By Lorella Angelini, Angelini Consulting Services, LLC
US industries are facing issues related to widespread worker shortage, material scarcity and supply chain delays. The bridge preservation industry also finds itself facing many of these same challenges.
To better understand the intricacies of these challenges, I spoke with Dale Mortensen, National Sales Director with Washington Rock Quarries, Inc., a company that has been involved with bridge preservation for over 10 years. Among the other products that they sell, Washington Rock supplies Armorstone, an aggregate that enhances friction surface for bridge deck overlays and road surfacing installations.
Dale runs the Armorstone division for Washington Rock Quarries and is responsible for all 50 US States. Dale, who graduated in 1999 with a business degree in Marketing from Utah State University, is fond of golf, mountain biking and the outdoors, an experience that he shares with his wife and five children.
At a recent TSP2 monthly conference call for the Western Bridge Preservation Partnership you spoke of the global supply crisis that has been affecting bridge deck overlay projects. Is this crisis also affecting the Armorstone products? Is it related to a particular type of aggregate, such as the bauxite? Or is the issue more complex?
It is definitively a more complex issue than the cost of the bauxite aggregate itself. During the call I said that there is a major transportation crisis in the aggregate industry. The cost for freight, both truck and rail, has increased so much that the price for aggregate has become secondary. Even if my company was able to keep the same price as last year for the products that I promote, contractors would still pay up to three times as much because of the increase in shipping costs. There are several reasons for this increase. The biggest one entails trucking. There is definitively a shortage of truck drivers. From what we were told by the trucking industry, in the last year and half over 100,000 truck drivers have either retired or left the industry. At first many truckers didn’t have enough work because of the COVID pandemic. As a result, they stopped working and got paid through unemployment. Now that the economy has reopened, many drivers have not come back to work. The shortage of truck drivers combined with the high demand for materials that we are experiencing post-COVID has brought trucking costs way up.
Shipping cost increase is not limited to trucking though. Since trucking is so congested, many companies have turned from trucks to rail thus making rail shipping also congested. Railways typically have their busy seasons between September and January, which is the time between the holidays, Halloween, Thanksgiving and Christmas. They are telling us that they have as much business now as during the busy season and consequently, prices have soared. The bottom line is that our customers are calling us and asking why a transportation price quoted, for example, at $2,000 six months ago, is now doubled to $4,000.
Can you make an example of shipping cost increase related to your products?
We primarily use trucks for shipping in the West. We hardly ever ship anything other than full truckloads since shipping a partial load and a full load is about the same cost. As an example, last year we were quoted about $2,400 freight cost for shipping a full truckload of approximately 22,000 lbs. of aggregate material from Washington State to Albuquerque, New Mexico. This year we’re getting prices of approximately $4,700 for the same amount of material, route, and delivery location.
When we ship by rail, we use a rail car, which carries approximately 21 tons. The price for rail cars has also increased substantially. We are seeing a transportation cost of $3,000 that we were quoted last year raised to $4,500 this year. Just as an example, the cost from Washington to Indiana, where we ship quite a lot of material, has gone from $3,200 last year to $4,700 this year.
How are your customers, the contractors, reacting to this cost increase?
I participated in the TSP2 call to respond to a request from one of my customers, a contractor, who wanted me to speak with the DOTs. Contractors are asking the DOTs to allow for a change order based on increased transportation costs. This will allow them to keep projects going. If the DOTs refuse to accept a cost readjustment and they want contractors to stick to the original contract price, contractors can end up losing money for bridge deck overlay and road projects because of shipping costs. Nobody could have foreseen this situation.
Is price increase also affecting international shipping?
Certainly, the shipping crisis is global. It is well known that the worldwide COVID pandemic has created the set of circumstances our industry is currently facing. Because of the pandemic many factories in China either shut down or drastically reduced their productivity, from 100% to as low as 20%. When running at 20%, these companies weren’t exporting as much, which reduced US market availability of many materials used in the construction industry. Moreover, the pandemic created a worldwide shortage of shipping containers. At first, China started exporting a large quantity of products related to protection from COVID, such as cleaning supplies, masks, and gloves. China shipped containers filled with these products all over the world, including countries where they had never shipped to on a regular basis, such as Australia, Panama, and New Zealand. The fact that these countries have limited export along with the need for ships to return to China quickly in order to deliver COVID protective equipment to other parts of the world, resulted in many containers staying in these countries and not returning to China. The bottom line is that we are experiencing a massive shortage of containers globally. As of now, there are simply not enough containers to ship to places.
Has this global shortage of containers affected your business?
It affected Washington Rock Quarries greatly. We weren’t able to get by container one of our key products, the bauxite, an aggregate that we don’t manufacture but we purchase from China. Due to the shortage of containers, the cost for shipping bauxite from China to the Port of Tacoma more than tripled. This has priced us out of the market.
In order find a different way to ship the bauxite, we ended up moving materials via barge. Unfortunately, the Port of Tacoma, where we normally import our bauxite to, doesn’t allow for barges to unload there. We had to ship to another state which resulted in more steps and increased costs. We want to get back to shipping to Washington via containers ASAP. However, we do not think this will be an option until late 2021
Due to the increased cost to move material by trucks and railway cars, in addition to the shortage of containers, you have been forced to increase the price of your materials to contractors. How are contractors reacting to the price increase?
As I mentioned earlier, contractors are asking the DOTs to revise costs of the projects that were bid prior to the pandemic. If prices are not revised, contractors are running the risk of losing money with these projects. When DOTs ask contractors to hold to their original quote, then contractors are coming back to us asking to cut prices. Unfortunately, we do not have enough wiggle room in our margins to make up the difference for these increased freight prices. As a matter of fact, we would prefer not to be involved with the shipping business altogether. We only provide transportation as a service to our customers.
Are you expecting the shipping crisis to end any time soon?
With the pandemic slowing down in certain parts of the world, the business is coming back very fast. A lot of material is currently being shipped from China and Taiwan. However, I do not see the recovery of the shipping side of the business coming back as fast. The large amount of materials that are being manufactured is actually worsening the shipping crisis. It is causing a huge backlog. There are not enough containers, or truck drivers, or railway cars to move materials.
An article published by the New York Times states that that we may end up experiencing some of these difficulties all the way into 2023 before seeing a correction in the market.
If this is true, what should manufacturers and contractors do to stay in business for 2 years with limited or no profit?
Looking forward to next year contractors will have to bid with the idea that costs could be much higher than they are now. Both manufacturers and contractors will have to include uncertainty into their price.
Concerning bridge deck overlay projects, this uncertainty is not limited to the aggregate that we supply but includes all the other components, such as equipment, supplies, parts and epoxy. It is an all-encompassing problem that affects all suppliers for bridge deck overlays, who provide materials and equipment.
Let me underscore that this current crisis is not limited to bridge deck overlays and the bridge preservation industry. There’s a shortage in almost every industry right now. It is even difficult to buy a new car since manufacturers are having problems getting computer chips. And this is just one of the many examples I can give.
From the New York Times: