Like many other businesses, the chemical industry has suffered terribly from the supply chain and transportation crisis. Now all indications are that because demand is growing for their products, these problems will only get worse.
This has been driven by modal service failures, particularly in the freight rail industry. That is the conclusion drawn by the American Chemistry Council from a recent in-depth survey covering its chemical manufacturing members.
“For three consecutive quarters, companies reported that supply chain and freight transportation disruptions harmed their United States manufacturing operations,” the council pointed out in a recent survey report.
“In addition to lost manufacturing and customer orders, companies reported that higher shipping rates were compounded by costly workarounds, including increased inventories, investing in additional rail cars, and committing additional resources to managing shipments.”
Almost all (97%) of the chemical companies reported modifying operations due to supply chain issues and transportation disruptions and delays.
Most chemical producers (92%) said they have increased inventories of raw materials and supplies on hand in response to supply chain challenges. More than half (62%) of respondents said they have increased inventories of finished products.
About half of the chemical producers (52%) said they curtailed production due to the inability to ship products to customers and many companies (35%) have had customers cancel orders because they are concerned their order will not arrive or will not arrive on time.
Transportation costs have increased across all modes over the past year for nearly all of the chemical producers, according to the ACC members who were polled.
Other costs arose from managing the service crisis. Many companies reported that they have dedicated significant additional resources and employed a range of strategies to work through these transportation challenges.
ACC members weren’t shy about sharing how the changes have affected their operations:
- “Transportation is the worst that I have seen in my 30 years in the chemical industry.”
- “International or domestic, rail or truck. All are worse service for more cost.”
- “We are paying about 45% more in freight and fuel for worse service.”
- “We are onboarding new partners both for transportation and raw material supply to help mitigate capacity issues. In addition, we have increased our manpower internally to help keep up with the additional pressures of a more volatile supply chain environment.”
- “Logistics issues are impacting almost every aspect of our business.”
- “We continue incur higher costs for bad or worse service, specifically on rail, ocean and trucking.”
Most chemical producers reported conditions at ports and in ocean shipping are worsening or about the same. Since the fourth quarter of 2021, 33% of
companies reported port delays and congestion have gotten worse, 48% said conditions are about the same, and 19% said they are improving. When companies were asked in March 2022, 55% reported worsening conditions.
As a result of port delays and congestion, nearly all companies using ocean shipping faced increased rates (87%) and longer transit times (95%).
Other business impacts in the second quarter included cancelled bookings (87%), increased demurrage/detention charges (82%), shortages or imbalance of shipping containers (76%), increased costs from diverting shipments to alternative ports (76%), higher costs due to rerouting (63%), shortages or imbalance of specialized containers (e.g., refrigerated containers, ISO tanks) (48%), and carriers restricting hazmat commodities (55%).
On the other hand, the ACC survey found easing of concerns related to trucking delays and capacity. Since 4Q 2021, 29% reported conditions had gotten worse, while 26% reported that conditions had improved and 45% reported no change.
When asked in March 2022, 55% reported conditions were worse and only 8% reported that conditions had improved. Also, there was no relief in terms of increased rates. Nearly all companies (98%) continue to report rising trucking rates.
Labor shortages are a growing challenge with 81% of companies reporting that this constraint has impacted their business, with 63% reporting longer transit times, and 65% citing additional delays for shipping hazardous materials.
“For ground transportation, lack of drivers- although improving – and bulk equipment is still impacting service levels,” one respondent said.
Another reported, “Truck capacity is impacting our ability to respond to emergencies, where we would leverage trucking for faster shipments.” Tank trucks in particular are a problem for some ACC members. “Tank truck shipments are extremely difficult to book, and we’ve had to rebook loads with customers numerous times. Tank truck cost has more than doubled,” one said.
Railroads Are a Sore Spot
Companies that ship by rail are increasingly reporting that railroad delays and service challenges are worse.
Since 4Q 2021, nearly all (93%) reported conditions were either getting worse (46%) or were about the same (48%). Only a small number (7%) said that overall, rail transportation related delays/service challenges have improved.
A large number of rail users also reported longer transit times (90%), missed switches (66%), increased demurrage charges (59%), reduced service days (64%), and higher rates (59%).
In addition, 43% of those polled reported that they have chosen to add tank cars to their fleets because of freight rail service issues.
“Adding tank cars to address freight rail service problems was certainly a costly and less than ideal solution,” said Emily Sanchez, ACC’s director of economics and data analytics. “Such a large investment demonstrates a lack of confidence that freight rail problems will be solved anytime soon.”
Looking at the overall results of the survey, ACC President Chris Jahn noted, “There are some positive signs most notably in ocean shipping and trucking where policymakers have taken action, but it’s clear that we still have a long way to go before we turn the corner.”
He took note of rail reform bill introduced this summer to strengthen that ACC supports, which would strengthen control exercised by the Surface Transportation Board over the nation’s railroads but added that much more needs to be done.
“That fact is driven home by the continued deterioration of rail service and its negative impact on manufacturing,” Jahn. “We need more solutions from policymakers and urge Democrats and Republicans to act without further delay.”