Episode 216: Truck drivers and repair shops have heard that there is a massive semiconductor shortage, but there is a lack of trustworthy information out there about this problem. In this episode, we talk about the reason for this shortage, and the impact it is having worldwide.
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Episode 216: Truck drivers and repair shops have heard that there is a massive semiconductor shortage, but there is a lack of trustworthy information out there about this problem. In this episode, we talk about the reason for this shortage, and the impact it is having worldwide.
Show Notes: Visit HeavyDutyPartsReport.com for complete show notes of this episode and to subscribe to all our content.
Disclaimer: This content and description may contain affiliate links, which means that if you click on one of the product links, The Heavy-Duty Parts Report may receive a small commission.
Sponsors of this Episode:
Special Offer:
Sign up for our weekly email so you never miss out on an episode: Follow the Show
Jamie Irvine: (00:01)
You're listening to The Heavy-Duty Parts Report. I'm your host, Jamie Irvine. And this is the show where you get expert advice about heavy-duty parts that keeps trucks and trailers on the road longer while lowering cost-per-mile.
Jamie Irvine: (00:16)
You know me as the host of The Heavy-Duty Parts Report, but did you also know that I am a cohost on a radio show on TNC Radio called Mind Your Trucking Business? Each week we talk on this radio show about how to help people in the trucking industry make their fleets more professional and operate more efficiently. In one of the recent radio shows that we did, there was a clip that I thought was particularly applicable to the listeners of The Heavy-Duty Parts Report. And so I wanted to share that with you, that'll be the basis for today's episode. I hope you enjoy it.
Tom Kelley: (00:48)
Well, a lot of things are ruining peoples summer, not the least of which is what's going on in the economy right now. And that impacts an area that we wanted to talk about tonight. And that's something that a lot of drivers are familiar with, but maybe they don't have a lot of information on, and that's the semiconductor shortage that's been going on.
Jamie Irvine: (01:09)
It's a big problem. I know from the perspective of the world that I work in on the heavy duty parts side, you know, we've seen trucks, new trucks, not being able to be produced in sufficient volume. We've seen the issue with not just semiconductors, but anything electronic, really causing issues, shortages on sensors and other electronic components. And of course this is holding up trucks. We've heard reports of trucks being parked for over six weeks, just waiting for one part. And you know, even on the automotive side a friend of mine bought a new pickup truck and almost none of the buttons worked and the dealer said, don't worry, when we get the different components in, we'll call you on a recall and we'll install them one at a time. So it's a a big issue and it's affecting trucking as a whole. It's affecting the industry's ability to be able to do what it needs to do to take care of society,
Tom Kelley: (02:07)
You know, and the problem too is self inflicting. Okay because one of the things you gotta do when you have a shortage is to get parts from point a to point B. But if you have a shortage of trucks because of the shortage of chips, now you are having trouble getting stuff from A to B
Jamie Irvine: (02:26)
Well, and then it also has an impact on a further impact on, on inflation because as long as demand is in excess of supply, we're gonna have strong inflation and it's going to really, really hurt the everyday consumer. And so that is also a positive feedback that is producing anything but positive results.
Tom Kelley: (02:46)
And an add to that, so now the fed hikes up these interest rates and you have both public and private entities that have been working together to try to get more manufacturing in the U.S. And back in, recently as the mid nineties, U.S. supplied at least a third of the world's semiconductors. Now it's closer to 10%. Okay. So a lot of work's been going on in Texas, in Indiana and multiple states where they're looking to put together new manufacturing plants that can build out the semiconductors. But the problem now, Jamie, that they're running into is money is gonna become harder to get by, you know, on purpose because we had to slow down this red hot economy. And so some of the same places now are like, are they gonna be able to produce the plant and do the man to, to do the manufacturing later? Cuz we originally thought this thing would finally calm down about a year from now. I'm not sure now that we're gonna be able to make that, make that goal.
