THE SUPPLY CHAIN CRISIS IS UNPRECEDENTED, BUT AGAINST ALL ODDS, DEMAND FOR NEW TRUCKS REMAINS STRONG
Supply: Automotive manufacturing has a complex supply chain, and manufacturers have been following a tried and tested process that has worked well for the last three to four decades because of the stability of the global supply chain. If the recent events have taught us anything, it’s that we are not prepared well for major supply chain disruptions and that we’ll need to have more backup plans to prepare for future uncertainties.
This is an unprecedented challenge from many perspectives. All of us compete to sell trucks, but now we’re in a peculiar situation where we are competing internally to get trucks manufactured and delivered to customers.
Due to the shortage of raw materials, we find ourselves fighting with other manufacturers for raw materials, especially semiconductors.
The automotive industry including commercial vehicles constitute around 10% of the global market for semiconductors. So, we need to compete intensely with manufacturers in every industry to get a bigger share of the existing supply.
We’re still figuring out the complexity of the crisis and its impact on all industries because of the interconnectivity of the global supply chain. The lockdowns in China and Russia-ukraine war continue to add pressure on manufacturers that operate in these markets and source materials from them. We’re also facing increasing freight costs and shipping delays. Recent data indicate that with every two vessels that arrive on time in the Middle East, the third vessel will arrive a month late.
To build a more supply chain, we may need to reconsider the structures of current supply chain, change best practices, increase multisourcing or source from more local suppliers. We may also need to partner more with other manufacturers to solve common technological and sustainability challenges.
We’re tackling these supply chain issues amid the pandemic; every time we detect a Covid positive case in our factories, we are required to shut down production for weeks. There are many unpredictable variables which make it very difficult for us to forecast demand and supply. But, we are managing a lot of these issues by planning systematically and communicating with our suppliers, partners and customers on a daily basis in order to fulfill urgent needs.
Demand: When looking at global megatrends and future projections for population growth, infrastructure building, expansion of cities, urbanization and e-commerce, the need for trucks to transport goods is more evident than ever before. Trucks will be essential for construction, long-haul freight transport, city distribution, and waste collection and transport.
All these trends apply to the Middle East and Africa, where there’s strong demand in all major sectors driven by infrastructure spending. The
boom in e-commerce has changed consumer behaviour in that they are used to having goods delivered to them. This demand can only be fulfilled with more trucks for urban distribution and last-mile delivery. As consumption increases so will the generation of waste, which will create more demand for trucks to collect and transport municipal waste.
MARCO TORTA, IVECO
Supply: As global manufacturers, we’ve managed several crises over decades, but the current situation is unique because of the combination of several factors we’ve not seen before. Globally, there’s a growing demand for trucks worldwide, but we’re not able to deliver them due to the shortage of components. Vehicle delivery delays can extend up to one year from the time of placing an order, and we’re contesting with our suppliers and factories to get components and vehicles to meet demand. Furthermore, due to the rising energy and transportation costs, we have seen production costs increase substantially in the last six months.
I think our dealers and customers understand this situation and all of us hope that we can find a solutions to these problems soon, but the uncertainty in fulfillment of orders remains our concern, and we can only tackle it with the support of all our stakeholders.
Currently, most manufacturers depend on a sole supplier or small number of suppliers for certain components. So, a further diversification of supply chains could be the answer to some of our current problems. We could also look at a redesign of our factories to incorporate more automation to achieve higher productivity.
Demand: The demand for trucks is well distributed across different sectors in the Middle East and Africa. Some sectors will outperform the others; for example, the UAE will need more trucks for city distribution and Saudi Arabia will need more trucks for construction, to deliver the several mega projects in the country.
