by Dianna Brodine, managing editor
Uncertainty in the resin supply chain is sending ripples through the plastics industry and into end markets. The result has been predictable: price increases for the processor at the time of resin purchase. What are the biggest issues facing the resin industry at the moment, and what can the processor do to alleviate some of the pressure?
Plastics Business thanks the following leaders in the resin industry for lending their perspectives to this article:
AMCO: Stacy Shelly, Business Director
Chase Plastics: Alan Arduini, Vice President, Sales; Adam Paulson, Vice President, Supplier Development; Laura Goik, Operations Manager; and Bob Hoff, Business Process Manager
M. Holland Company: Peter Nutley, Vice President of Operations
PolySource: Bob Findlen, Director of Sales & Marketing
What are the biggest issues facing the resin supply chain right now?
Paulson: The number one issue is strained supply chains due to a supply/demand imbalance. Coming out of the “Great Recession,” the reinvestment into additional capacity was slowed. The rebound of the global economy has caused demand in many raw materials and thermoplastic resins to outpace the capacity additions. This has caused a very tight supply chain with minimal slack; therefore, any blip (natural disaster, unexpected plant outages, etc.) is immediately felt.
Shelly: There are availability issues with many resin families. This year, material availability issues are affecting the supply of PP, PET, Acetal, Nylon 6/6, TPUss and PPS.
Findlen: The reason we find ourselves in the Nylon 6/6 situation is that there was concern on the part of major resin suppliers about reinvestment in monomer capacity. It didn’t make sense to make additional investments in monomers because the ROI was not there. But, are there other polymers and monomers where we’ll see the same thing? Where capacity hasn’t kept pace with demand because the profit margins weren’t there in the past? And, there’s still uncertainty with potential tariffs. There’s a tariff war going on. Will that escalate? Will that begin to affect imported resins?
Shelly: Another issue is logistics. There are five to seven truckloads of freight for every driver/semi combination that is available to haul them, according to the Morgan Stanley Freight Index. Certain shipping lanes are seeing an even greater shortage. Less-than-truckload (LTL) service also is being affected.
Nutley: A strong economy, combined with trucking regulation and an aging workforce, is creating a significant shift in both service and cost. We are facing an imbalance in the supply and demand of freight services. This situation is causing a deterioration in freight service, as well as increases in freight and labor costs. This imbalance is particularly concerning in the face of new polymer production capacity either coming up to speed and new assets still being turned on.
How does the US transportation infrastructure play into future resin supply concerns?
Shelly: Truck driver shortages, trucking industry regulations and aging of rail systems are significant issues – with no immediate solutions on the horizon. Over 60 percent of truck drivers are above the age of 45. The average age is almost 60. The industry has a turnover rate greater than 95 percent. Today, there are 48,000 current driver openings, and 890,000 additional drivers will be needed by 2025, per the American Trucking Association. The new law requiring Electric Driver Logs (EDL) limits drivers to 14 hours a day of operating time, 10 hours of drive time and then a 10-hour rest period. It is estimated that the new EDL requirement has decreased available driving time per driver by more than 15 percent.
Goik: Carriers are dictating the market cost and choosing which loads they will move. The carriers are getting top dollar for their freight moves, while underperforming on delivery expectations. The shortage of drivers and the experience level of those drivers does have an impact on the condition of delivery that our industry is experiencing. The market is dictating that shippers provide more time to transport products, as well as driving freight surcharges and price increases to cover these increased costs throughout the supply chain.
Arduini: Control of “wait times” to pick up or deliver are even more precious to our trucking partners. We have seen an increase in damage and service delays. What used to be easily next day is not always next day.
Findlen: Again, it’s supply and demand, and in this case, it has to do with the shortages of truckers. Most recently, Techmer PM has announced a price increase of $0.04/lb. across their resins just based on transportation costs. Adding to that, there’s the uncertainty of whether or not customers get materials within reasonable delivery times. You may be quoted one thing, but the actual result is another.
What should processors – and their customers – be doing to temper some of the supply concerns?
Nutley: Ordering early, increasing the size of orders and expanding delivery windows can go a long way to improving our current cost and service position. Believe it or not, even more basic actions like efficient loading and unloading can go a long way in getting access to limited resources.
Hoff: The just-in-time philosophy has the potential to put more customers at risk, and increasing safety stock should be considered to alleviate shut-downs. Customers who project an increase in demand in the future should address that as quickly as possible to effectively manage.
