the company has just sent out its second price increase notification of the year. Still, Molded Dimensions is on track to beat its record-setting 2021 by 20% this year.
Right now, the company is just trying to make its deliveries on time in a world where lead times are longer than ever and often difficult to pinpoint accurately.
“When we ask our suppliers about contracts, rebates, guarantees, … there are very few of them that are interested in that conversation right now,” Sprinkman said. “I don’t think things are going to change much in the next six months.”