As Corridor businesses feel their way through the third year of an economy upended by COVID-19 and global events, it still comes down to the supply chain and its workforce. “They’re all hit, to some degree,” said Ron Corbett, vice president for economic development at the Cedar Rapids Metro Economic Alliance. “A General Mills or […]
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As Corridor businesses feel their way through the third year of an economy upended by COVID-19 and global events, it still comes down to the supply chain and its workforce.
“They’re all hit, to some degree,” said Ron Corbett, vice president for economic development at the Cedar Rapids Metro Economic Alliance. “A General Mills or Quaker will run out of materials, or they will run out of supplies of a particular ingredient. The lead time is more, they’re ordering well in advance. I don’t think there’s any aspect of the supply chain that hasn’t been affected. That’s why we see it as the number-two issue across the board.”
Number-one being companies’ need to fill positions - or are they really the same? It’s difficult to separate the tight labor market from a sluggish supply chain, said Scott Grawe, the Robert and Jane Sturgeon Faculty Fellow in Business and chair of Iowa State University’s supply chain management department.
“They tie together quite a bit,” said Mr. Grawe, shortly after meeting with supply-chain managers from across Iowa. “It is rare to have any conversations with any business leader about the supply chain without also talking about labor.”
More job options
With Iowa unemployment at 3% in April, workers have more options. Iowa Workforce Development’s annual laborshed analysis for Iowa City-Cedar Rapids found 27.9% of workers “likely to change employment.”
“People are working and are working differently,” Mr. Grawe said. “There’s a lot of people who have found work in services. If you’re opening up a warehouse and you’re looking for people to drive forklifts or load trucks, you’re going to have a hard time. There’s not really an easy answer.”
Quaker, Whirlpool and General Mills all declined to comment on their Corridor operations, instead referring inquiries to their first-quarter earnings calls in April. James Peters, Whirlpool’s chief financial officer and executive vice president, told reporters then that the shift to at-home and hybrid work routines mean continued demand for appliances.
“Post-reopening, we continue to see consumers using their appliances at sustained and much higher rates,” Mr. Peters said. “Next, historic levels of inflation, notably in raw materials, energy and logistics will impact us throughout the year. Disruptions continue to impact the supply chain and inventories remain at low levels.”
On the rails
The tight labor market in transportation further strains the supply chain. Operational difficulties prompted the Surface Transportation Board to require all seven of the nation’s largest railroads - designated Class 1 - to submit weekly reports on service performance and employment.
Spokespersons for Union Pacific Railroad, whose Chicago-West Coast main line spans Iowa through Cedar Rapids, also declined comment. UP has asked major shippers to reduce their inventory of freight cars on the network. It has also added 100 new locomotives, shifted crews to areas seeing increased demand, and plans to hire 1,400 train-service employees in 2022.
“The Class 1s are certainly under pressure from customers and regulators to manage all the different pressures of the business,” said Joshua Sabin, director of administration for Waterloo-based Iowa Northern Railway. “We’re in a similar situation in that we’re trying to manage growth, so we’re looking to expand our workforce. But at the same time everyone’s hiring, with a lot of extra benefits right now.”
INR operates over about 160 miles of track funneling grain from north-central Iowa to Corridor processors and to its Class 1 connections. About 40 of its 115 employees are in train service as engineers and conductors - prime candidates to be lured to Class 1 railroads like Union Pacific.
“For a short line like us, that’s always been a bit of an issue,” Mr. Sabin said. “They’re all trying to woo the same population.”
Iowa Northern’s compact Eastern Iowa network may offer an advantage as railroaders re-assess the industry’s scheduling practices that often demand round-the-clock availability and prolonged periods away from home.
“The lifestyle of the railroad is demanding, and it’s hard to schedule personally,” Mr. Sabin said. “For the entire railroad industry, we’re having to get more creative, which is fair.”
More freight, less drivers
Similar re-assessments are happening in the trucking industry, where some large carriers average 100% annual turnover. Many drivers work as independent contractors paid by the mile, with no pay for time spent waiting to load or unload, and also spend weeks away from home.
“Unless you’re rolling, you’re not making much money,” Mr. Grawe said. “But it’s not just about the money. You’ve got six-figure truck-driving jobs sitting empty. It’s caused a lot of people to think about what’s important. They want to get home every night.”
Heartland Express began paying its drivers for terminal delays about a year ago, building on some of the company’s earlier practices to retain drivers, according to Chris Strain, chief financial officer of the North Liberty-based carrier. The hourly pay also applies to delays due to mechanical breakdowns and bad weather.
