The logistical challenges that have been plaguing rubber and other industries throughout the year continue to be the gifts that keep on giving.
Those in the chemicals and additives supply chain sourcing the materials that play key roles in tire and rubber goods production clearly are not immune to the factors that have been in play. From the high cost of shipping that shows no signs of abating, to high demand and tight supply, the materials sector is looking at inflationary factors in the form of price increases—starting at the top of the supply chain and rolling down through the end product.
All parts of the chain are facing a negative impact from these rising costs, but to what degree depends on where one falls in the supply chain.
Many of the global upstream players have enacted price increases, often well into the double-digits by percentage. Butadiene, of course, is one feedstock that has hit the radar. The petrochemical-based feedstock has hit the top of the volatility scale once again, with unplanned shutdowns and other factors leading to tight supply and spiking prices.
Some of the chemical suppliers even have included an extra transportation cost fee on orders, depending on where the shipment is headed. That's what happens when the freight situation continues to be chaotic. From early on, when containers were held up in port and then stranded empty around the globe, to now, when ships won't wait in the U.S. long enough for freight to take back to Asia, opting instead to go back with half-loads because they make so much more money transporting shipments out of Asia.
For the most part, though, these upstream players seem to be weathering the storm well, relatively speaking. They enjoy the benefits of having global footprints that allow them the sourcing flexibility to keep up with demand. Three of the largest players even updated their 2021 financial forecasts in August, calling for improved outlooks after enjoying strong first-half results.
Some of the distributors that are down a step or two in the supply chain, however, may not have as much of a cushion to buoy them through these tempestuous times. Their margins may be a bit slimmer than their larger, upstream vendors, and they may not have as much leverage in passing on the cost increases to their customers.
As Joe Moran, vice president of distributor HB Chemicals Inc., put it, the coronavirus pandemic pushed the supply chain to its tipping point. All the added pressure from the other events that have followed have just made things that much more difficult.
"The system can handle a few things going wrong—already inventory was tight—but you can't continue to take on water," he said. "The system is taking on way too much water."
And if industry insiders are reading the situation correctly, there won't be any life preservers in sight until sometime in 2022.