INSIGHT: US supply chain problems may continue for two more years

Al Greenwood

19-May-2022

HOUSTON (ICIS)–US supply-chain problems could persist for another two years because new problems continue to pop up.

  • Respondents to a survey from the American Chemistry Council (ACC) said supply chain problems have worsened in the past few months.
  • Respondents are curtailing production because stocks are piling up. Customers are scaling back because they can’t get supplies.
  • Hurricane season and a labour contract could worsen problems.

Since the pandemic started more than two years ago, problems continue to compound problems, said Eric Byer, president of the National Association of Chemical Distributors (NACD). He participated in a conference call with the ACC.

“I think you’ve got at least another 18 to 24 months of headwinds in our face that we’re going to have to deal with,” Byer said.

LOGISTIC PROBLEMS WORSEN
The ACC documented the problems and delays faced by chemical companies in a survey it conducted in March, which was a follow-up to one it did in November and December. The findings include the following:

  • Port delays last 4-6 weeks.
  • Shipments on inland waterways take an average of six days longer.
  • Because of rail rates and service problems, 75% of companies switched to truck deliveries.
  • Nearly all companies are paying higher truck rates and 63% have longer transit times.

Supply chains had worsened since the last survey, as shown in the following table.

Ports, Ocean Shipping Worse Same Improving
March 55% 39% 6%
Dec 37% 55% 8%
Inland Waters Worse Same Improving
March 21% 68% 12%
Dec 10% 77% 13%
Rail Worse Same Improving
March 39% 53% 8%
Dec 25% 64% 11%
Trucking Worse Same Improving
March 55% 38% 8%
Dec 42% 54% 5%

Source: American Chemistry Council

According to the most recent survey, every company reported problems with supply chains and freight, and 97% had to modify or curtail operations because of those problems.

One respondent told the ACC that costs for every type of shipment are increasing, whether it is by ship, truck or train. They are passing those costs to their customers, further fuelling inflation that is running at four-decade highs.

RAILROAD
The ACC and the NACD attributed some of their logistical problems to precision scheduled railroading (PSR).

Under PSR, railroad companies concentrate on moving individual rail cars instead of entire trains, according to Union Pacific (UP), a railroad company. These trains were often dedicated to a single commodity, and it was the way that railroad companies ran their operations in the past.

Under the old system, railroad companies had to wait until a train was long enough before they would ship it out, UP said. PSR allows the companies to continuously move individual rail cars instead of waiting on longer trains. According to UP, PSR allows railroad companies to make better use of their resources while providing customers with more consistent, predictable and reliable service.

PSR also eliminated yards, greatly reduced head counts and cut capital budgets, according to Freightwaves, a trade publication. The result improved the margins of railroad companies and boosted their stock price.

The cost-cutting went too far and compromised service, according to Jeff Sloan, ACC senior director of regulatory and technical affairs. The cuts reduced the resiliency of the country’s railroad system, making it more vulnerable to disruptions such as hurricanes or winter storms.

One respondent to the survey said derailments have become more common, and they are destroying more railcars as a result.

In April, some railroad companies asked customers to reduce the number of private cars they put on their railroad systems.

INEOS Olefins and Polymers USA declared force majeure on polymer products as a result.

CF Industries, a fertilizer producer, said UP told the company to reduce its shipments by nearly 20%.

“That tells you how non-competitive the rail industry is, when they are telling their customers they want less of their business,” said Chris Jahn, CEO of the ACC.

To increase competition, the ACC wants regulators to make it easier for companies to request reciprocal switching. In reciprocal switching, one railroad company handles a customer’s cargo on behalf of another railroad company.

The threat of losing customers to a competitor would compel railroad companies to improve their service, Jahn said.

The American Association of Railroads (AAR) said reciprocal switching is complicated, costly and time-consuming. Often, it is not the best way to ship cargos.

The AAR opposes another ACC proposal called final offer rate review (FORR).

Under FORR, railroad companies and customers would settle rate disputes by submitting proposals to the Surface Transportation Board (STB), the federal entity charged with regulating railroads, according to Holland & Knight, a law firm. Customers allege the current resolution process takes too long.

The AAR said FORR deprives railroad companies and shippers of their due-process rights. Also, no other federal agency uses such a process to handle rate disputes.

The ACC wants railroad companies to start reporting statistics that measure their performance on the first and last miles of their shipments. Such reporting is a short-term fix that will make it easier to pinpoint problems by the STB, Jahn said

According to Sloan, the chairman of the STB has said the group wants to act on these proposals by the end of the year.

MARITIME SHIPPING
For maritime shipping, ports remained backed up with delays of 4-6 weeks., according to the ACC.

Those delays continue despite the disruptions to Chinese shipments that were caused by that country’s COVID lockdowns, said Byer of the NACD. This is especially true of the ports of Long Beach and Los Angeles.

“That’s a bit of an alarm bell for a lot of us. Things should be improving right now, even if it is short term, and it is not,” Byer said.

Out of all the ocean shipments that enter the US, 40% pass through Long Beach and Los Angeles, he said. “If they’re not making any headway when production is being shut down in China, what’s to say it’s not going to get worse here in the coming weeks and months ahead.”

Things could get worse.

The Atlantic hurricane season starts in June, and meteorologists at Colorado State University (CSU) are forecasting a busy year for storms.

It expects 19 tropical storms and hurricanes will form during the season, compared with 14.4, the average from 1991-2020. Hurricanes will total 9 versus an average of 7.2.

In addition, a labour contract is scheduled to expire on 1 July between West Coast dockworkers and shipping companies. The contract covers 29 West Coast ports from Bellingham, Washington state to San Diego, California.

If talks break down, the employers could lock out the dockworkers. The dockworkers could walk off or go on strike.

Past July, customers could see some relief. Byer expects Congress will pass the Ocean Shipping Reform Act (OSRA) before its recess in August.

The Ocean Shipping Reform Act would shift the burden of proof on detention or demurrage charges from the invoiced party to the ocean carrier. These fees would also have to comply with federal regulations.

The bill also expands the oversight of the Federal Maritime Commission (FMC), allowing them to address what could be considered unfair contracting practices from ocean carriers.

Longer term, the $1tr infrastructure programme should fund some much-needed improvements, Byer said. Out of the total, $17bn is dedicated to ports.

By Al Greenwood

Thumbnail shows a train track. Image by Shutterstock.

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