Machinery manufacturers have been warning of the critical situation in component supply for many months now and the situation is starting to darken future prospects.
In its latest conference call to investors, CNH was keen to point out the greatly increased revenue stream and healthy sales trends that it, and all machinery companies, are presently enjoying.
Orders for high horsepower tractors were particularly strong in the first half of this year with a 50% increase in North America and 25% globally over 2020, which, as the company admits, is not the most meaningful comparison.
Yet it still showed a healthy increase on 2019, although the picture for combines was a little more mixed, with European sales remaining flat while they grew elsewhere in the world.
Not only were sales up but prices were firm and there were improvements in margins; the cherry on top of the cake being that order books are also bulging for next year.
Three main reasons for this agreeable situation were identified. The first being strong commodity prices, the second an increase in trade with China, while the third is a perceived desire to replace ageing machinery fleets.
A rosy picture, and one that should gladden the hearts of management and shareholders alike.
However, there is a cloud looming on the horizon which is threatening to rain on this parade, and that is the continuing production problems.
Component supply issues
It would appear that the restricted availability of many components is starting to cause some real headaches. Although specific numbers were not given, there was a reference to several thousand units being partially completed and awaiting parts to be finished.
Having uncompleted tractors and combines hanging around the yard waiting for bits to be fitted before they can be despatched, is neither satisfactory nor profitable.
It is worrying for all companies that the situation still exists, despite the efforts being made to minimise the numbers.
Increases in costs are also expected and these, doubtless, will be passed on to the end user, a task made easier by the present high demand for machinery.
Husqvarna takes the gloves off
Meanwhile, in a related segment of the industry, Husqvarna has ratcheted up the pressure on component suppliers by commencing proceedings against Briggs and Stratton, which has refused to supply the number of engines required.
Actual figures have not been released but in a recent statement the company noted:
“Briggs & Stratton will only deliver a very small portion of the engines for ride-on mowers that Husqvarna Group had ordered in advance of the 2022 season. Therefore, to protect its customers and operations, Husqvarna Group yesterday filed a lawsuit in South Carolina to compel B&S to deliver all engines covered by its orders.”
The engine maker has not, as yet, publicly responded to the action and Husqvarna has said it will not provide an update until its next financial report, scheduled for October 20, 2021.
Up until now there has been a general acceptance that the component shortage is a case of force majeure. Husqvarna’s more robust approach may see other companies looking at the contracts they have with suppliers in a bid to preserve their profits.
The gentlemanly understanding between component suppliers and their customers, which has so far pervaded the industry, may well be beginning to unravel.