Europe logistics disruption continues to bite for chemicals players

Author: Tom Brown

2021/10/12

LONDON (ICIS)--Logistics issues in Europe are continuing to bite for chemicals players, with driver shortages and port congestion straining already tight supply lines, although buyers may be starting to adapt to longer lead times for orders, according to sources.

Europe has been hit by a shortage of heavy goods vehicle (HGV) drivers, resulting in delays and added expense in transporting chemicals.

The situation is most dramatic in the UK, where the loss of access to EU drivers has created logjams in truck capacity and panic-buying of fuel.

“Truck drivers are short… especially for UK. Supply is a problem because of missing drivers,” said an isocyanates and polyols buyer.

Delays caused by lack of driver access, or COVID-19 infection, is causing unplanned production halts in some cases, according to a chlorvinyls industry player.

“We are covered with our contracts, the only concern is the drivers,” it said.

“A driver was about to load to serve to Glasgow [UK] site, the driver tested positive for COVID-19, [and] it took half a day to get an alternative truck driver to the site. Our production had to close down for a few hours.”

LIMITED POLICY RESPONSE
The UK has responded with 5,000 temporary emergency visas for EU drivers, after resisting the move earlier this year, but trade groups have questioned whether short-term visas will be sufficient to attract workers.

“Europe is 400,000 drivers short, Poland has a 120,000 driver shortage, why would a European person come to the UK for a temporary job for three months?” Chemical Business Association chief Tim Doggett told ICIS in late September. The visa terms were later extended to six months.

The driver shortage is also being felt in the rest of Europe, to a lesser extent, according to Dorothee Arns, director general of the European Association of Chemical Distributors (Fecc).

“In continental Europe, the driver shortage is noticeable, although not as pronounced as in the UK. It is more a subtle development, which will exacerbate in the next years when the baby boomers are approaching their retirement age,” she told ICIS.

Unlike in the UK, the situation has failed to deteriorate further in Europe, she added, but this may be a result of other shortages and price spikes up and down the value chain.

“We have not heard that the situation became more severe over the summer,” she said.

“The reason why several car-manufacturing or other industrial manufacturing sites – especially in Germany – had to close down temporarily is more due to the lack of semiconductors, certain raw materials or semi-finished goods.”

Current spikes in European energy prices have reduced the attractiveness of producing lower-margin commodities in the region, resulting in output cuts.

“In some cases chemical plants have reduced the production of above-average energy-intense chemical substances because of the recent hikes in natural gas prices,” Arns said.

HEATING UP
The sharp rebound in European manufacturing has softened slightly in recent months on the back of lengthening lead times and difficulty sourcing inputs, as well as driving substantial increases in inflation.

Higher demand has weighed on already disordered global supply chain networks, where different regional paces of economic and demand recovery through the pandemic left ships and containers often in the wrong places, sending costs soaring more than tenfold for some routes compared to mid-2020.

The intensified demand, which is only expected to tick up further in the approach to the Christmas period, has increased port congestion at many of Europe’s key chemicals trade hubs.

“Port congestion is an issue still,” said an epoxy resins trader.

“Felixstowe [UK] is especially bad, but we also see problems at Rotterdam -Netherlands]. Lack of drivers also contributes to this… [with a] build-up of empty containers that can’t be moved and delays to onward transport.”

Conditions are reportedly becoming so strained at the port of Felixstowe that operators are diverting large cargoes elsewhere due to congestion from a lack of drivers to move containers off the docks.

MARKET VERSATILITY
While there is no end in sight to some of the logistics issues, players are becoming more accustomed to dealing with them, despite extremely limited capacity to build up inventory in the tighter value chains.

“I think customers are adapting to extended lead times, so, [there is] less panic buying even though availability is still tight and inventories cannot be built,” the epoxy trader said.

In other cases, players can obtain raw materials but find themselves unable to send out their products.

“We're able to get raw materials, are able to produce everything in time, and then can’t dispatch,” said an isocyanates player.

Other operators are dealing with the issue by building up stores of product near the sites it will be required, a move away from the ‘just in time’ approach to logistics, but one that increases costs along the chain.

“We found a solution short term… we will store product [in the UK] to secure supply,” said the isocyanates and polyols buyer.

“We expect the supplier to pay storage, because stopping… our production or [that] of the OEM [original equipment manufacturer]  is more expensive than to store TDI, MDI or polyols locally.”

“It is the better solution to have material there instead of stopping OEM production, [which can cost] millions,” it added.

With limited warehouse space, particularly for hazardous chemicals, more widespread increased storage responses may stretch availability that is already likely to be tight.

With conditions likely to remain volatile into 2022 and probably beyond, chemicals players will need to continue to adapt to the challenges ahead.

Front page picture:  Containers at the Liege Logistics Intermodal terminal in Belgium 
Source: Xinhua/Shutterstock

Focus article by Tom Brown

Additional reporting by Heidi Finch and Vicky Ellis