Supply chain issues have dominated headlines in 2022. Everything everywhere seems to be backordered, backlogged, or just unavailable. But what’s broadly referred to as supply chain issues are often labor shortages, manufacturing shortages and even shortages of trucks and trailers necessary to transport everything. Sometimes supply chain issues are really logistics issues.
“Supply chain” covers everything from demand for something through purchasing components to make it, transporting those components to the manufacturing site, then transporting products to distribution networks and ultimately consumers. Transportation allows for the movement of goods. Logistics is the management of that movement. Both have been affected by manufacturing slowdowns from labor shortages, and unprecedented demand for pretty much everything via e-commerce.
Shipping & Handling
“We’ve been seeing similar situations over the last two years,” said Scott Pruneau, CEO, ITS Logistics. “You’ve got the challenges on labor, driver challenges in terms of the number of drivers to fill seats. That’s not a new issue, it’s something that’s been happening over the last 15 years. That is exacerbated today by labor challenges in many industries, predominantly in construction and manufacturing areas where you generally compete for labor.”
Equipment shortages also challenge the industry. COVID caused factories to fall behind and goods to become scarce. Trucking companies don’t just need drivers, they need trucks, trailers and parts. The end of 2021 saw a backlog of 297,000 trucks ordered but not delivered, said Paul Enos, CEO, Nevada Trucking Association.
“There was a backlog of trucks because of parts,” said Enos. “We’ve all heard a lot about computer chips; that’s still an issue – and tires, windshields, door handles, fuel pumps. We are hearing of all these shortages still affecting our companies where people have trucks down for months.”
Truckers move 95.3 percent of all goods transported in Nevada. Over the summer of 2021, hundreds of trucks were parked statewide because of a quality level sensor that reads diesel exhaust fluid to determine EPA compliance. The systems were still working; there was just no proof without the sensor. Normally the part sells for $300. With sensors unavailable, Enos saw one on eBay for $7,000.
The biggest challenge for the trucking industry is currently the driver shortage, said Enos, and it’s happening as demand for freight continues to be high. “Two years ago, at this time was the greatest freight demand we have ever seen, greater than any holiday season, when everybody was in lockdown.” Truckers were busier than they’d ever been.
They still are. Spring isn’t usually peak season for freight, the autumn holiday season is, but freight levels have exceeded the 2020 peak both nationwide and statewide, said Enos. “We have this great demand for freight at the same time we are experiencing driver shortages after COVID, and the driver shortage got a little more acute. We went from about 60,000 drivers short to about 80,000 nationwide.”
Peak demand for freight grew during the pandemic. People were in lockdown, so not spending, and simultaneously receiving stimulus checks. They had time, money and nothing to do. As a result, e-commerce bloomed.
Operating at peak levels, especially with fuel prices soaring, is difficult to sustain. As inflation rises, there are signs e-commerce may slow and relieve some of the pressure on the supply chain.
“I can’t tell you whether that’s going to persist over the next six to 12 months, which is what I think it’s going to take for the backlogs to correct themselves. But we’re seeing signs it could be starting,” said Pruneau.
Consumer fatigue might slow freight demand as shipping delays make it increasingly difficult to even get things. One example of this is trailers. Trailer manufacturing recently has produced 30 to 40 percent fewer trailers than it’s designed to produce. Orders made a year ago are just being delivered. Orders made in the spring of 2022 may take 18 months. In turn, smaller orders are placed because companies are waiting for prior orders to be filled before seeking more. Which in turn affects capacity for shipping.
Add in rising fuel prices. Cost of raw materials increase. Availability of products decrease. Deliveries are delayed. The price of everything goes up. Fuel costs get added to baseline costs. Carriers and truckers push that pricing onto customers whenever possible.
Nevada is typically one of the most expensive markets in the country for diesel, said Enos, and 97 percent of all heavy-duty trucks run on diesel. Reno is the seventh highest market in the country. In April the price of diesel fuel per gallon in Reno was $5.984. Las Vegas, the twentieth most expensive market in the country was at $5.24. Independent owner/operator truckers have to balance fuel prices against truck lease payments and baseline costs. The smaller the company, the harder it is to manage fuel costs and still turn a profit.
In the Air
In 2019, Harry Reid International Airport, formerly McCarran International, broke records as 51.5 million passengers moved through the airport.