Jamie Irvine: (03:55)
Yeah, it does. It definitely doesn't look like it. And you know, as what happens in the us Canada follows, and we know that now that the, your feds have released their, their decision to go up a full 75 basis points. And I fully anticipate that, uh, the feds in Canada will follow suit. Um, and you know, that's a real blow to both of our economies when it comes to stalling investment in, in domestic manufacturing and freeing us from the reliance on a very precarious global supply chain that is not able to keep up with demand. So, uh, Tom, let me ask you something. What, where does it go from here? Like you said, you're, you're thinking that this could, could stretch out more than a year. Um, what is the full impact on the trucking industry? How do we see this playing out? I'd like to know more,
Tom Kelley: (04:48)
It's kind of this weird infinite loop that we're getting into because a lot of what we need semiconductors for is the production of not only the things that move product, but help us build product. Right? So if I need say new equipment so that I can build a new manufacturing plant, guess what's in that new equipment?
Jamie Irvine: (05:15)
Semiconductors
Tom Kelley: (05:16)
Semiconductors. And then, but if I can't get, do you understand how I'm saying it gets in kind of this weird infinite loop. If I can't get semiconductor to build my semiconductor plant, then I can't increase my output so that I can fix my problem.
Jamie Irvine: (05:32)
Well, and we see that with trucks too, right? Like we don't have semiconductors from new trucks, but then you have shortages in things like sensors. So then you can't fix the older trucks and then they're sitting. And then of course that means that trucks aren't delivering product. And as long as there's more demand than there is supply, then we have this crazy inflation, which that's impacting the economy, which is making people decide. Maybe they don't wanna set up a new manufacturing plant, because money's gonna be too expensive.
Tom Kelley: (06:02)
And guess where most of the semiconductors are manufactured right now, Asia and a lot of it in China and a lot of it in just an itty bitty little village, you might have heard of called Shanghai. Do you know what's going on in Shanghai right now? Lockdowns, how many semiconductors do you think they're making in Shanghai this month?
Jamie Irvine: (06:21)
Zero.
Tom Kelley: (06:21)
So you see how this problem is just this weird infinite loop that we can't seem to get out of. And every time we start to make some headway, like, okay, we got it all worked out, gonna build some new plants already breaking ground. Indiana, they're gonna lead the way we're gonna have all these new plant. Well, we ended up with all sorts of bad weather in Indiana throughout the winter and spring. So we didn't make as much progress there as we wanted to. And it's not like they go, well, you know what, for semiconductor plants we're not gonna raise interest rates.
Jamie Irvine: (06:54)
Exactly. It affects everyone.
Tom Kelley: (06:56)
In the process of trying to slow down this red hot economy. It's gonna make it that much harder. Now you put on top of all of this, what got us here. Okay. And I think this is, this is worth exploring a little bit because it's maybe not as clear to some people what got us here as it is to others. We had two things happen at once that really created the issue. One was COVID.
Jamie Irvine: (07:24)
And that's what everybody thinks of right. They think, okay, we had lockdowns people couldn't go to work. And that put us behind by a couple months. And then we had, you know, then things started to open up again. Then we got locked down again. So okay. At the very most, you know, we got put behind three to four months, but Tom we're now a couple years out and we've got people like the CEO of Intel back in April saying that they don't think this is gonna be solved until 2024. And the minute that he said that to CNBC their stock price dropped by 6%. So chances are it's worse than that. But he had to mitigate what he was gonna say, because he knew it was gonna have a negative impact on their company valuation. So how is it that a couple lockdowns in 2020 is causing grief for us that's going to extend beyond 2024.
