Why aren't companies rising to meet the ammo demand?

[bassdogs]

Want to understand the problem. Head to the grocery a day late the next time a huge winter storm or Summer Hurricane is about to hit your area. Try to buy bottled water, milk, batteries, and of course beer. You're likely to find empty shelves and or long lines to get the last couple of cases. When 90% or more of these storms pass and don't produce the damage that was predicted, give it just a few days and head back to that same store. The shelves are full again and most of this stuff is on sale for what ever weekend is coming.

Will the ammo shortage disappear in a few days? No. Will it eventually just go away? You bet ya. And since many in the shooting community have a boat load of ammo stockpiled in their basement and garage, you'll be able to buy all you want and a whole lot more than you need.

Its just a spot shortage, but the "spot" will be measured in months.

 

[pendennis]

Even with spare capacity, companies can't just ramp up production. Part of the supply chain is the materials end. All of the ammunition manufacturers operate with fairly long-term materials contracts for copper, lead, tin, and all the other components. If they need additional materials short term, they will have to enter the spot market, and prices there reflect the supply on hand that's not already spoken for in existing contracts. Spot market prices tend to be greater than those of definite term contracts.

Labor is also a factor. The ammunition manufacturers have trained operators in their plants. They just don't go to "Operators 'R' Us", and hire someone to run the bullet jacketing operation. It takes time to train them, and to what end? When the current rush is over, the layoffs come, and that costs the companies even more money in unemployment.

And equipment can't just be "turned up" to produce more ammunition. Down time and maintenance are necessary. And when the process is "turned up", more down time and maintenance are required because of increased wear and tear.

The timing of the shortage is also a factor. It happened at the end of the fiscal year, and most forecasts were made, and contracts were already let for 2013. Sales and purchase contracts were probably already completed for 2012, so you end up with a "perfect storm" of ammunition shortages.

 

[Tirod]

The storm analogy is a good one, and the laws that specifically curtail stockpiling exist for both. The government is deliberately taxing large inventories held back at high rates, and do it repeatedly on a yearly basis now. That's one reason why industry has shifted to Just In Time production. It also curtails beating up the local labor pool with constant hiring and firing due to jerky production scheduling and layoffs.

I watched a new owner of a commercial cabinet shop run a $5 million a year business into the ground doing that. The previous owner kept a 6 month backlog of work at all times, and it was fairly easy to manage it that way on a continuing basis. The new owner dropped all the pending contracts, and then sought new business. He'd get a job to pay the bills, and layoff the crew. By the third time in two years, none would come back. Nobody with experience and skills will hire on just to be fired in three months. It's stupid.

The ammo companies won't do that either. They can run everybody on overtime, which is cheaper because there aren't higher medical insurance premiums to pay, no higher unemployment payments, and no higher recruiting costs. You keep a stable workforce, which is trained on how to handle the glitches and keep production running, instead of stumbling into new and creative ways to throw a wrench in the works. You don't pay for more machinery, you just use it to it's full capacity, which is hard enough to do in normal times. And you have warehousing issues, too - all that stuff needs to be shipped NOW, it's the space that tomorrows production has to sit in to get shipped. Building a new warehouse in a week's time cannot possibly happen, much less a plant, or new equipment. It all takes months lead times - whereas, it only took about 20 minutes on a quiet school day to create the demand. And it's all coming from people who refused to plan ahead, or even understand the concept.

Should make you wonder who the zombies really are . . .

 

[Hangingrock]

In a lean manufacturing environment there is no surge capacity.

 

[Killian]

On another post, a fellow pointed out that Federal is making .22LR to the tune of 4 million rounds per day, and he wondered why it was still impossible to find ammo. I wrote this below as an analysis of the situation as I see it. So I started at the premise of it being 4 million rounds. Later I did it at 20 million rounds a day and including the estimated production from 5 other ammo producers. I applied similar low percentages of demand (which demand is not low right now). I would suspect that because centerfire ammo is physically larger that it would be equally difficult to produce--and in fact, probably MORE difficult to produce. So I think these figures can be applied to most ammunition right now.

