UAW strike leads to automotive industry inventory concerns – will an airfreight spike follow?

News of a tentative agreement between the United Auto Workers (UAW) and General Motors brought forth a sigh of relief despite UAW plans to continue with their strike until the agreement is formalized. The strike, which began on Sept. 16, has cost GM billions in U.S. dollars in terms of anticipated sales, actual layoffs and plant closures.

The strike has also had a domino effect within GM’s supply chain that is indicative of how, in general, the automotive supply chain operates – in a tightly woven, just-in-time manner. The result has been parts shortages reported by a number of dealerships and retail stores. Indeed, the impact on original equipment manufacturers (OEMs) has resulted in at least 12,000 layoffs, according to the Original Equipment Suppliers Association. Meanwhile, the Teamsters, in soliditary with the UAW, refused to deliver automobiles to dealerships resulting in shortages of GM automobiles on various dealer lots.
As members of the union and GM work to formalize an agreement, it has been reported that the UAW plans to use the finalized agreement as a guide in their talks with Ford and the FCA Group. If so, and if a strike occurs at either or both of these businesses, the same concerns of adequate inventory levels and replenishment will likely occur.

Inventory levels

The latest monthly U.S. Census Bureau report on Manufacturing and Trade Inventories and Sales finds that overall U.S. inventories remained unchanged in August from July, but year-over-year they were up 4.2% from August 2018. For the same period, motor vehicle and parts dealers (NAIC 441) recorded a slight decline in inventory, 0.1% month-to-month, but inventories were up 5.6% year-over-year from August 2018. In terms of the inventory/sales ratio, the result is 2.31 in August, 2.36 in July and 2.35 in August 2018. This, compared to total business sales ratio of 1.40 for August, 1.40 for July and 1.35 for August 2018.

Meanwhile, the Advanced Monthly Retail Trade Report, also compiled by the U.S. Census Bureau, finds that for motor vehicle and parts dealers (NAIC 441), sales year-to-date through September are up 3.5%. The month of September appears to be a strong month compared to September 2018 with adjusted sales up 5.6%. However, month-to-month from August, adjusted sales fell 1.0%. This decline was more or less in line with the overall retail sales trend in which September retail sales declined 0.3%.

What it means for the automotive industry

From a retail perspective, concerns of parts shortages due to the GM strike may be well-founded. Various publications cite numerous instances of dealerships and retail stores contacting one another for parts. In an interview with one publication, David Closs, the McConnell chair emeritus of business administration at Michigan State University’s Supply Chain Management Department, said, “Figuring out demand will be one of the hardest parts of getting GM’s supply chain back up and running. What was coming down the line when it was shut down might not be what’s needed now. This will require communicating with dealerships to determine what inventory looks like in these locations.”

In terms of manufacturing, general planning occurs several months in advance in collaboration with OEMs, with individual parts requirements often occurring in a just-in-time manner. This model may need to temporarily shift its focus to satisfy the retail shortages before focusing on new automobile models.

It is likely Ford and the FCA Group are following the unfolding events very closely as they prepare for talks with the UAW. A similar situation could face both manufacturers if talks with the UAW fail.

What it means for air cargo providers

Fast replenishment will likely require the need for air cargo. So, it is possible air cargo providers, in partnership with the trucking market, could benefit in the short-term in inventory replenishment to retail dealerships and other parts retail stores.

Globally, it’s been a rough year for air cargo providers overall and demand for imported automotive parts follows along with the dismal global trends. USA Trade Data, a U.S. Census Bureau database, finds that year-to-date through August, air volumes, in terms of kilograms, for parts and accessories for motor vehicles (NAIC 8708) are down 33.7% compared to the same period in 2018.

What’s interesting, though, is that for NAIC 8708 in terms of imported containerized ocean freight, the decline year-to-date is significantly less, down 0.12%, which leads one to wonder if there is a shift in mode transport or if the smaller decline is due to the differing types of parts and accessories each mode transports.

Regardless, there could be a bump in air cargo demand to not only satisfy short-term retail inventory replenishment but also for inventory needs ahead of the next U.S. tariff increase scheduled for Dec. 15 and the Chinese New Year, which is Jan. 25.