Tom Kelley: (08:14)
So you take the COVID stuff and now the COVID was a double barrel problem. Okay. Yes. We made less chips because less people were there. But even beyond that, because everybody was at home, there was suddenly this spike in demand that nobody saw coming and everybody wanted new laptops, new PCs, new cameras, and all of the different pieces that allowed people to communicate and work with each other in a remote setting. If Intel was the only issue, their competitors, would've just beaten them up and maybe Intel survives, maybe they don't. Okay. Right. Big companies have made big mistakes before. Sometimes they survive. Sometimes they don't. Sometimes they have to rebuild themselves and become something new. But now you add on top of that, the COVID issue. Okay. And now I'm talking about the not producing and not having the raw products that they need to produce semiconductors throughout the world. Okay. So you got that going on and now add on top of that huge new demand.
Jamie Irvine: (09:22)
Yeah. And people forget sometimes that it's not just about getting people to show up at the factory to actually manufacture you're absolutely right. It starts with the raw materials. And so if you had people not working for months on end, it takes time to get a mine going again, to get a trucking outfit in there to move the raw materials and get them to the manufacturing facilities. And that might involve also Marine and sailing them. So this is not something that you can just shut off and turn back on like a light switch. It takes some time to get things going again.
Tom Kelley: (09:58)
Add to all of that, that a key component to putting semiconductors together is what plastic, where does plastic come from?
Jamie Irvine: (10:06)
It comes from petroleum products.
Tom Kelley: (10:08)
Have you noticed anything about petroleum prices recently?
Jamie Irvine: (10:11)
Yes, they are out of sight.
Tom Kelley: (10:14)
Because for a number of different reasons and a lot of that's decisions that the governments from the US and Canada made, I'm not saying whether or not they were the right decisions, it's immaterial to the conversation. They made decisions that impacted the cost of producing petroleum products. And the supply of those petroleum products now. So you've got less work going on, more demand going on, a big mistake by a big company in the midst of all of this. And now throw on top of that the competition of the world market. And now let's add in a war.
Jamie Irvine: (10:53)
Right. We just, you know, just like slide that on top. Right. That's just the terrible cherry on top of a terrible cake.
Tom Kelley: (11:00)
So, so you put all that together. No wonder we're here, any one of those things that they would've been different, maybe we wouldn't be where we are. Okay. But you get all of them together and it puts us in a really tough spot.
Jamie Irvine: (11:15)
So Tom, maybe on the next segment, what we really can talk about because this is what people who are listening right now want to know, right. If you've got a trucking fleet or even if you're an owner operator, you've got one truck, you wanna know what the future is gonna hold and you wanna know what kind of decisions you should be making to try to protect your ability to keep your fleet on the road and doing what it needs to do. So I'm looking forward to hearing Tom what you've got to say about that on the next segment. Don't have a heavy-duty part number and need to look up a part? Go to parts.diesellaptops.com or download the app on Apple or Android to create your free account. Looking for high-quality fuel injection for heavy-duty applications? Having one supplier for fuel injection allows you to better serve customers by providing them with a complete line, which increases your sales and profitability. Learn more at ambacinternational.com/aftermarket. Really, when you think of the semiconductor worldwide shortage and the impact it's had on the trucking industry, I guess what I'd like to talk about is what strategies should a truck operator use and what decisions should they be making around looking at buying new equipment versus keeping old equipment and how can they weather the storm and what can they do to try to mitigate some of the impact of this semiconductor shortage on their ability to operate their trucks?
Tom Kelley: (12:40)
Like I said, I wish I could wave a wand and tell you nothing but good news here, but I'm gonna give you some, some of the bad news up front. Assume that the CEO of Intel is correct. Okay. And assume that this is not gonna resolve this year. And I think even the most optimistic think that it's gonna resolve about a year from now. I'm sorry. I think that's just wishful thinking.
Jamie Irvine: (13:04)
Right. Well, I mean, if you look at what the CEO of Intel said in that press release to CNBC back in April is that he said that they thought it might not resolve till early 2024. And that created an immediate 6% drop in their share price. So I'm always thinking, trying to think from their perspective, maybe he's, he's even making that a little softer than it needs to be trying to preserve as much share price as he can, which means it could be mid 2024, late 2024. That's a long time from now.