“That was the third consecutive year in which we set new, all-time records,” said Chris Jones, chief marketing officer, Harry Reid International Airport. “Obviously 2020 was not at the same level, but [last] year we were a tick shy of 40 million passengers.” That’s not quite 80 percent recovered, but close to pre-pandemic levels. In January and February 2022, 7 million passengers passed through. An improvement from April 2020, which Jones describes as a “ghost town”.
After casinos reopened in the summer of 2020 traffic returned, initially with a heavy focus from leisure travelers. “We’re still very leisure-oriented, but at the moment we actually have more domestic capacity in terms of flights per day and seats per day than we did in the same timeframe three years ago,” said Jones. International isn’t back quite yet, but in April flights from Munich, Frankfort, Zurich and Canada were returning.
“We grew passengers during the pandemic and got them back faster than most airports outside Florida or the beach markets,” said Daren Griffin, president and CEO, Reno-Tahoe International Airport. “We have been really strongly rebounding here in northern Nevada.”
The Reno airport has been back to 2019 passenger levels for nearly a year, rarely gaining or losing more than 5 percent of that volume each month, despite rising fuel prices. It’s the lack of flights that’s impeding growth.
“Airlines are not flying as much as they were pre-pandemic, and that’s less about fuel and more about the labor shortage and aircraft availability,” said Griffin. Rising fuel prices are countered by shorter taxi times and some aircraft turning off engines while waiting for takeoff. Griffin hasn’t heard of flights being canceled because of fuel prices alone. “It’s still a complex recovery from the pandemic,” he said. “There’s a lot of impact on labor; the airlines are feeling that. A lot of people retired in 2020; [airlines aren’t] as big as they were. It’s not an impact for us yet, but if it doesn’t get better, I would say in a few months it most certainly will be.”
Freight in and out of the airport hasn’t been significantly affected by fuel prices. There’s increased cargo weight moving through the airport, and it doesn’t seem that consumers are changing their e-commerce habits because of higher shipping costs.
Both airports face challenges with ground transportation. Harry Reid Airport is exploring solutions to congestion caused by traffic generated by Monday-start conferences. Reno-Tahoe is building a new ground transportation and rental car center in 2023 and reconstructing lanes outside the terminal to improve accessibility and security.
“There will be three times the space we have presently for our rental car operators. [We are] also building in cabs transportation network companies, any form of ground transportation will all be in one place, which frees up more public parking,” said Griffin. Since the airport started getting passengers back, remote workers who no longer have to hurry back to the office Monday morning are staying longer—the airport is consistently running out of parking spaces. “We’re working as quickly as we can to add capacity.”
Reno launched a capital improvement project in April to modernize and expand the Terminal 1 ticketing area. “We have lots of folks here with skis and snowboards and golf clubs and checked luggage. As our passenger count continues growing, it’s an area that needs more physical space,” said Griffin.
The main focus of the project is concourses B and C, built in 1980. The airport is working with designers to determine whether to reconstruct or tear down and build new. Moving walkways are being removed to create space for retailers and concessions, an important source of revenue for the airport, which is self-sustaining.
“If you use the airport, you will pay money in some form or fashion and contribute to the airport operations and budgets,” said Jones. “If you don’t use the airport, then you’re not, as a local county taxpayer, supporting the airport.” Harry Reid Airport is an enterprise fund of Clark County, owned and operated by the county but not receiving funding from the general fund.
Airports earn money from services they provide: they receive a percentage of aircraft landing fees, fuel and ticket sales, food concessions, slot machines, parking fees and there’s a passenger facility charge of up to $4.50 per passenger. Airports can borrow money for capital improvements.
In southern Nevada, another airport is being planned. There’s a site for a second airport near I-15 between Jean and Primm. Located on a dry lakebed, the site is more than 6,000 acres that, if all environmental studies and federal processes are approved, will become what’s currently being called Southern Nevada Supplemental Airport.
On the Ground
Rising fuel prices are affecting Nevada Department of Transportation (NDOT) in three ways, said Kristina Swallow, director. “The fuel tax we receive is a flat tax. The federal fuel tax rate is 18.4 cents per gallon. The state rate is 17.65 cents per gallon. That rate doesn’t change when fuel prices go up, so one of the challenges we look at when prices rise as fast and as high as they have is will that change consumerism of fuel? Will folks decide they can’t afford to drive as much?”
When drivers switch from their cars to public transit, NDOT receives reduced tax revenue, making it difficult to delivery roadway projects.