4,000,000 rounds divided by 50 rounds per box. 80,000 boxes.
80,000 boxes divided by 50 states in the United States. 1600 per state per day.
1600 divided by 3, the number of boxes Walmart allows you to buy at one time (Walmart used as an example) eqauls 533.33 people buying .22 ammo in your state per day.

I live in Mississippi. Population around 2.5 million. Gun ownership is reckoned to be around 57% here, which is high compared to a national average. .22 is a very popular gun, so I'll say 60% of these 57% own a .22. 2.5 million times 57% is 1,425,000 times 60% is 855,000 possible .22 owning citizens of the great state of Mississippi (fires celebratory gun in the air at arithmetic usage).

Figure a nice low number of "hoarders" and "panic driven" (perhaps now we should relabel them as "far sighted") forgot to stockpile 3 foreign-invasions worth of ammo, like 10% of the 855,000 (the truth is, probably more like 40% or higher did not have an active stockpile, only buying ammo when they wanted to hunt or visit the range..but I'll use 10% as a nicely illustratively low number).

85,500 people in Mississippi would thus be frantically trying to purchase .22 as it becomes available. At the rate of 533 people per day being supplied, to satisfy the demands of these 85,500 Mississippi residents, it would take 160 days. Or roughly 5 months.

Some things to consider. 1) Mississippi is a very low population state. Some of you live in states were one CITY may be 2.5 million people....but the same 533 people per day are being satisfied in your state. If you have a state with a population of 10 million, then multiple 160 days times 4 to figure out how long it could take to satisfy the demand for THREE boxes of .22, per person demanding, per state. 2) I deliberately kept my figures low in terms of calculating percentages. .22 firearms in Mississippi? It's probably not 60% of gun owning residents having one. Probably more like 90%. And the figure of only 10% of .22 owners looking for ammo right now at 10%? That's a crazy small number. I'd say almost every .22 owner is looking for ammo right now...even if they've got a million rounds they wouldn't pass it buy if they saw it on the shelf.
3)I had noticed even before this current panic that ammo was never particularly easy to find for about the last 2 or 3 years. My Walmart was often understocked or completely out of ammo. That was in "normal" times.

 

[Arkansas Paul]

Should be a pretty simple thing for you to find brass, bullets, primers and powder, plus the machines to make it, a building to put it in, insurance, federal, state and local licensing & taxes, insurance, employees, insurance, taxes, permits, and insurance, and a marketing plan?

You forgot to mention insurance.

 

[9mmepiphany]

Nobody with experience and skills will hire on just to be fired in three months. It's stupid.

It is more cultural and I think industry specific.

Most tech industry and almost all art/entertainment industry folks work on a project basis...it is just part of their culture. That is why they command more in compensation, because they know they are working themselves out of their job

 

[lilguy]

I was at Knob Creek in fall 2011, no panic at that time and I have never seem so much ammo in one place in my life. The product being hauled out of their on a daily basis was mind blowing.Regular folks buying 10,000 rds and more was the norm. At the time 2 wars cranking and all other agency going full tilt, prices normal, no problems, Ammo everywhere.
Obama gets reelected and a school class gets slaughtered and we Americans panic and start buying everything in sight.Now you have MILLIONS of Americans buying thousands of rounds and sitting on them and then continuing to shop for more.Where do you think the ammo is going, try buying a black rifle now.ITS US that's driving this shortage. our wars are winding down but we are getting our info fed to us by Alex Jones and the tin foil hat crowd. Deal in reality not fear, gold merchants are having a field day with the panic. Don't fall for extremists who profit from your fears.

 

[Ignition Override]

Shadow 7D:
Foreign ammo shipping time?

I asked that question three times, over two weeks ago, wondering about Serbian Prvi ammo and Russian Tula/Ulyanovsk.

Nobody seems to have any idea (or keeps quiet) about production increases for the US or shipping times from Russia through the Bosporus, Med etc.
It would interest some of us, even if academic.

 

[mrvco]

You forgot to mention insurance.