Tom Kelley: (13:37)
It is. And, you know, as Dr. Fauci would say, 'That things will get worse before they get better'.
Tom Kelley: (13:44)
Thank you, Dr. Fauci. I think things are gonna get worse before they get better here. I really do. And I think that what that means is now's probably not a great time, time to plan on investing in the new equipment because it's just not gonna be there.
Jamie Irvine: (14:01)
In addition to investing in the new equipment and it not being there. I've heard so many stories of fleets that have, have put purchases in. And then, you know, after a few months they're planning on that equipment. And then after a few months, the dealership phones them and says, we've you know, we've canceled that order. Oh and by the way the price has gone up, you know, 13 or 14%
Tom Kelley: (14:22)
It's almost like a shell game going on out there right now. I don't want to speak evil of anybody. I think maybe even the intentions are good, but they're over promising and under delivering. And we're finding that manufacturer after manufacturer, they think that things are gonna resolve, but they don't, it just keeps getting worse. And they're not, they're just simply not able to build the trucks and not just the trucks too, but a as you know, working in the world of the parts, even the parts we need to run the trucks they can't build them.
Jamie Irvine: (14:56)
Yeah. I was just talking to a guy online and we were messaging back and forth. And, you know, I had put out a post there about sensors and look, one of the things he said was he's a diesel tech that works for a dealership for one of the big truck OEMs. And he said, look, they won't, they can't supply us with any OEM sensors. So now we're turning to aftermarket sources. The problem is, is that the quality of those parts aren't necessarily the same. So then they're having, he said as much as three out of five sensors fail prematurely, and the two out of five that don't fail immediately are not lasting as long as they should. So it just seems like you're stuck between a rock and a hard place, no matter what you do.
Tom Kelley: (15:38)
Oh, we really are. And let's talk about our friends over at Frontline. Frontline has a, a really great tool that, that I've been very impressed with. Okay. And it's really pretty simple, and they've got it for both cars and for trucks that when you slam on your brakes, it doesn't just do the usual brake lights in the back. I mean, it really flashes and catches the attention of the person behind me. There's braking. And then there's, you know, the deer just stepped in the road and I gotta slam onto my brakes. It really helps a lot. And the way they do that is with the same accelerometer stuff that you have in your phone that keeps track of your paces through the day and that kind stuff. Right. So it's measuring all that. These guys, it's great stuff. It's one of these great ideas where, how does it go? You build a better mouse trap and the world will be the pass to your door. Right? This is a better mouse trap. And they basically, they have to back off now because they literally cannot get the accelerometer that require the semiconductors so that they can build the equipment to do this. And I mean, and they're thinking about all these great things that they can do to make this technology even better. And, you know, anything we can do to reduce accidents on the road is a great thing.
Jamie Irvine: (17:00)
But you gotta be able to have the technology on the vehicles and have it working in order to save lives. So yeah. And you know, I see that just when you were describing that shortage with that particular company and how it's impacting them, it kind of made me think about how the average person probably doesn't realize how many semiconductors are around them in all of their devices and everything that they're using. And it's kind of like if you're not in the trucking industry, it's almost invisible to you, the full extent of it. And then you learn about it and you go, wow. You know, the trucking industry affects every part of life. It's kind of like that with semiconductors to many of us, it's almost invisible. And I think we would be shocked to learn just how many semiconductors are needed to make everything in our life work for us. And so when we're talking about a shortage this is a big deal.
Tom Kelley: (17:52)
If you were to take apart any electric razor built in say the last five years, you would find deep in there, a little semiconductor, a little plastic board, a little semiconductor in there. That's all part of the electronics of getting the battery to charge up properly. And some of them get even fancier than that, right? Guess what? We don't have enough to even build electric razors.