In 2008 when gas prices rose during the recession, transit ridership went from 62 million trips in 2007 to almost 65 million in 2008, according to MJ Maynard, CEO, Regional Transportation Commission (RTC) Southern Nevada. “We saw a marked increase due to the recession. It took about three months in 2008 for gas prices to increase by about a dollar a gallon. What’s different this time is the price of gas jumped nearly one dollar in just one month and we’re seeing an increase in transit ridership.”
On average, RTC Southern Nevada has daily ridership of 110,000 to 115,000 passengers. The current 4 percent increase adds up to 5,000 new trips every day.
It’s a chance for RTC to lure drivers to public transportation. But it’s coming at a time when they’re not running at full service– not because of fuel prices, but because of labor shortages.
Rising fuel prices impact NDOT roadway projects. When the cost of crude oil goes up, it drives up the cost of asphalt, and can impact costs of anything that has to be delivered by vehicle–which is pretty much everything. Construction contract costs also rise, and while construction costs fluctuate in normal markets, if prices rise steeply, it affects NDOT’s ability to deliver on projects.
NDOT’s funding is a mix of federal and state fuel taxes. Neither of the rates have been adjusted since 1993. NDOT’s total annual revenue is roughly $1.2 billion.
“On an annual basis, we face a funding shortfall of over $500 million,” said Swallow. In 2019 and 2021, the Nevada Legislature tasked the agency with creating a 30-member advisory group with representation from chambers of commerce, RTCs, NV Energy, conservation groups and state agencies.
“We’re working together to learn how we ensure we have enough revenue to meet the needs of preserving existing assets,” said Swallow. “We have almost 14,000 total lane miles in roadways across the state that carry 50 percent of all traffic and 70 percent of all truck traffic, so it’s vitally important we have a way to preserve what we’ve already built.”
That’s especially important in light of the continuing conversation about electric vehicles (EVs). “Electric vehicles means people are paying less to drive for every mile because of increased fuel economy,” said Swallow. This becomes challenging when funding roadway projects with fuel tax revenue. “Every dollar that we invest in transportation projects generates economic activity. Since October 2021 our projects have supported 7,300 jobs,” she said.
A 2016 ballot initiative in southern Nevada continued a previous program which indexed fuel tax to inflation. This means a portion of the gas tax commuters pay at the pump is used for local roadway projects. “Since 2014 we’ve awarded over $1.85 billion in roadway projects to local jurisdictions,” Maynard explained. “The breakdown of funding for those projects includes more than $1.78 billion in fuel taxes and more than $8 million in sales taxes. At the end of 2021, the total revenue is more than $2.1 billion.” Those funds, awarded to local jurisdictions, have created more than 13,000 jobs since 2014.
Orange Cone Season
Where NDOT isn’t working on roads, Regional Transportation Commissions are. RTC Washoe and RTC Southern Nevada are the metropolitan planning organizations, coordinating all countywide transportation planning. They’re the entry portal for federal participation in county-level transportation issues. They’re responsible for 20-year regional transportation plans, and five-year transportation improvement plans, designating how money for those plans is spent.
“We do the planning and facilitating of all things transportation and, as one of our core services, we design and oversee construction of regional roads,” said Bill Thomas, executive director, RTC Washoe. Regional roads generally serve about 5,000 average daily trips.
RTC’s also serve the community with public transit. “When we talk to the public the first question we ask is do you know who we are and what we do? Overwhelmingly we get back, ‘You’re the bus people,’” said Maynard.
That’s true but they also manage intelligent traffic devices like freeway ramp metering, implement the Las Vegas bike share program and administer the regional plan.
“We have multiple ways we provide public transportation and very simply put, we do it with money the public gives us through sales tax which was imposed on the community by itself,” said Thomas.
Thomas expects soaring fuel prices will effect public transportation, but RTC isn’t driving less or responding less. At the end of 2022, the annual accounting will detail the additional fuel costs. “Which undoubtedly will affect the cost of operation,” he said. “We’re not adjusting our fares. Nothing changes in terms of any costs we would be charging to ride or use our services. It’s a cost that we will absorb.”
RTC projects are funded through sales tax, fuel revenue indexing, transit fares, and fuel tax, which is local money. Federal money comes in the form of federal projects, like rebuilding the Arlington Avenue bridges, a $25 million project that received $9 million in grants. “Generally, road construction costs about $10 million a mile,” said Thomas. With local funds from local taxes, the county is essentially investing in itself.