Twice?

Should be a pretty simple thing for you to find brass, bullets, primers and powder, plus the machines to make it, a building to put it in, insurance, federal, state and local licensing & taxes, insurance, employees, insurance, taxes, permits, and insurance, and a marketing plan?

And as the response from Hornady mentions... they have been ramping up their production capabilities... for the last 5 years now.

 

[breakingcontact]

So what will cause the demand to drop? Will people ever have "enough" to stop buying. I wonder how many boxes per gun owner are produced per year? Would it equal just a box or two per individual or are we talking about a much larger number? The average gun owner I don't think we could call a shooter.

So will people reach a happy place with their ammo stocks? I suppose different people buy for different reasons. I've never been a hoarder but when it was on the shelves I would buy a box or two per week. I reached a place where I had enough and just replaced what I shot. Whoever is feeding the flippers at gumshoes, on gunbroker and other places need to stop then we may have some back on the shelves.

 

[browningguy]

Actually everyone telling you it's supply and demand, or market economy, or capitalism simply don't have a basic understanding of economics. Economics really doesn't address extremes that may happen in a market and people are trying to apply long term concepts to a short term issue. In fact the prices really haven't changed from a producer perspective, and the good companies like Midway, Natchez and a few others haven't changed their prices. The profiteers of course have changed their prices and are screaming SUPPLY AND DEMAND.

You are correct though that in the long term the supply will rise to meet the demand. Meanwhile in the short term people will gouge you for whatever they can, that's called greed or profiteering or price gouging, but it's not capitalism. Some people would like to change the definition so it wouldn't be greedy. The whole idea of capitalism requires a free market devoid of extremes with willing buyers and willing sellers. Some economists go further and believe part of the definition should include pricing based on cost and value added.

 

[kgpcr]

I sure hope the imports start hitting our shores to loosen things up a bit. .22lr, 9mm and .223 would be great to see shipping containers full of them on the docks

 

[hso]

Or put another way, would you invest a LOT of money in an expensive piece of equipment that you would use such a short period of time that you'd never recoup the cost if you were running a business?

 

[c4v3man]

I have to wonder if we would be completely screwed in the event of an actual war? If running at/over capacity isn't enough during (relative) peace, then we're screwed if we ever actually need that ammunition.

As national security is the fed's job, in my opinion spending should increase enough in over-purchasing/surplus sales to cover the cost of additional factories by the manufacturers. If the government maintained a large enough inventory of fresh ammunition, cycling out surplus to us civvies, then we shouldn't have this big of a dip in availability, at least in government relevant calibers.

How about the government giving you an $8,000 rebate for ammo purchases if you purchase a surplus military weapon, like the money we throw away on hybrids...

 

[Telekinesis]

Actually everyone telling you it's supply and demand, or market economy, or capitalism simply don't have a basic understanding of economics. Economics really doesn't address extremes that may happen in a market and people are trying to apply long term concepts to a short term issue.

Nothing against you Browningguy, but anyone claiming that the study of economics can not explain the current market has a very superficial understanding of the field. It may not be explained in the first week of an econ 101 class, but economics DOES address the short term and DOES allow a way to account for extremes in pricing. There are even ways to explain the individual variations of prices between sales by using the Utility curves of the individual buyers and sellers.

In this case (or at least what we're talking about: the final market price of a good) the producer's cost doesn't have as much of an effect on the actual market price because it is insulated or diluted by the actions of both the wholesaler and the individual retailer. It does play some part in the final price, but is not the most important factor. In the current situation where we have (in the short term) an effectively limited supply and a massively increased demand (when compared to our previous equilibrium), price is the only factor that will change to make a new market equilibrium. Anything different and we will see a noticeable shortage (like we are seeing with a lot of the products sold by midway an others) or a surplus (where people are asking too much for a specific item).