Jamie Irvine: (18:13)
Well, and we've seen so much advancement in like the internet of things and how that's impacting even the trucking industry. I've talked to so many manufacturers who are excited about technology that they want to bring to make trucks better. Every single one of those things has one or many semiconductors in them. So, you know, it's all around us. One of the things that came to mind as a strategy for trucking outfits is that you really need to think about expanding your supplier network. And if there are specific things that you need to keep your truck running, I'm thinking like sensors, for example, it's probably a great idea to try to find a few of them and maybe even stock up because who knows how long it'll be once that supply has been exhausted before we get more.
Tom Kelley: (19:02)
Yeah. Another thing too, that I heard some enterprising people talk about, especially if let's say you're middle sized, you have more than a couple of trucks, but you're not one of the big players. So let's say you've got a hundred, 200 trucks or part of a company that does, there's always gonna be a dozen or so that have issues. It's time to, to reconsider what you're doing with them. And yeah, I'm saying strip 'em down. Yeah. Every part matters right now. And it might mean that, you know, a truck that a year ago, two years ago, you would've just waited and gotten the part in and put it back on the road. At this point, you maybe better off rethinking that strategy and saying, you know what, I've got four trucks over here that aren't gonna get on the road anytime soon, maybe they have heavy body damage or whatever. It's time to rethink that and start thinking about, you know, what, there's a lot of stuff in that truck that we may need later.
Jamie Irvine: (20:04)
Tom, I've seen that strategy over, you know, my 25 year career in parts when times get tough. And it's definitely something that it's not, you don't necessarily wanna do it, but right now, having 80% or 85% of your fleet rolling is better than less than that. And so you gotta do what you gotta do.
Tom Kelley: (20:24)
And who knows which parts you're gonna need tomorrow, because you know, it's not like they all go out at the same time. Right. It'd be convenient. You know, at least we would know. So having, you know, yes, I agree, expanding your supplier, your supply chain and have multiple suppliers is good, but also you need to be thinking of what can you do to self-supply.
Jamie Irvine: (20:47)
Absolutely. And you know, none of this is easy and it's getting more complex all the time. And I know in the work that I do on the heavy-duty parts side, I deal with a lot of manufacturers. And I can tell you the people who work for these great companies, they're really feeling it because it is just every day, they are just on the hunt for supplies, raw materials, parts. And it is, you know, it's the expression I've used lately, is it's crushing them.
Tom Kelley: (21:15)
It is. And some of those are household names like Toyota. Okay. They're not okay because of all of this and others are, as you well know, really great mom and pop organizations that have been around for a generation or two taking care of a particular part of the market. And for the first time they're looking in the mirror, wondering, can they weather this storm because it's awfully hard to sell parts that don't work.
Jamie Irvine: (21:41)
That's right. I mean, at the end of the day you're better off to say I can't supply it than you are to sell something to someone that then puts them stranded on the side of the road.
Tom Kelley: (21:50)
Exactly.
Jamie Irvine: (21:51)
I think that's the thing that we want everyone to know about Mind Your Trucking Business. We're here to try to help you with strategies. It's not just to frighten you with all of the bad news, but rather, you know, we're not here to try to raise your anxiety, but we do want to give you some strategies that you can use to actually make your business more successful. So a good friend of mine is the founder of a company called Truck Parts Inventory.com and on truckpartsinventory.com. What you're gonna find is you're gonna find a marketplace that connects all of the salvage yards and salvage businesses in the United States and Canada. And what's wonderful about it is, is that you it's free for you as the, as the customer to use it. And so you can go on there and you can browse, and you can find everything from engines and transmissions all the way down to small replacement parts and up to, and including electronics.