DOUGLAS RANKINE, CHEVRON
Supply: We depend on long, complex supply chains to manufacture and deliver fuels and lubricants to customers worldwide, and we're not immune to the current global supply chain crisis and the unprecedented challenges of managing demand and supply. The pandemic in 2020 and its different variants led to a series of events including lockdowns, a notable fall in oil prices, shortage of raw materials and shipping delays. In 2021, we saw extreme weather events such as the North American cold wave, Greece wildfires and the Suez Canal blockage. This year, the extension of lockdowns in China and
the Russia-ukraine war have exacerbated the situation. Our business, specifically, witnessed challenges in the chemicals and additives supply chain. We realized the interconnectivity of the production and refining of finished lubricants. With reduced air travel, refineries had to be configured to switch from producing aviation (jet) fuel to larger amounts of diesel, gasoline and base oils instead. This was an unparalleled event for the oil industry. We, like every other industry, are facing one disruption after another, and we are looking at different ways to manage these disruptions by optimising and localising our supply chains. I believe we will come out of this situation stronger and more capable to resolve similar issues in the future.
BAHATTIN TOPCU, FORD TRUCKS
Supply: The supply chain crisis has reminded us about the extent of interdependence between global suppliers and reiterated the fact that no manufacturer can operate in isolation.
There are many factors beyond our control, but we try to maintain as much control as possible over our production process. We don’t have the luxury of losing a day of production due to Covid positive cases, shortage of components, shipping delays or other reasons. So, we have adopted a flexible approach that keeps our production lines running irrespective of the availability of all parts. We produce trucks with missing parts and complete the full assembly at a later stage when the parts are delivered.
Before the pandemic, we would receive shipments twice or thrice a month, but since then, it has reduced to once a month. If we don’t have the majority of the truck completed before the arrival of missing parts, we will face an additional 1–2 months in delivery.
By producing trucks partially, we have been able to deliver vehicles to customers as soon as we receive parts. Although these deliveries may be in small quantities and intermittent, the delays due to complete suspension of production would be much longer.
To ensure the full availability of our workforce, we implemented very strict rules for interaction and social distancing in our factories since the beginning of the pandemic.
In addition to these measures, we believe in maintaining transparent communication among all our partners. The trucking business is built on trust, and therefore, regular and honest communication can go a long way in alleviating fears about the current situation and its impact on business. Our customers and distributors are aware that we are doing everything in our control to meet delivery commitments.
Before the pandemic, we aspired to have fully automated ‘dark’ factories that could operate without human intervention. However, we are adapting ourselves to a more flexible approach to production, inventory and workforce management.
Demand: There’re growth opportunities in every sector, but demand varies with markets. A higher proportion of construction trucks will be needed in Saudi Arabia and Egypt to build their new cities. In the UAE, I see growth opportunities in the waste management sector.
OLAF PETERSEN, DAIMLER CV
Supply: The pandemic reminded us that supply chains are very complicated and highly vulnerable to disruptions. Perhaps, after the pandemic, everything goes back to normal, and we return to the conventional way of sourcing form few, specialist suppliers at the best price. Until then, procurement departments will definitely rethink purchase decisions and opt for multiple suppliers that are geographically close to manufacturing facilities.
We procure our trucks from six different factories all over the world, and while we see challenges in the supply of trucks, we cannot generalise them: while certain production lines are fully operational, others face shortage of semiconductors. That said, not all shortages are related to semiconductors; many supply shortages in Europe are also due to the Russiaukraine war, which has not affected us.
We are managing these shortages and delivery schedules with the support of our distributors and customers, largely by planning ahead. But, there are limitations to how far we can plan ahead when trucks are not available. So, forecasting supply or sales has become very difficult. I don't think that any manufacturer can forecast one year ahead, and I would even doubt that it this situation will continue into the foreseeable future. So, it’s a bit of a gamble, trying to estimate short-term and long-term demand, how to fulfill demand and from where to supply, all with very little certainty. I think manufacturing will need to be highly flexible until the situation nomalises.
Having survived over two years of the pandemic, we can hope that the worst is behind us. A new phase of the pandemic, lockdowns, shipping delays or war will need to be addressed at the global economic level rather than supply chain alone.
Demand: There’s consistent demand for trucks across all sectors in the Middle East and North Africa, due to several factors including vehicle replacement in aging fleets, high oil prices, and revival in economic activities since the pandemic and increased government spending on infrastructure.