National Supply Chain Issues Reverberate in Nevada

True, that’s not any place in Nevada pictured above.  Those are a line of ships on the Columbia River waiting to unload in Portland, Oregon.  The most visible aspect of the post-pandemic supply chain crisis are the lines of ships from Asia waiting outside West Coast ports.  From that have flowed a cascading series of effects that impact Nevada along with the rest of the country.

The story starts with the outbreak of the COVID-19 worldwide pandemic in early 2020 followed by a series of economic lockdowns in many places.  People were unable to work and/or were paid not to work by the government.  Many older workers decided that this would be a good opportunity to go ahead and retire, resulting in the Great Resignation.  In the trucking industry, for example, experts estimated that employers had been lacking 60,000 drivers for the past 15 years.  In the wake of the pandemic that shortfall grew to 80,000.

The ports in Los Angeles County got the most publicity as problems cascaded upon each other to create an unprecedented backlog of ships waiting at anchor.  Those were work slowdowns from COVID prevention measures, a shortfall of labor, insufficient trucking, and some unhelpful regulations (for example, only allowing containers to be stacked two high, causing the yards of the ports to quickly fill up).  As truckers began to experience longer and longer delays getting into the ports and loaded, many truckers lost interest in servicing those ports, making the trucking shortage worse still.

Problems then spread out from these ports.  The ports moved a great volume of container traffic onto the rail system in reaction to trucking delays.  This caused congestion in the rail system.  Rail companies were also suffering from labor shortages.  As congestion in the rail system grew, rail equipment – locomotives, railcars, and containers – began to sit idle for longer periods.  The problems spread out from California.  The busiest rail corridor runs from Los Angeles to Chicago.  The problems of Los Angeles caused congestion and slowed operations in Chicago.  Chicago’s problems spread throughout other rail hubs around the country.  The time it took to unload a train and send it back to its source grew longer.

CHEMICAL MANUFACTURERS AND FARMERS: BAD TIMING

Finally, the rail operators realized that they had to act.  Firstly, they began hiring and training new engineers and conductors.  Then as an emergency measure recently in April 2022, they began adding locomotives and removing railcars from the system.  The rail operators – especially Union Pacific – told clients who owned their own railcars to limit their own traffic.

This decree to limit shipments came as a bolt from the blue without warning and at an inopportune time for many companies.  CF Industries headquartered in Deerfield, Illinois is a major producer of fertilizer and diesel exhaust fluid (DEF).  Right at the beginning of the spring planting season they were suddenly unable to ship sufficient supplies of fertilizer.  This is going to have a knock on effect of raising food prices if crop yields are impacted.  More about DEF later.

OIL REFINERS: DECLINING CAPACITY

Something that surprised me in researching this article is that US oil refining capacity dropped during the pandemic.  Refiners have always been running at about 95% of capacity.  If there was a fire or other accident suddenly taking a refinery offline, we would see price hikes in that local market – especially in California, which has its own unique blend of fuel.  Only one new major oil refinery has been approved and built since 1972.  Existing refineries have expanded on occasion, but getting a new refinery past the EPA has been very difficult.  Well, during the pandemic we saw at once: a big drop in demand for oil products, a great number of retirements, a low oil price per barrel, and a worsening regulatory environment.  There was a mistaken belief that peak fuel demand had come and gone.

Accordingly, owners of some older, less profitable refineries decided to close them permanently.  The US lost 1.9 million barrels per day of refining capacity.  That seemed to make sense in the first half of 2020, but the missing capacity is sorely missed now as we see from our rising fuel prices.

TRUCKS: RISING COSTS AND LOOMING SHUTDOWN

Both Reno and Las Vegas are major throughfares and hubs for trucking transportation.  All the problems outlined above are raining down now on the trucking industry:

– Rising fuel costs

– Lack of drivers

– Looming shortage of DEF

– Congestion getting in or out of West Coast ports

Pilot Flying J, a chain of truck stops and major fuel supplier, warned that the expected slowdown in the rail system and limited distribution of DEF may idle up to 10% of the cargo trucks in operation.  DEF is a required element in the anti-pollution system of modern trucks, where unburnt diesel fuel is run through a diesel filter before being exhausted out into the atmosphere.

More problems are affecting trucking.  If you want to order a new truck, you will have to wait 12 to 18 months for delivery.  There is currently a backlog of 297,000 trucks on order.  These new trucks are backordered due to a lack of a variety of parts: tires, windshields, door handles, fuel pumps, and computer chips.  The lack of computer chips is affecting automobile manufacturers as well.  Taiwan Semiconductor – a major worldwide supplier of chips – has said that it has a two year backlog of orders baked in.

VICIOUS CYCLE?

Experts expect these supply chain problems to work themselves out in 6 to 12 months.  But are we in a vicious cycle?  Will rising costs and shortages idle a big percent of the trucking fleet and make all these matters worse?  Another way the system might catch up is if we have a recession and consumer demand cools off.  Consumers are already learning that many products can be delayed significantly, and this can have a cooling effect on future purchases.

CRY ME A BUCKET

Should we feel sorry for these big businesses in these basic industries: trucking, shipping, ports, semiconductors, chemicals, and trains?  Not a bit of it.  They’ve all raised prices and are reporting record profits.  It tends to be small businesses suffering in this environment, such as small trucking operators being affected by high fuel prices, long waits at transportation hubs, and not having such ability to raise prices and average out performance over multiple markets.

THE SOLUTION

What can a proactive transportation company do under these circumstances?  How about building its own mini diesel fuel refinery that creates an environmentally friendly fuel out of cheap, plentiful waste feedstocks (used motor oil, for example).  Vegas Renewable Diesel Inc. and its Founder and Inventor, Timothy D. Wetzel are making this technology available to key partners.

Tim remarked about these supply chain challenges: “There’s a war for diesel. A domestic energy war. On the East Coast you have competition for fuel among truckers up and down I-95 and FEMA and other buyers of heating oil who need to restock for hurricane season and winter after that. The administration has declared a jihad against petroleum. Everybody should buy $80,000 electric cars. I said many years ago that clean fuel and drinking water would be the products most in demand on the planet.”