Shelly: Processors also can help out by providing longer lead time, combining material shipments and providing broader windows to accept deliveries. Trying to avoid material deliveries on Mondays and Fridays, especially at month end, is very beneficial.
Arduini: They also need to communicate to their customers the importance of getting alternate materials tested and approved. The value of alternates used to be mostly about cost reduction. Now, it is just as important to have alternate sources of supply in case of supply chain disruption. Lead times are relatively long, and we insulate our customers as much as possible by stocking and forecasting to the supplier. We know that forecasting beyond four weeks is difficult for our customers. Forecasting six weeks and longer is nearly impossible for them.
Findlen: The biggest thing is forecasting. Is there a way the processors can get better forecasting from their customer? In a perfect world, if an OEM could provide needs over the next three months, that would cascade throughout the supply chain to bring a higher reliability in deliveries. The distributor could then stock some of the materials in order to alleviate supply issues. Data is out there for past buying trends, and that could be used to bring some form of prediction of future needs.
What can resin suppliers/distributors do to alleviate issues for processors right now?
Nutley: Adding capacity doesn’t mean that we will achieve the service and costs levels we are used to. Finding ways to bring ratability and consistency is perhaps the single best thing we can all do to improve the condition of our supply chain. M. Holland is investing in its transportation and forecasting systems to bring the best data and visibility of our needs to our supply chain partners. Additionally, we continue to develop strategic partnerships in rail, trucking, packaging and warehousing space.
Shelly: Amco is continuously adding warehouses and logistics partners to our portfolio. We also are moving material closer to our customers by inventorying material in local warehouses and offering customers the ability to pick up with their own trucks, lowering the dependence on common carriers. Another option can be vendor-managed inventory at the processor’s location, which also reduces the dependence on the trucking industry and can help improve the processor’s working capital.
Hoff: As a distributor, we are taking a bigger inventory position whenever possible to protect our customers. This will include expanding storage capacity to best serve our customers. Continuing to enhance our relationships with carriers and expanding that base with those that provide the best service will assist in meeting customer delivery expectations. When possible, we should consider adding an extra day to the shipping time to effectively manage the cost.
Findlen: Distributors can help by providing technical resources that support specifying alternative resins. When there’s a material shortage or price increase, customers often want to find a direct offset. But, what we’re trying to do is go back to the specification of the material. Are there other resin possibilities that do not have the same supply issues? It’s not an easy process, and customers need to have more information in their hands on the technical differences in the material. In our recent Nylon 6/6 webinar, we were able to show the different options and point out the questions that need to be asked if customers are considering a switch. We’re willing to help identify a comparison that is apples to oranges, rather than apples to apples.
In your opinion, what are the long-term solutions to the issues facing the resin supply chain?
Shelly: Reinvestment into the North American resin production infrastructure and logistics are both key in the long term. Short of autonomous trucks, which still are a ways away, the trucking industry must find ways to attract and retain drivers. Increased freight rates and surcharges are trying to support paying higher salaries, but the labor pool still is challenged by the current low unemployment and drug screening requirements.
Nutley: There has been a significant investment into the polymer supply chains to compensate for the new production coming up to speed and still yet to start. Continued investment still is one of the top priorities for most supply chain participants in the coming years.
Paulson: Many manufacturers have announced capacity expansions and/or debottlenecking. That said, for several material families, if demand continues, the supply chain may be constrained until 2020-2021 until new capacity comes online.
What else is critical for an understanding of the resin supply chain issues facing processors?
Arduini: It is difficult to predict exactly what the future situation will be. It is important to be aware and have vision to see changes before they are upon us. The supply chain will constantly be changing and evolving.
Shelly: The effect of tariffs on the resin market still are unclear, but we would suggest companies start asking questions of their suppliers so they do not get caught off guard. There is a significant number of resins included on the tariff lists, though the majority of imported resins do not originate from targeted countries. What will happen to the global supply/demand balance will become clearer as more tariffs take effect.
Findlen: We tend to look at resin demand regionally, rather than globally. However, materials are being sold all over the world and, when supply is tight, these major resin suppliers are making their selling decisions globally. With some resins, it is more profitable to supply the Asian community than it is to sell the same material in North America. With limited amounts of resin supply, they’re asking themselves where the more profitable region is located.
Paulson: As long as the global economy stays strong, we will likely continue to see raw material price increases. Based on supply and demand, manufacturers will seek higher profits, which also will enable their ability to reinvest back into capacity expansions and R&D.