Stockouts worsen for the chemical industry as shipping delays exacerbate inventory woes

Date: Friday, July 16, 2021
Source: Supply Chain Dive

  • Shortages in the chemical industry worsened over the last quarter with nearly 85% of distributors reporting an out-of-stock for at least one imported item, according to a¬†June survey of 84 National Association of Chemical Distributors¬†conducted by John Dunham and Associates. This is up from nearly 47% in March.
  • A report accompanying the survey points out that inventories in the chemical industry have been climbing, but they have yet to reach their pre-pandemic levels as the industry struggles with supply chain issues and disruptions to production.
  • "I think there's a catch-up period that's going on right now where things might get a little better," NACD President and CEO Eric Byer said Monday. "But I still maintain that the demand is very, very strong. And until logistics, supply chain logistics ... gets fixed it's not going to get any better anytime soon."

The survey by NACD is just the latest data point to highlight the impact that the current supply chain congestion can have on a company's inventory and internal operations. Companies are struggling to replenish their inventories as high demand for their products is met with a slower supply chain.

Not only have shortages worsened since March, so have delays. The survey found that 82% of respondents are dealing with an average uptick in travel time for their shipment of 11 days or more.

And the issues extend throughout the supply chain. West Coast ports are still struggling with delays: ships are waiting longer to get in, and once they get a berthing spot there is a shortage of drayage drivers that is exasperating the congestion, Byer said.

"A good example of a product will be something like citric acid," he said. "Citric acid is in Gatorades, or vitamin waters, or Coke or Pepsi or whatever."

If the shortage of the ingredient is vital enough, cargo owners are taking expensive steps to ensure they have the inventory and don't miss sales.

"And I can tell you that Coke and Pepsi are buying citric acid from Asia and they're bringing it in on big cargo planes because they just cannot bring it in on container ships fast enough," Byer said.

The chemical industry is not alone here. Lead times reached a record level in June and they appear to still be getting longer, according to the latest results of the Institute for Supply Management's Manufacturing Report on Business.

Issues were exacerbated for the chemical industry specifically due to the winter storm that hit Texas in February, knocking a substantial amount of production offline for weeks, Byer said.

Chemical companies expect the storm's effects to extend through the second half of the year.

"Looking into the second half of the year, we continue to see demand strength coupled with constrained inventory levels as the industry manages the backlog of customer orders and supply pressures from the impact of Winter Storm Uri," Dow CEO Jim Fitterling said at an analyst conference last month.

Byer said the industry should see production continue to increase, assuming a tropical storm or hurricane doesn't further impact operation in Texas. But there could be some rocky months ahead before supply is more inline with demand.

"Everybody I've talked to is telling me that we're looking at at least another 12 months of this," Byer said of supply chain congestion.

 

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