To say that business conditions are crazy right now would be an understatement.
After having to deal with the extreme declines businesses suffered through last year when the coronavirus pandemic shut down much of the world, by most accounts many of the markets for tires and other rubber goods bounced back pretty decently.
But now they are dealing with forces that truly are out of control. From top to bottom, the supply chain is throwing curve balls that are difficult to handle in any market, let alone one still trying to ramp back up to meet demand.
Whether it's material shortages, price increases or delays in shipping, costs and other pressures are conspiring to cause bottlenecks along the supply chain and put downward pressures on margins for all involved.
At this point, it doesn't matter what sector of the rubber industry you're in. Many of the causes for these difficult conditions impact everyone across our industry, as well as many other business sectors.
First was the curtailment of the production of many raw materials when the pandemic started, as suppliers prepared for what many expected would be a drawn-out decline in business and production. That was followed by the freeze along the Gulf Coast that brought a halt to a wide range of raw materials, intermediates, monomers and other polymers.
This has meant material shortages and price increases, with the price hikes coming fast and furious. Just as rubber product makers are figuring out how to deal with one increase, the supplier already is sending out notices for the next one. Those in the industry are reporting cost boosts from 5 to 25 percent, depending on the material. Others are having to deal with force majeure declarations in such areas as thermoplastic polyurethanes, so getting ample supply is becoming more difficult if not impossible in some cases.
And this doesn't even account for non-polymer cost hikes, for things such as reinforcement materials needed in hose and belt production and metal fittings needed for hose fabrication.
On top of all this are the well-documented shipping and logistical nightmares that have hit both globally and domestically. An absence of available containers and a lack of space on ships was followed by overloaded ports and cargo sitting for weeks waiting for offloading. When materials or goods do come off the ships, there is no guarantee trucks will be available to transport them to their destination.
One rubber product maker is paying a 50-75 percent premium to ship finished goods throughout the U.S., if it can find a carrier. The firm said sometimes it ends up almost like an auction to secure cherished space. In a worst case scenario, it had a shipment scheduled for a Monday. The shipper called and asked for an extra $1,000. When the customer refused, the shipper replied they wouldn't be able to make it on Monday.
There are different tactics to deal with such business nightmares, some of which can make matters even worse from a big picture perspective. While just-in-time and lean manufacturing may be the preferred way to do business in many of our industry sectors, some are saying they just can't afford that luxury right now.
That can mean keeping extra inventory of both raw materials and finished goods, and even over-ordering from suppliers. One buyer even admitted to contributing to this "death spiral" of production.
As they say, drastic times call for drastic measures.
