Computer chip shortage stalls Class 8 production, further dampening trucking capacity

First it was a shortage of meat because of coronavirus outbreaks at Midwestern meatpacking plants. Then came varying shortages of toilet paper, Clorox wipes, bathrobes, office desk chairs and medical needle containers, among other necessities in the time of COVID.

Now it’s trucking’s turn.

The culprit is a worldwide shortage of computer chips. This latest disruption in global supply chains first affected Japanese auto makers Toyota and Honda. But it has since spread to Samsung Electronics, the world’s largest maker of smartphones.

It is estimated at least 20% of the world’s supply of computer chips are offline these days.

The reasons vary. First, it was a combination of port issues affecting global shipping lines. Then, those crippling late winter storms in Texas and elsewhere were blamed for a worldwide shortage of plastics.

In late March, Mack’s parent company, Sweden-based Volvo Group, said the chip shortage will have a “substantial impact” on second-quarter production in the second quarter at its plant in Allentown, Pa., and elsewhere.

As a result, the worldwide motor carrier giant will initiate “stop days” across the globe to preserve precious chips and other production necessities.

“In the beginning of the quarter, the group will implement stop days across its global truck manufacturing operations,” Volvo said. “In total, these are currently estimated to between two and four weeks depending on production site. In addition, disturbances are also expected to impact the group’s other business areas.”

This is affecting both truckload and less-than-truckload (LTL) fleets around the nation.

It’s starting to affect the trucking industry’s Class 8 sales, which were off to a torrid start in 2021. Even with the driver shortage affecting overall capacity, trucking companies are seeking to modernize their fleets to take advantage of fuel savings, reduced maintenance and newer amenities.

Top trucking executives say it’s expensive. A single Class 8 truck costs upwards of $140,000-to-$150,000—before volume discounting, that is. And that price does not include fleet specifications—or spec’ing—which can add a few thousand dollars per unit.

“It’s a good time to have trucks, and it’s a good time to have newer trucks,” Derek Leathers, vice chairman, president and CEO at Werner Enterprises, the nation’s seventh-largest truckload carrier, told LM recently.

Noting his company’s power fleet averages two years old and its trailers are just four years old on average, Leathers added: “It’s a good time to be in that situation. It’s going to be hard to get new trucks, it’s going to be hard to get trailers and hard to get incremental growth without them.”

“We have been impacted,” Taki Darakos, Pitt Ohio vice president of vehicle maintenance and fleet services, told LM.

He recently received a call from Pitt Ohio’s Freightliner sales representative who explained the chip shortage is causing two plants to close and that Pitt Ohio’s straight truck order will be delayed approximately three months. 

“We have not yet seen these chip shortage issues pop up at Mack or on the Freightliner tractor line but feel like it will at some point,” Darakos said, explaining most of its tractors have 15 or more computers.

“This will have an impact downstream,” he added. “Most of the order boards are pushed out till the end of the year or into next.  You don’t have a lot of options but to wait it out, and you have to begin to juggle things that you weren’t prepared for.”

Because of advance planning, Pitt Ohio has enough equipment, but it will probably result in putting more money into some older equipment, officials said. 

There’s been a spike in leased trucks and used equipment. “On a daily basis our parts team is spending a lot of time searching for parts to keep the fleet up and running,” Darakos added.  “I’m hoping that things start to smooth out but it feels like it will be rough for the next few months.” 

The semiconductor shortage has been ongoing since last November and hit automakers first. They temporarily idled some plants late last year. Chip manufacturers then shifted some production to televisions and computers. Sales of those products were booming worldwide because the pandemic kept so many people at home.

Automakers have been forced to cut production as a result. Volvo has cut auto production in the United States and China as a result of the chip shortage. Further exacerbating the problem was a fire in late March at a Renesas Electronics Corp. plant in Japan that makes chips for automakers.

Help is on the way, but it may take awhile. Intel Corp. says it is investing $20 billion on new factories and rely on more outsourcing to alleviate the crunch.

Kenny Vieth, ACT’s president and senior analyst, told LM truck orders “are coming in hot and heavy.” For example, in the last two months of 2020 and first two of this year, there were 189,000 orders. That compared with 181,000 for all of 2019.

“In February, we hit 44,200 pre-orders,” Vieth explained. “We’ve seen backlogs grow from 91,000 in August to about 228,000 units backlogged in February. “Truckers are still saying, ‘I want trucks."

The impact is immense. This shortage is coming precisely when demand for new trucks is strongest, experts said.

In February, Class 8 build per-production day was at its lowest level since August. That six-month low in build rate in February is indicative of what could be construed as the beginning of truckers’ chip issues.

To show how critical computer chips are in a modern 18-wheeler, Vieth said there are 17 clusters of chips on a typical Class 8 truck.

“Because they are so ubiquitous, you can’t just build that truck and finish the truck later like you could with a piece of sheet metal,” said Vieth, who estimates the current shortage will run through mid-year.

This comes on top of other commodity prices rising. Steel prices are setting records nearly every week. Copper prices are at a 15-year high. The result is commodity price surcharges on trucks.

“I would totally expect there has to be some commodity price surcharge” connected with the chip shortage, Vieth added.

The shortage hasn’t hurt truck makers to the same degree as auto manufacturers, but it is another factor tamping down capacity in trucking.

“Our survey of motor vehicle parts was down 8% in February so it’s a very real issue,” Avery Vise, vice president of trucking for FTR Research, said recently. “It’s one of several factors limiting heavy truck production.”

The shortage comes amid a hot heavy-duty truck market, Vieth said. ACT is forecasting Class 8 retail sales for North America of slightly more than 300,000 trucks this year. That’s a 40% jump from last year. If they can find enough chips.