Special Report: Scarce Resources

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Photo courtesy of TW Metals

The raw materials shortages in motorsports are real, but companies are finding ways to adapt.

We live in interesting times, to say the least. There’s no need to re-hash the pandemic of 2020 and whether the responses from governments around the world were correct or not. The memories are all too fresh, and in many places restrictions have not yet been fully lifted. The slow-motion car crash that is the world economy is still tumbling down the highway, leaving a trail of debris in its wake.

For the motorsports industry, the outlook is mixed. The racing calendar is full once more, and fans are back in the stands, but one of the biggest pandemic hangovers is an acute raw materials shortage that has stifled recovery efforts. Demand is high, supply is low, and companies are scrambling to secure enough materials to manufacture parts and keep racers in business.

Of course, this isn’t a problem unique to the racing world. Raw materials shortages are popping up everywhere. “We have found most customers to be very understanding of the situation, as they are facing it in all areas of their lives,” said Chris Douglas of Edelbrock Group, Olive Branch, Mississippi. “Whether it’s lumber, patio furniture, outdoor equipment or other goods, consumers are seeing significant shortages and fulfillment delays. These challenges started during the pandemic but have continued as supply chains try to catch up with an extraordinary surge in demand coupled with workforce challenges around the world.” 

In speaking with several manufacturers, fabricators, and metal suppliers for this article, we found out some sectors have been hit harder by shortages than others. “It’s been very rough with mild steel and chromoly in sizes that are most popular for roll bars and roll cages,” said Jill Fazekas with S&W Race Cars and Components, Spring City, Pennsylvania. “It’s been very sporadic with everything else, but in the most popular sizes it’s been a very long wait. We just recently received eight bundles of chromoly, 1 5/8- x .083-inch wall, and we’ve been waiting over two months for that.”

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The pandemic has caused shortages in many different materials, especially steel. “It’s been very rough…” said our source at S&W Race Cars and Components.

TW Metals in Exton, Pennsylvania, is a specialty metals supplier for motorsports, aerospace, marine, oil and gas, and other industries, and has a ground-level view of which shortages are hitting the motorsports industry the hardest. “Currently there are three product categories that are the most affected: 4130 tubing, stainless steel tubing, and all forms of aluminum,” said Keith Cookson. “The metals industry was hit head-on with high demand coming off a challenging year and has been trying to correct itself from the disruption of COVID-19.”

He added, “All parts are seeing some type of shortages, but it seems chassis builders and exhaust manufacturers are some of the most affected.”

The Edelbrock Group’s various brands cover a wide cross-section of the industry, from manifolds and cylinder heads to electronics, hoses and lines. “Our most challenged materials are in the metals,” said Dan McKinstry. “There is limited capacity at foundries for casted iron products. Aluminum suppliers are also struggling to keep up with demand, and the cost of aluminum has increased significantly over the last 12 months. We are also beginning to experience pressure on copper-based products used in our electronics portfolio.”

Follow the Parts

To understand how a shortage of a particular raw material can echo through the industry, it helps to look at a commonplace example of the supply chain in motorsports. Tom Lieb at Scat Enterprises in Redondo Beach, California, a manufacturer of crankshafts, connecting rods and rotating assemblies, among other products, gave us a look at all the moving parts it takes to deliver a finished part to the racer. 

“Our raw material is billet material for billet cranks, round bar, and then forgings and castings for the other,” Lieb explained. “The round bar we buy here in the United States is from Timken in Canton, Ohio. As far as the forgings and castings, we buy those from China. We do have raw material available, but the big problem is the logistics. In other words, the manufacturer makes it, but it’s 7,000 miles away. So the challenge is to get it from there to here. The whole logistics, the shipping, not only internally in the United States but also overseas, is turned upside down. The lead times are more affected by the shipping than they are anything else.

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Many manufacturers depend on complex, vulnerable supply chains with long lead times. Logistics in particular have been “turned upside down,” explained our source at Scat Enterprises.

“In our case, we buy from a steel mill, we ship it to a forging or casting house in China. That’s done, and then at that point we either bring in a raw forging straight from the forging factory or it goes to a machining facility where they do some partial machining, then it comes here,” Lieb continued. “And so the problem is, we actually operate six to eight months ahead of time. In other words, our pipeline now [in June] is being loaded for November or December of this year. 

“When the pandemic hit, we had product in all this pipeline. We had product on the shelf that was ready to be shipped, we had work in process that was in the shop being worked on, and then we had raw material that was in the warehouse that would go into the shop as the work orders were written. And then we had material that was onboard a ship that was somewhere on the high seas. And we had product that was in inventory in China that was finished and ready for shipment or getting ready to be shipped. And then we had work in process, and steel mill orders, and things like that. So this whole pipeline, every day, moves.”

Until it didn’t. “The shutdown in China kept anything from getting on board the ships,” Lieb said. “And then when ships did arrive here, the harbor was locked down and they were not unloading. Of course, here, we never shut down. We do some stuff that’s critical,” he concluded.

