When it comes to the shortages bedevilling global supply chains, Scott Wine, CNH Industrial chief executive, is less worried about semiconductors than tubes and tyres.
Like many manufacturers, CNH, a maker of tractors, trucks and construction equipment that is controlled by Italy’s Agnelli family, is struggling to source parts as the global economy revs back up to meet demand.
But while the company was able to buy most of the chips it needed from brokers, Wine said shipping costs have risen and there have been other shortages “that are much worse for us”.
“Tyres, tubes, across the board, we’ve got 63 suppliers that are stopping our plants from manufacturing,” he told the Financial Times. “It’s like Whack-a-Mole. The good news is my team is really, really good at Whack-a-Mole.”
“It’s the worst supply chain I’ve seen in my career,” he added.
Leo Tolstoy wrote that “happy families are all alike; every unhappy family is unhappy in its own way” — and the same principle applies to manufacturing supply chain woes, said Don Jones, vice-president of RCF Economic & Financial Consulting in Chicago.
“Each industry’s sad tales with its supply chain is going to be peculiar to that industry, depending on where they’re sourcing, and how it’s arriving,” he said.
Manufacturers had to spend more money to source materials last month, with the Institute for Supply Management’s prices paid index, which tracks what manufacturers pay for inputs, jumping to 92.1 in June compared with 88.0 in May, its highest level since the 1970s.
Capital Economics senior economist Michael Pearce said in a note that the report suggests “the ‘transitory’ surge in prices seen over the past few months still has a little while to run”.
CNH Industrial was formed in 2012 after several years of corporate restructuring that began when the late Sergio Marchionne, then chief executive at Fiat, moved to separate Fiat’s automotive and farm equipment businesses.
CNH sold $26bn worth of products in 2020 under brands like New Holland and Iveco, the truck business that it is spinning off as part of a plan to double profits.
A few of those heavy-duty trucks have been built without transmissions, as the chip shortage has not left the company wholly unscathed. Wine said CNH would consider holding a larger chip inventory to ensure its suppliers have all the semiconductors they need to feed parts for assembly into the manufacturer’s factories.
CNH has been able to command higher prices for tractors and combines in the first half of the year, offsetting its supply chain difficulties. In North America, CNH products have enjoyed a 6 per cent pricing premium, Wine said, as high commodity prices sharpened demand among farmers.
The question of whether pricing will stay strong in the second half of the year links CNH’s experience to the macroeconomic question being debated on Wall Street and at the Federal Reserve: namely whether a broad surge in prices is “transitory”, as central bank officials forecast, or longer lasting.
Economist Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said supply chain constraints have left consumers clamouring for goods, including cars and trucks, washers and dryers, and furniture.
“People who haven’t been shopping in a year are out there looking for a new vehicle, or farmers are looking for new equipment,” she said. “Everything is pushing on the demand side when there are actual supply shortages . . . So this is natural. The question is, will this persist?”
Wine said he expects the cost of materials to continue to climb in the second half of the year, but that the company’s pricing power is unlikely to keep pace.
View original post