Nick Klein, Vice President of Sales at OEC Group’s Chicago office, discusses the current
state of logistics in the aftermarket auto parts industry.
How is the global chip shortage hurting the automotive industry?
The global chip shortage is affecting the automotive industry because limited supply has significantly decreased new car production levels around the world. As a result, new buyers, car rental companies, and other organizations that rely on automobiles aren’t acquiring new vehicles at the pace they planned for. This has had a ripple effect, resulting in a spike in sales of older vehicles. In turn, the need for repairs and aftermarket auto parts themselves have increased dramatically. Due to this boosted demand for parts and the severe chip shortage, supply chains associated with both new car production and the manufacturing of aftermarket auto parts have been severely stressed.
Over the last few months, several auto industry innovators of “just-in-time” have been struggling with production. What do their struggles mean for supply chain practices in the industry right now?
One trend going on in the background has been a significant increase in the number of warehouses being built in the U.S. and China. Much of this can be attributed to the growth of e-commerce, online retailers, and fulfillment centers; however, a portion of those facilities are designed to hold product that would normally be in transit via “just in time”. In the case of the auto part industry, some low-cost and time sensitive items would fall into that category, and companies are now stockpiling inventory. In China, the new storage is used to house goods while companies wait for available shipping space and to prevent the slowdown of manufacturing. Stateside, those warehouses are used to hold larger stocks of products that have been susceptible to delay.
How do you see “just-in-time” evolving as we move forward?
As you know, this is a very competitive business. Just-in-time has been the automotive industry standard since the 70’s, and organizations shifted that way to compete more effectively. Companies are recognizing the disruption to the supply chain from severe congestion delays and are adding storage of key products to prevent a shortage of inventory. However, I could see some manufacturers snapping back to just-in-time if things loosen up in the supply chain and there are significant improvements to port and rail infrastructure. That being said, those who stick to that model must be prepared to absorb substantial losses any time there’s a delay in the supply chain.
Which products are companies having the hardest time importing?
Right now, companies are struggling to import some low-value and time sensitive items such as brakes and body components into the U.S. Obviously, that’s something the industry needs in large quantities, especially at a time when new cars are largely unavailable and there is historic demand for aftermarket parts. In the short-term, we can expect organizations in the industry to try building up inventory levels. Currently, the supply of those parts is not sufficient to accommodate market demand.
How has OEC been in moving backlogged commodities in the automotive industry?
We’ve been very successful moving cargo for our automotive clients. This is a result of our longstanding relationships with carriers and our significant experience dealing with difficult market conditions. Internally, we can avoid space shortages, minimize equipment issues, and optimize the overall shipping process by spreading shipments across multiple carriers and sailings. While many automotive companies have had to resort to airfreight in some cases to move their most seriously delayed and urgent orders to prevent production line closures, OEC has often been able to maintain the consistent flow of goods and avoid serious backlogs. Recently, we have assisted several new customers in revamping their supply chain operations and successfully delivering products to their final destinations with minimal delay.