Labour challenges impact machinery and parts supply

The first half of 2021 saw varied availability of equipment parts. While the supply of blades and bolts has improved since, a labour strike at John Deere threatens to exacerbate other lingering supply chain problems.

Entering its fifth week at the time of publication, and with the union rejecting a recent agreement, the strike at John Deere involves some 10,000 union workers across manufacturing locations in the United States. The strike was initiated after the union voted against a labour deal submitted by John Deere, forcing the company to operate at a reduced production capacity. The last union strike at John Deere was in 1986 and lasted 163 days. 

Why it matters: A combination of pandemic-related factors and high demand for equipment continue to cause backlogs in the equipment sector. A prolonged strike at John Deere could make the situation worse.

According to John Schmeiser, chief executive officer for the Calgary-based Western Equipment Dealer’s Association, the situation comes at a time when the industry has yet to recover from pandemic-related disruptions that began in March 2020. Current delay times, he says, remain “many months” long. 

Good crop prices, decent weather across much — but not all — of North America, and the continuation of low interest rates have simultaneously made for high grower demand. Schmeiser says the equipment companies themselves have also incentivized dealers and growers to place orders in the lead up to the 2022 growing season. The question now is whether those orders can all be filled and delivered in time. 

Demand for new equipment in the face of delays has had substantial ripple effects in the used equipment market as well.

“For the first time in my career I’ve seen used combines increase in value the longer they are on the lot. This is because the shortages at the new level… Anecdotally, I had a member tell me that in 2018 he had 10 used combines for every customer. Now he has five customers for every used combine. That’s unprecedented in this industry.”

Component shortages ongoing

Getting a completed tractor or combine across the border is not an issue, but getting the components to complete the machine in the first place is another story. Indeed, Schmeiser says otherwise completed combines and tractors continue to sit in lots awaiting one or a few individual parts.

Now longstanding issues in the supply of microchips, for example, appear to be no better and possibly worse as larger systems such as GPS and wiring harnesses, fuel tanks and other integral parts have become harder to source. 

Parts manufacturers themselves — many of which come from overseas or from factories around the United States-Mexico border — have found it difficult to source raw materials like steel. 

Some optimism persists

Conversely, the supply of basic components is much better than it was six to 12 months ago. 

“Parts was the first priority to be resolved through the pandemic,” says Schmeiser. “The last thing we wanted to see coming out of this is a strike with one of the major manufacturers… I’m not sure if the pandemic will entice manufacturers to look to source parts and components (elsewhere).

“We’re optimistic the two parties are at least talking with each other. If they weren’t having conversations our dealers will be very concerned.”