SBP officials see strong markets despite potential headwinds

DALLAS—Being a relatively big player in the industrial distribution world, Dallas-based SBP Holdings L.P. certainly hasn't been immune to the volatile market conditions that have plagued business much of the last two years.

That means the distributor of hose, rubber and fluid power goods and services has to react to the supply chain difficulties and labor issues that have impacted all manufacturers to varying degrees.

And now it's the potential of an economic recession that has caught the attention of SBP's top officials, though they think that such a downturn is more likely for 2023 than the last quarter of this year.

"It surely sounds like a recession is coming," said Scott Wojciak, president of SBP's Fluid Power and Automation Division. "I'm thinking next year more so than this year. Even if a recession comes, I feel we lag that market some. So if a recession comes, we'd feel it a bit later, but then when business comes back, we feel that a bit later too."

While the purchasing manager's index has been dropping, it's still above a mark of 50, some of the firm's markets are solid, and its bookings and backlog are up.

"We do worry about it," Wojciak said. "We still have the supply chain issue, but I'm reading the news and have never been as confused as I am now in this business, just because we're in such a unique time with this supply chain issue coming off the pandemic."

Sam Petillo, president of the firm's Singer Hose and Rubber Division, said demand has remained strong for the distributor, which has 78 locations and more than 1,000 employees in North America.

"But we read the news and the economic forecasts, and we're going to continue to monitor all the macroeconomic indicators and the impact of global events," he said.

Company officials also will keep communication channels open with vendors and customers to gauge their forecasts, and keep a close eye on bookings and backlogs.

"Inflation has taken a toll on consumer confidence and spending," Petillo told Rubber News, "especially with fuel and food. We saw slowdowns in the retail sector, but we have not seen that in our industrial space yet. So we're fairly optimistic. With the rubber industry, we should continue to see strength until the end of this year."

Supply chain woes continue

The rubber industrial distributor market definitely has experienced the volatility caused by ongoing problems with the supply chain. SBP's suppliers continue to struggle with product lead times and stock shortages, according to Petillo.

"It's just a common occurrence in our industry, as if we've just accepted it as a new normal, which is sad," he said. "It does create a headwind that puts limitations on our growth.

"We've done well. Imagine where we would be if we had all the inventory and the ability to service our customers."

Plus, inflation hasn't slowed down either, as Petillo said SBP has seen multiple price increases from its vendors throughout the year. But at the same time, industry firms continue to talk about what a good year they're having.

He said both sides of SBP have a global supply chain network, and have doubled their demand on vendors to guard against running out of inventory when lead times are extended and, in some cases, doubled.

"Eventually there will be an inventory correction," he said. "Our customers (also) are ramping up inventory to guard against those longer lead times and stock-outs. So when capacity catches up with demand, that's when we'll start seeing our customers' orders slow down a bit."

Wojciak said it's the first time he can recall the market accepting the price increases.

"But the supply chain issue is more of a labor shortage," he said. "Right now, the labor shortage is so bad, it continues to keep the supply chain an issue. Whoever figures out the supply chain issues wins as far as I'm concerned right now. And that's a huge challenge."

The fear, however, is that small companies that aren't handling their cash well because they can't get their product out could be at a risk of going under, according to Wojciak.

"That's part of the reason we're worried about a recession. Smaller companies are being extended," he said.

The distributor also has felt the pain of labor pool issues. Petillo said it's a mix of backfills and adding people to support future growth. SBP has hired a recruiting agency as a bolt-on to its own human resources capabilities to help it recruit talent.

"And not just in warehouse and production, but in management and sales as well," he said. "We feel it's very important moving forward, and succession planning is a key for us."

Retaining the talent already on board also is a focus for SBP, Wojciak said.

"It's a competitive market. Good talent that is happy working for our company (is) getting irrational offers outside of our company," he said. "Either we will pay a lot more to keep them or we will lose them. It's a challenge right now."