Labor shortage is a bottleneck that is here to stay


The supply chain is both on the mend and undeniably broken. This is the contradiction that emerges from the quarterly ritual of companies explaining their results to analysts. First, the good news: executives generally agree that transportation bottlenecks are easing and commodity costs are moderating. The main obstacles to restoring the supply chain to normal are the Covid zero shutdowns in China and the shortage of skilled workers in the United States. The pandemic has awakened the C-suite to the dangers of tying too much of their supply chain to China. This issue is immediately addressed with additional sources in other countries. Longer term, companies plan to shorten supply chains by encouraging suppliers to manufacture in the United States or at least the Americas. This raises the thorny issue of having a fit-for-purpose workforce – something that requires public-private cooperation in education and an overhaul of our immigration system. The lack of skilled workers for American factories was a concern before the pandemic and now it is an emergency. It doesn’t take an education expert to realize that we need more job training opportunities involving local businesses looking to hire. Fixing the broken immigration system in the United States is even more difficult, which would require a political compromise in Washington.

But these are long-term solutions that won’t address the immediate need for a looser labor market, where unemployment at 3.5% matches a 2019 low not seen since the 1960s. The Fed is determined to ease conditions by lowering demand.

‘The availability of experienced workers is clearly a catalyst for some of these supply chain challenges,’ said Robert Rourke, head of global industries for Chicago-based consultancy LEK. ‘You have to see the pendulum swing back. ”

So what does the supply chain look like now?

The shortage of semiconductors, which has strangled global manufacturing, eased significantly as demand for laptops, home appliances and electronic gadgets weakened. Automakers, including General Motors Co., are seeing gradual improvement and producing as many vehicles as possible to increase dealership inventory. GM has cut 75% of the unfinished cars it had in June due to lack of chips, chief executive Mary Barra said. She still sees “short-term disruption”.

Commodity prices are coming down to earth. Aluminum, copper and steel rebar are all down more than 20% year-to-date. PPG Industries Inc., a Pittsburgh-based protective glass and coatings maker, expects inflation to ease in the fourth quarter from the third quarter, even though year-over-year prices are still higher. As CFO Vincent Morales said: ‘We’re starting to see that fever drop. ”PPG had absorbed $1.9 billion in commodity inflation since the start of 2021. ” as prices have peaked and transportation is smoother. It now costs $2,412 to send a 40-foot container from Shanghai to Los Angeles, down from a peak of $12,424 in September last year, according to data from Drewry Shipping Consultants. Spot market trucking rates are down about 40% from a year ago.

Harley-Davidson Inc., the Milwaukee-based motorcycle maker, recorded supply chain inflation of 2% in the third quarter. This is less than 4% in the second quarter and less than 10% in the second half of 2021. The deceleration in costs is made possible by the “normalization of logistics, including the drop in expedited shipping costs” and, in a to a lesser extent, the fall in raw materials. , said chief financial officer Gina Goetter. Newell Brands, which makes a line of well-known consumer products from Rubbermaid containers to Elmer’s glue, expects a “significantly more favorable cost inflation environment,” said chief financial officer Chris Peterson. “We expect supply chain pressures to ease as there is greater availability of shipping containers, cargo carriers and raw materials,” he said, adding that a weaker Chinese yuan also helps.

Mohawk Industries Inc. shows how improving the supply chain and lower demand translate into lower inflation. The maker of carpets, ceramic tiles and countertops only partially offset raw material costs with an increase in carpet prices in the second quarter. Mohawk tried unsuccessfully to drive prices up further as housing demand slowed. Commodities have since fallen and carpet prices will come in line with cost once pricier inventory runs out, said Christopher Wellborn, chief operating officer.

The housing slowdown will allow PulteGroup Inc. to catch up on construction and reduce the time it takes to build a home, which has doubled to six months from around 90 days in normal times.

“I’m very focused with our production teams to recoup cycle time in 2023,” CEO Ryan Marshall said. “I’m confident based on the volume decline, but also the healing of the supply chain, which continues to improve, which can become a reality in 2023 and beyond.”

Housing prices may fall as the cost of steel, lumber and other materials declines and homebuilders can increase efficiency by reducing construction times.

However, not everyone sees the light at the end of the tunnel, especially when skilled labor is involved. Boeing would be able to produce more planes if General Electric Co. and its partner Safran SA could produce more jet engines, CEO David Calhoun said. Brunswick Corp., which makes engines for pleasure boats, was forced to slow production when nearly 2,500 outboard motors were stalled waiting for a single delayed part. The company is managing “a few quiet but impactful shortages, primarily due to ongoing labor shortages recently at some of our supplier facilities in the United States,” CEO David Foulkes said.

Some of these labor issues will resolve themselves, especially as the economy cools with rising interest rates. Labor force participation is expected to rebound from 62.3% now to the pre-pandemic 20-year average of nearly 65%. People can’t hang around in their parents’ basement or on friends’ couches forever.

But the shortage of skilled workers was acute even before the pandemic. Washington’s instinctive solution would be to throw money at the problem. This is not prudent in times of inflation. Also, there’s a lot of money flowing through our school systems, it’s about focusing those dollars on programs that teach students how to weld, plumb a house, operate CNC machines and 3D printers, and the to fix. Local industry could donate the machines and help steer the program towards real-world job training. Demographics show that improving our local workforce will not be enough. The birth rate – or number of live births per 1,000 population – at 11 in 2021 is less than half of 1960s levels. The need of the hour is for politicians on both sides of the aisle to take a step back by against the extremes of their parties and reach an agreement on immigration that allows an orderly and legal influx of workers.

Supply chains will correct themselves by next year. The big question is whether the United States seizes the opportunity to rebuild a supplier manufacturing base that has been decimated over decades of free trade evangelism. New factories will need to be highly automated and efficient. They will also need a trained workforce or other countries will fill the gap.

More from Bloomberg Opinion:

• US focus on chips could prove fatal flaw: Tim Culpan

• Industrial CEOs have a window for M&A negotiations: Thomas Black

• Supply chains are not broken, at least not in Asia: Anjani Trivedi

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, it covered US industrial and transportation companies as well as Mexican industry, economy and government.

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