Jamie Irvine: (22:44)
So, you know, that's one option. If you don't have a parts truck that you can salvage yourself, you still can have access to all of the salvage trucks across North America, by going to truckpartsinventory.com. And I really think that this is a good strategy. We're gonna have to get, you know, I talked about this earlier, Tom, about expanding your supplier network, and it's not just about finding aftermarket or independent tier two suppliers. In addition to your truck dealership that you go to, it's also about finding these salvage companies that might be able to help you find a part. And you think to yourself, well, salvage, it's gotta be all old trucks, right? Well, no, because trucks have accidents, trucks have other other things go wrong. There might be a storm of some kind where a lot of damage was done and they decide to write that truck off. But you know, the semiconductors in that truck are just fine. And that might be the exact model that you have. So that might be one place that you can go to find parts, little unorthodox for a semiconductor, but it's definitely something where you'd be able to find a sensor or find an ECM, or find some sort of electronic component that you're looking for using a marketplace like that.
Tom Kelley: (23:56)
And if I'm selling parts, I can work through there too, to do that.
Jamie Irvine: (23:59)
Absolutely. Yeah. If you're selling parts, then the way that it works, it's a marketplace. So then, you know, you pay to play, but it gives you access to a very large group of owner operators, repair shops, people like that who are buying parts and installing them on trucks.
Tom Kelley: (24:18)
Well, in my opinion, this is essentially a crime right now to let any truck, I don't care if it's been on the road, don't let it go through the compactor, you know, there's car or truck at this point without stripping out every usable part on it, because you don't know.
Jamie Irvine: (24:36)
Yeah. And somebody's gonna need that part at some point.
Tom Kelley: (24:39)
Sometimes you gotta figure out how to make a square peg work in a round hole, you know, like they had to do with Apollo 13. We may have to, to completely jury rig a few things to get 'em to work. And if that's what we gotta do, that's what we gotta do.
Jamie Irvine: (24:53)
One of my favorite magazines is Calibrate, it's from the Technology Maintenance Council. I'm a member of the TMC. And so I get that mailed out to me. And there was this article from John Baxter about will the diesel engine ever be perfected. And it's sitting on my desk and I just looked over and saw that. And what it triggered in my mind actually is something we haven't even talked about is all these issues with semiconductors. And yet all of our vehicles are supposed to be electric, you know, by what is it, 2030, it's like, this is going to slow down the progress of even that segment of the industry. And that one's just getting going. So I can only imagine the companies that are manufacturing those trucks are absolutely sweating bullets right now,
Tom Kelley: (25:40)
Well, one of the things that we haven't even really gotten into at all, I just kinda wanna throw this in here is, remember I talked about Intel making the big mistake. With everything else that went on, we didn't get to the next generation of semiconductors. This is part of the overall problem is that the industry started to go there. But now we can't because we we're not lined up to use these, this next generation of semiconductors with the older generation that was there. And that too has created part of our problem. So this won't be fixed by, okay, well, we're just gonna manufacture new parts with a different type of semiconductor, which the problem then becomes that if we had the newer technology, we wouldn't need as many semiconductors.
Jamie Irvine: (26:35)
Of course they'd be more reliable. Not as susceptible to heat.
Tom Kelley: (26:38)
Exactly. And smaller. And we'd be able to do more things with them. The next technology of semiconductors are gonna allow us to do some amazing things. Really cool, amazing things. But now, instead of rolling that stuff out this year, like it was originally planned 2024, 2025, now maybe as the soonest, we can get really into that new technology.
Jamie Irvine: (27:02)
It is dynamic times we live in. I tell you one thing, I'm very happy that I work in the trucking industry, because we are a resilient bunch of people. We are independent. And we are gonna find a way through this that I'm sure of. It's just not gonna be easy.
Tom Kelley: (27:17)
We're gonna see some great innovation come out of both our parts producers. And just every day, Joe trucker, he's gonna find, you know, what, if you do this and this and he attach it this way and you move it, look what I got, I got a working part here that we didn't even think about before. We're gonna see that kind of innovation because that's what we do.
Jamie Irvine: (27:37)
That is what we do next week. We're gonna talk about cyber security. You do not wanna miss that. It is a going to be a really good conversation. We're gonna give you five things you can do to personally protect yourself.
Tom Kelley: (27:49)
All of that coming up next week right here.
Jamie Irvine: (27:58)
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