And so it goes throughout the industry. If any particular link in the chain is disrupted, it can affect multiple products down the line. “Container imbalances have increased lead times out of China, further contributing to our shortages,” said Edelbrock’s McKinstry. “We have increased orders to our Asian suppliers to fill the pipeline and compensate for extended lead times. However, we are now finding that Asian manufacturing sites are operating at high utilizations, limiting our ability to increase the pipeline.”

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Shortages can arise in unexpected ways. “Tubing hasn’t been an issue,” noted our source at Ultimate Headers. “Probably the biggest part has been header bolts and gaskets.”

“We’re actually a link in that supply chain to chassis builders, so we’re not only filling the orders to our direct customers, but to those folks as well,” said S&W’s Fazekas. “It’s been tough, because the tubing we do receive, we’re earmarking it for making our products, to keep our products getting out to our customers. So other customers who just want to buy an 8-foot length of tubing, or a full-length of tubing, or 4 feet of tubing for whatever project they’re working on, we had to suspend those sales and discontinue offering that until we get all of our backorders filled. As you have to understand, we’ve had so many backorders on the roll bars, roll cages, and chassis kits, now that we’re finally having the material show up, we’re just using every piece to fill those backorders. The lost tubing sales have really had a significant negative impact on our cash flow.”

Much of the industry has found itself stuck in a perpetual “catch-up” cycle. “Now the problem is, the warehouses are empty,” Scat’s Lieb said. “The manufacturing cycle is trying to make up for all of these gaps that were generated by non-working, and so the reality of that is, we’re going crazy trying to get product to the customer. Our production rates are up 30% to 40% over last year. But it’s not sustainable, because we’re not only taking care of demand, people who are standing there with money in hand waiting to buy a crankshaft, but we’re also, on top of that, replenishing the inventory that the customer has run out of. We’ve got a double whammy. We ship parts to them; they don’t go on the shelves. They turn around and they’re shipped off to their customer. Their shelves are still empty.”

Even for businesses that planned well to maintain their primary products and have been able to stay a step ahead of the shortages, the lack of peripheral items can still trip things up.

“We have survived through it with some careful planning. Tubing hasn’t been an issue,” said Jim Browning with Ultimate Headers, Berea, Ohio. “We buy our 321 stainless in a master coil. When they make that coil that’s all for us, and we get thousands, and thousands, and thousands of feet out of it. We’ve been good on tubing, and careful planning has kept us going without any shortages. Probably the biggest part has been header bolts and gaskets. Some of what you would think are kind of basic things have been tough.”

The Human Element

Nearly every source we spoke to mentioned one particular raw material that was in short supply: human labor. The reasons why “help wanted” signs are getting ignored vary, but most can likely be attributed to a combination of expanded unemployment benefits during the pandemic, worker hesitation to return to potentially infected workplaces, or even, for a not-insignificant number of people, a reassessment of life goals after experiencing extended free time during the shutdowns.

Whatever the reason, the lack of available labor is putting a severe crimp in the supply chain. “What makes this shortage unique compared to other years is most vendors’ inability to respond to increased demands, and labor shortages across all manufacturing categories has limited suppliers’ ability to respond to increased demands,” said McKinstry with Edelbrock Group. “On almost every call with my vendors concerning shortages and delays, the single most contributing factor to these shortages is labor constraints. Going into the pandemic, many of our vendors’ facilities were already operating at high utilizations due to a high demand from a strong economy. Extended plant shutdowns with continued strong demand created large backlogs and additional pressure on already capacity-constrained facilities. As state restrictions eased, plants struggled to get their workforces back. Many of our vendors looking to increase capacity by increasing shifts found it difficult to hire people to fill the open positions.”

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A scarcity of workers is at the root of many disruptions. “The single most contributing factor to these shortages is labor constraints,” said our source at Edelbrock.

That labor shortage is one more brake on an industry that is ready to operate at full throttle. “Our customers have been extremely understanding, because it didn’t take long for the word to get out to people,” S&W’s Fazekas said. “They understand there’s a shortage. And not just a shortage, but also in the delivery. Some of our suppliers are saying, ‘Yeah, we have it, but we don’t have the staff to load our trucks to get it to you because of the issues with staffing at different companies.’”  

Adapt and Overcome

If the materials and labor shortages are frustrating, they are also forcing companies to be nimble. There are ways to improvise and innovate, and the companies we spoke with are not standing still as passive victims. 

“One of the things that’s happened, which is interesting, is that we have inventory that we consider to be C and D movers, like pistons that are .060-over when everybody buys .030-over,” said Scat’s Lieb. “Well, if a guy really needs a part, our sales department has said, ‘I know you want .030-over, but we do have a set of .040s.’ And the guy knows he can’t get anything else, and he’ll buy them. So it’s been a help to us to get rid of some inventory that is not prime.”

S&W Race Cars & Components has taken a similar path in offering alternatives. “What we’re doing whenever possible is offering an upgrade. We’ve been able to do that on a couple different things, like in the roll cage material,” Fazekas said. “If they, for example, wanted mild steel 1.625-inch x .134-inch tubing, we upgraded them to a different tubing, 1.75-inch x .134-inch mild steel roll cage tubing at no extra charge. It was a swap to something we had in stock that still met spec, and it was a little bit of an upgrade.” She noted that the high-demand 1.625-inch x .134-inch-wall mild steel tubing bundles finally did arrive two weeks before our interview after a 20-week wait, and the 1.625-inch x .083-inch chromoly tubing bundles arrived at the end of June after a 23-week wait.

