Special Report Covid crisis

ONGOING COVID-19 CRISIS SEE TRUCKING COSTS SOAR

Story by Shannon Williams

The ongoing global Covid-19 crisis is seeing the cost of doing trucking business in New Zealand hit the roof – with no end in sight.

With the pandemic causing shipping delays, labour shortages, and longer lead times, the costs of manufacturing, product components, shipping and employment within New Zealand’s transport sector have all increased.

David Boyce, CEO at the New Zealand Trucking Association, says the costs for New Zealand trucking companies have gone up significantly.

“The trucking industry is no different to any other businesses or parts of the New Zealand economy that have been affected by Covid. You have all the delays in shipping materials that have caused the costs of things to go up. If you try and go buy product, even at retail level, you’ll get told there are delays,” he says.

“The cost of steel has gone up, the cost of tyres, fuel – all those things have gone up, and all those things are driving up labour costs as well.”

Boyce does cost-modelling for companies looking into the viability of buying trucks and trailers. “In the past 12 months, at least 20% to 25% of those trailers have gone up in cost. It’s quite a bit,” he says.

“And a lot of the truck and trailer manufacturers and truck-body builders – they have lead times for everything.

“It all flows through, and operators definitely need to keep tabs on their rates to make sure they are not going backwards. You have to be reviewing your freight rates pretty regularly to make sure you are keeping up with all the increases in costs.”

Boyce says the increased cost from throughout the supply chain is being passed on to consumers.

“At the end of the day, trucking operators can’t keep absorbing costs – they’ve been doing that for decades, and you can’t keep doing it forever.”

Impact on supply “brutal”

Craig Fowler, business manager at HCB Technologies NZ, says the impact of Covid-19 has been “brutal” on the supply side.

“Particularly in North America, a lot of the wage subsidies over there are quite generous, so a lot of the manufacturers are struggling to get people to work because they are basically getting paid the same money to stay at home,” he says.

“One of our largest American suppliers is running at 50%, so when you have a factory and you’re short 35% of your staff, you can’t operate. So they end up sending staff home, and the result of that is the mothballing of massive factories in the States that we draw a lot of commercial product from.”

Fowler says that will impact the coming year because the company will be facing stock shortages from key suppliers. In response, HCB has had to find alternative suppliers to meet the market.

“We’ve hedged ourselves as much as possible with other suppliers, so we draw products from Europe, the States, Central America, South Korea and China, so we have enough options that we can move volume around,” Fowler says.

“But it’s like squeezing a balloon. When you think you’ve solved one problem, another one pops up, and it’s going to be like that for a while. Some of the American factories are telling us it’s 12 to 18 months before we’ll see stock again.”

For HCB, Fowler says the most dramatic increase in cost is freight. “It’s brutal. It’s something we do have to pass on onto customers, and

TRUCKING COST$

we have a price rise going through in the middle of October,” he says.

However, it’s not all bad news, with HCB taking a punt early on in the pandemic to overstock itself as much as possible. “We are now carrying additional stock to help us to get through,” Fowler says.

“We managed to get that into the country before the supply chain collapsed, so we are actually wellpositioned to serve the market. That punt paid off – it could have gone horribly wrong. So we are very happy with our stock position at the moment.”

Lead times blown out

Richard Smart, general sales manager at Southpac Trucks, says the company has seen an increase in costs relating to the manufacturing and shipping of finished trucks. He says the problem can be seen across the entire supply chain, from increased raw components costs to delays in shipping, and staff shortages.

“Most of the automotive industry is seeing issues with microchips, and components such as steel, rubber and fuels are rising quicker than usual.”

Lead times have also completely blown out.

“Capacity constraints have increased most manufacturers’ lead times way beyond normal, so only those brave with their stock holdings will have supply in 2022,” Smart says. He adds that Covid-19 has slowed productivity and makes business harder to function effectively.

“We still support essential trucks with service and parts, but the rest of our business has to operate at home.”

Second-hand vehicles on the up

Boyce says while costs were increasing before Covid-19 hit, it wasn’t to the current degree.

“You only have to look at house inflation and things like that – it’s gone absolutely bonkers. Covid has definitely made everything a lot worse,” he says.

“The supply chains are stretched as far as things coming in from overseas are concerned, and little old New Zealand at the bottom of the world – sometimes we’re a wee way down the chain of supply. If you look at the number of trucks that New Zealand buys, I think we buy about half a percent of the world’s production of trucks – so it’s a lot easier for these factories to fill their orders closer to home.”

Boyce says one of the flow-on effects is that it has driven up the price of latemodel second-hand vehicles.

“That’s if you can buy it,” he says. “Some operators just can’t get new trucks, and there are such long lead times on trailer builds and that sort of thing.

“So operators have been trying to buy good secondhand stuff, but that’s not even there. You end up with operators that are buying vehicles that already have a million kilometres on the clock because they can’t buy anything that is low-mileage.”

Boyce says the current labour shortage throughout New Zealand caused by closed borders meant wages have increased across the board.

“One of the effects of Covid is that it has restricted many of the people who would’ve traditionally come into New Zealand and filled some of those labour gaps, so that’s driving up wage rates quite significantly. And that’s having an impact on rates.”

However, Boyce says that just because wages have gone up, it doesn’t mean the labour shortage has got any better. “Covid is driving up everybody’s wages in the economy,” he says.

“It doesn’t necessarily mean that people are coming in and driving trucks because the rates are better than being a builder. It’s just because everybody is paying more.”