Two of America’s biggest trucking companies have made record profits, and they are using that money to invest in new equipment, reports the Wall Street Journal.
Old Dominion Freight Line is increasing its capital expenditures by 50 percent this year. “That includes $485 million to buy tractors and trailers, up 79% from last year,” the story says. That comes after a 54 percent increase in net profit from 2020 to 2021.
J. B. Hunt is planning $1.5 billion in capital expenditures this year, up from $877 million last year. Its net profits rose 50 percent from 2020 to 2021.
But they are running into supply-chain problems in acquiring new supply-chain equipment. The story quotes Old Dominion CEO Greg Gantt as saying, “We would frankly like to spend more, but we have been limited by several suppliers that are facing manufacturing challenges.”
The story explains:
Truck and trailer manufacturers have been struggling with the availability of some parts over the past year, while the shortage of semiconductors that has strained automotive production has also hit assembly lines for Class 8 heavy-duty trucks. Orders for Class 8 trucks, the big rigs that haul most domestic freight, have fallen in recent months as manufacturers limit new orders to catch up to backlogs.
North American manufacturers produced 264,500 Class 8 trucks in 2021 but would have made as many as 330,000 if production hadn’t been hampered, said Kenny Vieth, president of ACT Research Co. The Columbus, Ind.-based transportation-data provider forecasts production will hit 300,000 vehicles in 2022, down from an estimate six months earlier that manufacturers would pump out 360,000 trucks this year.
Production is not expected to recover until 2023, the story says.
This story illustrates two vital lessons from the supply-chain crisis. First, anti-profit sloganeering from politicians fails to understand how markets work. The record profits we’ve seen in the supply-chain sector don’t get direct-deposited into executives’ bank accounts. Companies use the profits to reinvest in capital and plan for the future. Old Dominion and J. B. Hunt probably would have loved to make these investments a few years ago, but they simply didn’t have the money. It’s in everyone’s best interest that the trucking sector be a self-sustaining industry. We should want these companies to make money and use that money to provide better service to their customers.
Second, supply-chain constraints make investment in capital harder. The quote from Old Dominion’s CEO shows that these constraints are binding on companies looking to the future. Frustrating as the delays on consumer goods are, delays on capital investment are far worse because they hinder long-run economic growth. Forgone capital investment in the present means that less equipment be available in the future. It’s a simple point, but it’s worth emphasizing. And companies with record profits that can’t get their hands on capital will be more likely to spend those profits in other, less productive ways.
Record profits are not a problem for politicians to solve by taxing or regulating them away. In fact, record profits going toward capital investment is the economy working just as it should, and efficient supply chains make that investment easier.