Remembering who your friends are has also been important during this rough patch. “Partnerships are critical in times like these,” said TW Metals’ Cookson. “We’ve resourced well with our suppliers and have made additional investments in personnel to do all we can to stay ahead of demand.”

A defensive mindset and not being too quick to expand into new markets, tempting as they may be, is another way businesses are rolling with the punches. “I’m always looking and keeping my ears open to what’s happening, what makes the best sense for us as a company, and to best serve our customers,” said Ultimate Headers’ Browning. “We could go down a path and do a bunch of stuff and then really put ourselves in a position where we can’t ship, and then that doesn’t help anybody. We’re just being very careful in what we do and why we do it.”

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Pandemic-induced shortages are common in all sectors, so most people have come to accept them. “Customers are understandably concerned, but patient,” reported our source from TW Metals.

Marketing plans by necessity have had to be adjusted as companies moved to adapt. “For the last 10 months we have been focused on creating marketing plans around our inventory position more so than strategically promoting new products or growth categories,” said Edelbrock’s Douglas. He also noted that current conditions have offered a good opportunity to double-down on quality control. “We have been extremely focused on making sure that we don’t allow quality to slip during these challenging times. In fact, we have recently recertified our ISO quality rating and are in the process of implementing even more rigorous quality systems.”

Even so, for a company that services as many market segments as Edelbrock Group, the search for raw materials requires constant vigilance. “We’ve had to continuously pursue alternate sourcing, both domestic and abroad, to secure quality materials and components to service our backlog of orders,” Douglas said. “Candidly, it is the most challenging supply environment that I have ever experienced in my career, and we are having to be extremely resourceful and nimble to find materials. Unfortunately, the material shortages are also leading to significant material cost increases, and consumers will continue to deal with inflation for the foreseeable future.”

There will be other challenges to address in the near future that companies should be thinking about now. How will last year’s brief racing season, and this year’s shortened one, affect demand in the coming months?

“The build season for racing was real, but once they got the cars built and they weren’t running, everything just stopped,” Scat’s Lieb said. “It’s going to be interesting to see how the season pans out, now that things are beginning to open up.” But, he added, “the season has been cut short, so how’s the maintenance side of the business going to happen? They haven’t got a full season on their stuff, so they’re not breaking. Are they going to go through a normal rebuild, or are they going to say, ‘Gee, we only raced three times last year. We’ll change the oil and let it sit and we’ll go race again. We don’t need to build a new engine or re-do the race car.’ That’s still yet to happen, but I suspect that not everybody’s going to run a full season, which means they’re not going to spend money on building new stuff or rebuilding existing stuff in the same manner that they would have a few years back.” 

Customer Expectations

According to our sources, most customers are taking the shortages in stride. “They hear it from every vendor. What I tell them isn’t anything they haven’t heard from somebody else,” said Ultimate Headers’ Browning.

That said, clear communication is essential to retaining a customer base. “You deal with it in two ways,” said Lieb. “First, you tell them the truth. And second, if you have an alternative, you tell ’em and let them make a decision. Probably 50% or 60% of the time when you give them an alternative, if it fits within their realm, they’ll go with the alternative. So you salvage the sale. The key to the whole thing is communication.”

Fazekas at S&W reports most people have been very understanding during the shortages, although some explanations are easier than others. “It’s hard to explain to some of our customers, ‘Yeah, your whole kit is complete but we’re waiting for these vendor-supplied components.’ And that’s where they get a little antsy,” she said. Besides keeping retail customers satisfied, there are also dealer expectations to manage. “We try very hard to be fair to everybody, between our retail customers and our dealer network,” Fazekas said. “There’s no favoritism there, because we figure that’s just the only way to keep this fair. So they get put into order just like our regular retail customers do, as far as when the order was placed, and when the material comes in, they get filled. Everybody has been very understanding about that, and we’ve had no issues whatsoever.”

A “we’re all in this together” mindset is still prevalent in the racing industry, softening some of the potential sharp edges brought about by shortages. “Customers are understandably concerned, but patient as the supply chain works its way through these issues,” said TW Metals’ Cookson. “TW has also expanded our web portal to help service our customer base around the clock. Communication has been key, keeping our customer base informed of all challenges and working closely with them in non-traditional ways to minimize the effect on both ends.” 

“As far as attrition, with people saying, ‘Cancel my order,’ because they just couldn’t wait any longer, there have been a handful of those folks,” acknowledged Fazekas. “They weren’t angry at us or anything. They just needed to find a different source, they were able to find a different source, or they just decided to bag their project or whatever it may be. No hard feelings or anything, we’re victims of circumstance, all of us.”

SOURCES

Edelbrock Group
edelbrockgroup.com

Scat Enterprises
scatenterprises.com

S&W Race Cars & Components
swracecars.com

TW Metals
twmetals.com

Ultimate Headers
ultimateheaders.com

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