Operators need to brace themselves for the true cost of the supply chain


Operators need to come to terms with the true extent of inflationary pressures in the supply chain, and accept that suppliers can’t absorb the ongoing hikes in costs forever. More of the increases will have to be passed down the line.

This article was originally posted in October, 2021 and was subsequently updated

Since the beginning of the COVID-19 pandemic, the commercial vehicle supply chain has experienced unprecedented disruption - from the lack of components, labour shortages, supply chain bottlenecks, line stoppages, and changing legislation, for example.

In addition, it has seen dramatic rises in the price of raw materials and energy as well as increased costs as a result of supplementary cleaning and the provision of PPE.

Nationally, annual inflation (Consumer Prices Index) hit 9.2% in May. When applied to our industry, though, the ‘real’ number will be well north of this figure, fuelled by significant demand and corresponding increases in the global commodity pricing of steel, rubber, timber, resin, etc. As these increases are applied across our sector, the cost of vehicles, bodywork and ancillaries will continue to escalate significantly in the short to mid-term. 

Currently, transport is one of the biggest contributors to inflation. Operators know only too well that fuel and driver costs have shot up (fuel to record highs) and they see the impact they have on their businesses every day.

However, whilst operators are busy passing on their visible increased costs, anyone who hasn’t bought a new truck or had a major service for a while, will soon discover there are deeper, hidden cost increases. These will manifest themselves when they come to either replacing a fleet or keeping an existing fleet on the road.

Because it’s not just vehicle suppliers; workshops too have been impacted by the lack of skilled parts staff and technicians, the effects of COVID-19 and changes in shift patterns. Their operational situation is further compounded by the ongoing shortage of drivers – demand is high and pushing costs up across the board.  

Most suppliers have had to start offsetting some of these extra costs by introducing charges for services they’ve previously included without charge – such as vehicle delivery, top-ups, etc. 

At the same time, many truck manufacturers have closed their order books, and the supply of new vehicles is going to be very restricted well into 2022. For example, a customer ordering a rigid vehicle today is unlikely to take delivery much before the middle of 2023. 

Usually, operators have been able to turn to rental to fill gaps when manufacturer lead times have extended. However, leading rental, leasing and contract hire suppliers have reported fleet utilisation levels running at record highs for many months now, so, availability is also under pressure: well before any seasonal peak periods are underway.  

What’s more, many vehicles currently on order for those fleets won’t increase the overall pool of available assets. Most will be mopped up by demand carried over from recent years, when operators froze capital purchases as part of their response to COVID-19. This will force operators to further extend usage of already-aging vehicles, against the backdrop of escalating maintenance costs.  

Although fleet churn will release older assets at the bottom end into the used market, they’ll be mopped up by continuing high demand globally. Whilst de-fleeting younger vehicles is appealing, given the recent premium prices, back-filling these will be difficult, which will result in a further slow-down in used sales. 

The reality is that, although we’re witnessing a market correction at the moment, and whilst prices might be at a temporary high, they’re unlikely ever to settle back to where they were before. 

Operators have to realise that suppliers can’t absorb price increases in the supply chain forever. Nor can they, or should they, compromise on their business ethics or their standards. Compliance and vehicle maintenance are too important - as are everyone’s reputations - to put them at any kind of risk. 

Today, right now, almost all suppliers are under pressure to pass increased costs down the line more than ever and, unfortunately, operators have to prepare for the inevitable impact on their businesses and, as a result, on their customers. 

John Fletcher, Managing Director 

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