Rail, truck delays caused headaches for US resin markets

Focus story by Michelle Klump

HOUSTON (ICIS)–A host of issues from more transportation of crude oil by rail to new federal regulations reducing the maximum workweek for truckers, is creating transportation headaches for some US buyers, suppliers and distributors of several different kinds of resin.

While market participants by all accounts agree that the logistics situation in the US has improved markedly since the first quarter, when severe winter weather caused as much as three- and four-week delays for material delivery, sources said transportation remains one of their biggest concerns.

“Transportation has been a nightmare,” said one distributor of polyethylene (PE) and polypropylene (PP), who said delivery delays have been the biggest source of complaints from customers in recent months.

A PE producer agreed, saying that typically during the summer months, transit times are at their shortest for the year, but this year, delivery times are about 30% longer than they were on a five-year average basis.

“Around 10-20% of our shipments are still about three to five days outside of our norm,” the producer said. “That is not a small amount. That is enough to shut down some companies if they are running really close to the vest on inventory.”

The complaints fall into two general categories – rail congestion coming into and out of the Houston and Gulf coast region, caused in part by increased shipments of crude oil to refineries, and a lack of bulk trucks, exacerbated in part by new federal regulations affecting the trucking industry, sources said.

Crude-by-rail has increased in recent years and is expected to continue to play an important role in North American oil logistics for the long-term, as rising crude production in US and Canada has outpaced North America’s oil pipeline infrastructure, sources have said.

“The rail system, especially around this area of southeast Texas and Louisiana where the plants are, there is a considerable amount of congestion,” said another PE producer. “There is a whole lot more traffic coming into the area with oil tankers coming to the refineries and that is clogging up … it is very slow getting cars in and out.”

One trader said it has seen it take as long as five weeks to ship product from La Porte, Texas, to Houston, 26 miles (42km) away because of delays on the rail line.

“It is too much congestion,” the trader said. “There is a bottleneck in Houston.”

The rail delays have some producers having to bulk truck material when necessary, sources said.

“If railcars are delayed, the customers want you to ship by bulk truck, and there is a great demand for trucks,” said one PE producer. “The trucking system really has less capacity than it used to.”

While there has always been some competition for bulk trucks with other commodities and produce during harvest season, sources said the number of trucks available has also been limited by new federal regulations reducing trucker’s workweeks.

Federal rules that went into effect in July 2013 limited the maximum average work week for truck drivers to 70 hours from the previous maximum of 82 hours, according to the Federal Motor Carrier Safety Administration. Truck drivers who reach the maximum 70 hours of driving within a week may resume working only if they rest for 34 consecutive hours, including at least two nights from 1:00 to 5:00. Also, truck drivers cannot drive for more than 11 hours a day and must have a 30 minute break during the first eight hours of their shift.

The regulations, designed to improve safety, have in essence limited the amount of drivers and trucks available to haul resin, sources said.

“If today is Monday, and I need to get something picked up by Wednesday or Thursday, that wouldn’t have been an issue a year and a half ago,” said one expandable polystyrene (EPS) buyer. “Now they are almost a week out trying to schedule trucks.”

A PE and PP distributor agreed, saying bulk truck availability is extremely limited.

“Our guys in logistics have been taking a beating between not being able to find trucks, having loads picked up and customers freaking out because they aren’t getting deliveries,” the distributor said.

The delays appear to be affecting mostly small-volume buyers and distributors, with many large volume buyers saying they haven’t really experienced any significant delays.

However, for many large-volume buyers who receive multiple railcars of resin daily, producers will lease track space close to those buyers’ plants and store railcars of resin there out of the way of the congestion in the Gulf coast region, producers said.

“They basically have consigned inventory that is nearby either on their track or on a track that we lease nearby,” said one producer.

Also, the sheer amount of resin those buyers have shipped to them every week means they have some built-in inventory and can handle one delayed car much easier than a small-volume buyer who only buys one railcar a month.

“They can absorb fluctuation in rail car delivery because they have some inventory, whereas a smaller buyer that is buying directly may not have that kind of luxury,” a PE producer said.

The end result with the rail and truck delays means that an average trip that may have taken 10 days in 2010 is now taking around 13-15 days, producers said.

Sources said they anticipate the problems will only get worse, particularly as new resin capacity comes on line in the Gulf coast region starting in 2017.

“When they bring on another 3bn lb [1.4m tonnes] of capacity, the grid can’t accept it,” said one trader. “It’s like a balloon – when you push it on one side, it bulges on the other.”

With shale gas dominating the headlines and ethane a major talking point in the petrochemical industry, ICIS editors in Houston are closely monitoring the situation. See the ICIS special report on shale, ethane and US ethane exports at https://www.youtube.com/watch?v=bYbKzYlYMGA.