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The pandemic may no longer be an imminent issue facing machinery manufacturers, but the supply chain is still a ways off from a full recovery.
Material shortages
Microchips have been one of the major bottlenecks in manufacturing, but are not the sole problem in the supply chain, says Curt Blades, senior vice president for agriculture services and forestry at the Association of Equipment Manufacturers (AEM).
Plastics are hard to come by, with rubber — especially rubber tracks — almost nonexistent right now, according to Blades. Most of the wire harnesses used in off-road equipment are manufactured in Ukraine, which has been disrupted by the war. Weather events in Texas and Louisiana shut down chemical plants that produce propylene oxide — one of the key chemical components to make foam — leaving cushions in short supply.
Prices for raw materials are still well above pre-pandemic levels across the board, according to AEM.
“The price of petroleum is an early indicator of a lot of other things including resins, plastics, and steel,” says Blades.
Crude oil was $60 per barrel in 2019, falling to $40 in 2020 due to lower consumption, rising to $70 in 2021, and $100 in 2022, only falling back to $90 in 2023.
Cold rolled steel raw materials were $600 per ton in 2019, $640 in 2020, spiking to $1,230 in 2021, $1,340 in 2022, finally recovering to $700 in 2023.
Raw rubber costs were on the rise before the pandemic, at $140 per ton in 2019. Prices fell to $120 in 2020, before rising to $150 in 2021, and $160 in 2022. Prices have recovered to $140 in 2023.
Raw plastic was $210 per ton in 2019, rising to $270 in 2020, $370 in 2021, and $430 in 2022. Plastic prices are still a long way from recovery at $370 per ton in 2023.
“We have historically been working with singular vendors,” says Eric Raby, senior vice president of Claas for the Americas. “If they’re really good, they’ll stay singular, but in many cases we had to look for an alternative. I think that’s good for our business to look for not only diversification of the risk we would have with singular suppliers, but we might also pick up some new technologies along the way.”
Labor shortages
The labor shortage is a key issue in supply chain recovery, says Corey Claussen, president of Custom Roto-Mold, a company that produces fuel tanks and spouts for Claas combines.
“People equals production capacity. It turned into a point where we didn’t have enough people to handle all the demand,” says Claussen. “It turned into a battle for skilled labor, and when it turned into a battle, wages went up dramatically.”
The agriculture industry is facing severe shortages, with only one job seeker for every two open positions in the United States, according to the Miranda Driver of CalAgJobs. 40% of new ag jobs go unfilled each year, with a forecasted 59,400 annual ag job openings between 2020 and 2025, according to Purdue University.
Wage inflation is a factor, but attitudes have shifted in the workforce where people don’t want to work the same hours they used to, says Blades.
“We have thousands of members at AEM, and every single one of them is hiring,” says Blades. “Every equipment dealer, every service technician, every customer that operates that equipment. It’s more challenging in rural areas than it is in urban areas.”
For generations, there has been a focus on getting a four year degree out of high school, resulting in a lack of people who take on trades crucial to the ag industry, according to Raby.
“We will continue to look at what we can do on the machine side to lessen the inherent reliability on labor,” says Raby. “That’s the technology that allows us to do more with the combine, run fewer combines, with fewer drivers.”
Transit complications
Labor is not just short in manufacturing; freight companies are facing shortages as well, impacting delivery times for global manufacturers.
Limited availability of containers and shipping vessels, combined with an increase in oil prices, has created a tremendous backlog for delivering goods.
“Lead times spiked to basically double what they were,” says Raby. “We’ve seen some relief, but we’re nowhere near where we should be”
Prior to the pandemic in 2019, Europe to East Coast shipping took four weeks. This spiked to 10 weeks between 2020 and 2022, and has only recovered to 6 weeks in 2023. Freight costs per container have shown even worse recovery. At the start of 2020, costs were $4,500 per container. This spiked to $12,500 per container between 2021 and 2022, and has only gone back down to $10,200 in 2023.
Pandemic gleanings
2023 is going to continue to be a correctional year as we approach the light at the end of the tunnel on the supply chain crisis, says Blades.
Component manufacturer partners are all seeing recovery toward the end of 2023, based on survey data from AEM’s partners. OEMs are not quite as optimistic, expecting the first quarter of 2024 to be the earliest they will see a return to normalcy.
“Here’s what matters: You still need 100% of the parts to ship a combine,” says Blades. “Even if the supply chain challenges have been corrected by 80%, there’s still that one part that might prevent it from being able to be delivered.”
Open, transparent communication methods developed during the COVID-19 pandemic have been crucial to the industry as supply chain issues have endured, says Raby.
“We stay as close to the customers as we can, that’s how we learn,” says Raby. “We’re in such a technologically driven society, we tend to forget that personal connection. I think it’s very important for us coming out of the pandemic to go back and stay in touch with the same people that helped us get through this, and make sure that we carry that level of communication going forward. The one thing we can’t do is over communicate.”