“If they’re hung up at a shipper and it’s the shipper’s fault, we still pay our driver at an hourly rate,” Mr. Strain said. “Predominantly, they’re still paid by the mile, but we have that backup system in place. We make sure they maintain a minimum pay per week.”
With its national network arranged around regional terminals, Heartland can also offer its drivers short hauls and more time at home, Mr. Strain said.
Most of Heartland’s drivers are employees, not independent contractors, Mr. Strain said. Heartland doesn’t divulge how many employees it has, but the publicly-traded company brought in $607 million in revenue last year. Its full-truckload, dry-van service specialty boomed since the nation’s spring 2020 COVID-19 restrictions.
“There’s more goods moving throughout the country,” Mr. Strain said. “That created more freight movement, which we indirectly benefit from.”
Mr. Strain measures business activity by “turn-downs,” loads that it rejects due to scheduling, driver availability and other factors. From 1,000 to 2,000 a week in early 2020, turn-downs jumped to 13,000 weekly as the economy recovered last summer.
“That’s our indicator of how strong the economy is and how much goods are moving,” he said. “It’s still good – not as strong as it was in the back half of last year, but still at levels that are very good.”
Shift in culture
This boom in the trucking industry keeps the competition for drivers strong.
“You just can’t find enough quality drivers,” Mr. Strain said. “More drivers are leaving the industry than have been coming in. The challenge (the industry) is faced with now is a shift in culture.”
“Local employers that we work with very closely are taking a close look at that,” said Amy Lasack, Kirkwood Community College’s executive director of continuing education and training. “They realize people have other things they want to do, outside of their career.”
Recruiting high school graduates isn’t an option with 18-year-olds banned from interstate trucking under current law.
“Those 18-year-olds are finding another path through college, or they’re finding another trade so the trucking industry misses out on them,” Mr. Grawe said. “A lot of people find a way to trucking as a second career. ”
Ms. Lasack noted proposals to lower the minimum age for interstate operators to 18 may bring younger drivers into the pool.
“We can train between six and 12 truck drivers and those folks generally have jobs when they’re out,” Ms. Lasack said. “If we could put 50 people through every month, they’d all be hired. They really have a lot of options. If they want to see the country, they can go over the road. If they want to drive a box truck for FedEx, it’s really their choice.”
Instructors in Kirkwood’s program are licensed operators themselves with at least two years’ driving experience - a hot commodity in today’s market.
“We pay very well, but it’s a tough market for us, too, to find the instructors,” said Ms. Lasack, adding that trucking companies recognize drivers’ goals and expectations have changed.
Safety stocks
Continued disruptions have manufacturers re-thinking previous decades’ commitment to global outsourcing and just-in-time practices.
“They’re trying to refill their inventories, and they’re holding more safety stock to protect themselves,” Mr. Grawe said. “You’ve got to be careful when you do that.”
In the early stages of the spring 2020 pandemic, “safety stocks bought a lot of companies a few weeks, but it didn’t buy them the entire duration of the pandemic,” Mr. Grawe said. “Making the transition from just-in-time to heavier reliance on inventory doesn’t always work, it’s more expensive.”
“Just-in-time today doesn’t work for a lot of companies,” he said. “There’s way too much unpredictability; it is a dangerous concept today.”
“You’re starting to see people want to warehouse more,” Mr. Corbett said. “Under lean manufacturing, just-in-time manufacturing, you didn’t build up inventories of supply. You’re seeing a lot of warehouse space being built.”
A shortened supply chain could play to the Corridor’s natural strength, Mr. Corbett thinks.
“We happen to be four hours from Chicago and Milwaukee and St. Louis, Minneapolis and Omaha,” he said. “Our corridor is a four-hour drive from all those population centers. That’s a selling point for us – it’s nothing we really did.”
Mr. Corbett said the Economic Alliance continues to field inquiries from companies interested in doing business as they simplify logistics.
“We’re running ahead of last year,” he said. “These are companies, nine this year, that reach out to us for expansion opportunities and site selection consultants. We’ve seen a lot of activity, and most of that is around manufacturers adding additional capacity in the U.S.”
“Where this goes is anyone’s guess,” Mr. Strain said. “There’s still a lot of questions in the supply chain. We’re not out of the woods, and it’s going to take some time before we get back to what the new normal is going to be. I don’t know what it’s going to look like.”
