The Pandemic’s Impact on the Pet Food Industry Supply Chain
28 July 2021
Since the pandemic began roughly 18 months ago, nearly every aspect of the pet food industry supply chain (i.e., any part of the production process) has encountered some type of delay or interruption.
Although transportation challenges and container shortages tend to receive the most attention of all the supply chain issues, the effects of COVID-19 on the workforce is arguably far more important. Containers can be replaced, but our fellow industry colleagues cannot.
A massive increase in online ordering during the pandemic sent demand for delivery truck drivers through the roof. Within the pet food industry specifically, demand remains robust as pet parents save more money on pet food than any time in recent history.
Truck Driver Shortage
Driver shortages and labor turnovers reach as high as 15% on a monthly basis, according to Pet Food Institute members. The issue is compounded by the fact that the CDL (commercial driver’s license) workforce pool is shrinking. Compared to past freight cycles, the number of industry truck drivers remains problematically low.
Money Doesn’t Solve Everything
As companies desperately seek truck drivers, some began offering big pay hikes to attract new drivers, but such an approach has led some drivers to bounce from one company to the next. The average annual turnover rate for truckload carriers (those who move trailer-size shipments across long distances) is an incredible 95%, according to the American Trucking Association.
Of truck drivers, truckload carriers tend to be in the greatest demand because the job often requires drivers to be on the road for weeks at a time – delivering load after load, driving the maximum hours legally allowed and sleeping in their vehicles when not on the clock.
While drivers appreciate the increased pay, they're keeping their options open, said Daniel Walton, a 47-year-old truck driver at Roehl Transport, a Wisconsin-based trucking company with 2,300 drivers. "Everybody loves getting more money," said Walton. "You hear numbers thrown at you and there is a temptation to go elsewhere."
Recently, his friend switched to Walmart and another joined FedEx. These companies and similar ones, such as UPS and Amazon, retain a competitive advantage by offering more regular routes and more time at home.
Ironically, higher paychecks may be worsening the shortages it is intended to solve. Many drivers are using the larger paychecks to cut down on their drive time. "You see guys with young children that were out there working," said Walton. "This affords them the opportunity to be home a little more with their children."
The construction market also lures drivers away from other industries by not demanding their drivers to stay on the road for lengths at a time. Despite pay hikes, truck driver scarcity remains an ongoing challenge to the pet food industry. Until the industry invests in their truck drivers – improving their work conditions and supporting their well-being – a workforce shortage will likely remain.
Bob Costello, Chief Economist for the American Trucking Associations, said his team wants to see a roll back of federal law prohibiting anyone younger than 21 from driving heavy trucks. "Why are 18, 19 and 20-year-olds able to drive tanks and fly planes in the military and they can't drive trucks?" he asked. Industry members worry that high school graduates are precluded from considering a career as a driver for three years, prompting them to seek other professions and choking off the pipeline of potential drivers.
High pressure and a demanding workload all ail supply chain stakeholders, but container shipping remains markedly troubled. Container shippers have become increasingly difficult to contact, and locally, the Trouw Nutrition team frequently encounters slower response times according to Kathy Culiberk, Logistics Manager for Trouw Nutrition’s U.S. operations.
Trouw Nutrition increased its attention on global container arrivals and works diligently with freight brokers and our global team to track incoming containers.
- Equipment availability remains tight, which impacts free time provided by ocean carriers.
- Vessel/schedule reliability remains dramatically poor, including more blank sailings (a sailing cancelled by the carrier) and more vessels behind schedule.
- The Asia outbound trade routes show no signs of improvement and spot rates set a new record and continue to grow.
- Port congestion on the West Coast harms consumer goods industries, affecting food and ingredient imports from Asia. Port authorities expect the situation to deescalate but then ramp up again in August ahead of the holiday months.
The pandemic also negatively impacted ocean freight:
As the most difficult trade lane, most rates set historical records. Port-to-port benchmarks do not reflect the actual market due to significantly high add-on charges.
More and more vessels are falling behind schedule and blank sailings and rates continue to grow.
Rates are increasing and space remains tight, partly due to a higher volume of shipping to Mexico in response to volume diverted from the U.S. West Coast (Los Angeles/Long Beach/San Francisco/Oakland).
- Suppliers began implementing freight surcharges in Q2 to cover increased cost on ocean freight.
- A national rail space shortage is increasing the cost of sending truck containers to their final destinations.
- Final (freight) delivered cost increased 35-50% since the pandemic began.
Rising Ingredient Costs
Overall ingredient costs have risen between 8% and 20% with significant increases for corn and soybean in particular, which are ingredients used in most pet food formulas, according to the Pet Food Institute. Compared to 2020, corn prices rose 67% and meat, poultry and fish ingredient prices increased by 6.3%.
Chinese Power Shortage
China is in the midst of its worst power shortage in over a decade, according to CNN. Guangdong province, home to a manufacturing center responsible for 10% of the country’s annual economic output, has been rationing power for over a month. Some companies close for a few days per week as a result of the power shortage, and some local authorities predict that power rationing could remain a problem throughout 2021.
Looking to the Future
As companies across the pet food industry navigate these uncertain times, Trouw Nutrition benefits from its global procurement and logistics networks that keep the U.S. Companion Animal Division informed, enabling swift and effective responses to supply chain challenges. Thanks to cross-training its manufacturing employees in all areas of production, Trouw Nutrition continues to work through the pandemic with minimal impact to manufacturing.
Kim Vincent, Supply Chain Manager for Trouw Nutrition’s U.S. operations, reports that Trouw Nutrition and its parent company, Nutreco, continue to monitor supply chain changes and currently estimates all international order lead times at 12-16 weeks. Based on these indicators, Trouw Nutrition anticipates that capacity and demand won’t return to pre-pandemic levels until well into 2022.