In the long run, supply will increase (likely slowly and only to a supply ceiling defined by the producers desire to not invest in new equipment) and demand will decrease once the purchasers (us) decide that we no longer need/want the ammo as much as we previously did (most likely due to either saturation of the market or a decreased threat of restrictive legislation). The actual price will be dependent on the specific amounts that producers are willing to increase supply and the amount that consumers are willing to decrease their demand. Historically after events like this, we end up with an equilibrium market price slightly higher than we began with.

 

[Creature]

Originally posted by Telekinesis
Historically after events like this, we end up with an equilibrium market price slightly higher than we began with.

Agreed.

But like I said in a previous post and if the last Del Mar gunshow is any indication, the demand will be remain much higher than just slightly.That show which averages 8,000 is estimated to have been over 38,000. Not even the Chargers can get that many people to attend a home game.

http://www.examiner.com/article/record-breaking-attendance-at-del-mar-gun-show-on-saturday

An interesting observation as stated by the article was a new event: the required gun safety class. I have it from an eyewitness that the ratio of females to males waiting for entry to the class was 8 to 1. New shooters. And all these new shooters are now part of the demand side of the equation.

Another interesting outcome of that gunshow, local news outlets are pointing out that the police are reporting that there were no incidences crime both days of the gun show: there were ZERO incidences or reports of crime or disturbing the peace.

 

[M2 Carbine]

I sure hope all you folks that can't get any (reasonably priced) ammo have learned a lesson and you stock up a couple year's worth of ammo when it becomes available again.

Even if you have a tight budget (I know the feeling) you can buy a extra box or two once in a while and stick it in a corner for the next shortage.


In the last couple months I've given friends over 5,000 rounds of ammo and before it's over I'll probably give them another 5,000 rounds.
I will be telling them they are on their own the next time, and there will be a next time, count on it.


.

 

[breakingcontact]

Interesting point about the classes. I pulled up to my local range recently before it opened. It was packed. I thought "oh no!". Then people got out of their vehicles and it was about half women. "It's a class!" Glad I was right...both for them to be taking a class and for me to have access to the range.

 

[BoilerUP]

This has all happened before...and will happen again.

 

[SunnySlopes]

This same phenomenon occured while I was living in california in the housing market. Demand outstripped supply and prices went through the roof. Then demand met supply and prices started stabilizing. Builders kept building and demand exceeded supply and prices were in the toilet.

Ammo manufacturers are still making ammo and components which means that supply will meet demand at some point. Prices will come back down, I predict, to lower than before.

Now, if something happened to manufacturing. As in, if govt somehow succeeded in curtailing ammo manufacturing, then that could be serious.

But right now, if you want to see where the ammo has gone, go look at Gunbroker's ammo/reloading section. There's plenty of ammo there.

Within minutes of my house we have a Bass Pro and Academy. At both places there's a line waiting at opening time and they beeline straight for ammo and reloading components. We've also got no fewer than 5 super Walmarts. Same situation. And I'll guarantee you that ammo is finding it's way onto Gunbroker.

Heck, we've even got a couple of smaller mom and pop gun stores that are buying from Walmart and then selling at inflated prices.

 

[Mr. D]

I think the way Hornady (and probably most other manufacturers) is doing it is the way to go: slowly increase production year by year at a pace that can be supported by their sales. That way, if the bubble bursts, they won't be left holding the bag for millions of dollars-worth of new equipment. If the increased buying continues and a new norm is established, the manufacturers will eventually reach that level of production.

This means that we'll need to exercise some patience in the short-term but it is safer for all involved, IMO.

~D

 

[Bubbles]

Builders kept building and demand exceeded supply and prices were in the toilet.

Ammo makers are a bit smarter - they're not going to make multi-million dollar capital investments in response to an artificially created spike in demand.

 

[jerkface11]

The OP seems to be under the impression that a factory can be expanded and new machines ordered, delivered, and set up overnight. Not to mention the hiring and training aspect for operators to use these new machines.

 

[DeadFlies]

Ammo manufacturers make ammo to make money, not satisfy demand. If they are already selling 150% of what they make every day then they're happy even if we aren't.

I'm sure they'd rather deal with too much demand and not enough production capacity than have the reverse happen.