Market Update: causes and effects of currently broken supply chains.

Currently there are supply chain imbalances globally affecting all industries. For the chemical industry this means that players all over the globe are fighting for container slots to deliver raw materials against importers and exporters of high-margin products such as gaming consoles or televisions.

The pressure on supply chains is increasing and difficulties are likely to increase in the coming month. Let’s have a look at the reasons and effects on the chemical industry, focusing on the paints & coatings segment.

Where do the problems come from?  

Large amounts of goods, basically everything we can imagine, ranging from sport shoes to chemical raw materials are shipped to us from Asia. Especially from China, where seven of the ten largest container ports in the world are located. Consequently, supply problems arising there permeate many supply chains worldwide.

The shipping issues in Asia began in early 2020 with the outbreak of the pandemic in China.  Due to the increased demand for certain goods during the lockdown in many parts of the world and the urgent need for medical supplies and protective equipment to overcome the pandemic, many container ships made their way from China to the United States and Europe. But, with countless delays. Many workers were not allowed to work due to an Covid-19 infection or quarantine. Restrictions at the ports and distancing made the situation even more critical.

Consequently, the ports were overwhelmed and not able to catch up on the backlog. Huge container ships are parked outside the ports and cannot access the berths.

In addition, there is another circumstance which exacerbates the situation. Of course, logistics providers want to act as economic as possible and try to avoid empty runs of the containers to minimize their costs. Consequently, there are many empty containers at the ports around the world waiting to be loaded there, even though there are goods waiting to be loaded on the other side of the world. The result: an imbalance between where the containers are and where they are needed.

This is leading to an increased reluctance on both sides to commit to the shipping, especially when it is unclear whether and at what time it will be possible to return a container. It is becoming some kind of vicious cycle in which the logistics situation is becoming more and more critical to the world’s supplies.

Which other factors are affecting the broken supply chains?

There are also factors, not directly connected to logistics, impacting the current situation. Two examples would be the weather in Texas and congestion triggered by the Ever Given.

Why Texas? Texas was hit by a deep freeze in February 2021.  Petrochemical plants located in the area, which produce a significant amount of the world’s plastics, had to shut down their activities to avoid accidents or permanent damage to the plants.  These factories are slowly being restarted, but it will take many weeks to replenish supplies. The result is a widespread shortage of plastics. Alternative supplies that could come from Asia are stuck in the previously discussed Pacific Ocean traffic jam. This leads to many shutdowns of plants especially within the automotive industry.

Another impacting factor, which has been broadly spread via the news, is the giant Ever Given container ship that got caught in the Suez Canal – blocking the 6,000 miles passage between Asia and Europe. This situation further troubled global supply chains – schedules were thrown into disarray and congestion at European ports increased.

What specific effects can we observe?

Expected shipments of goods to the rest of the world were delayed or even failed entirely – many supply chains are broken. This impact can be seen in trade and shipping costs and this effect is expected to last over the coming weeks and months. To give a short example: shipping containers to the West Coast of the United States increased by 30 percent in February 2021, compared to 2020.

Logically, the shortage of materials also leads to increased prices. If we take a closer look at the Paints & Coatings Industry for example, we see that prices for epoxy resins, an important binder for many paints and coatings have extremely increased. In the last two months, they increased by up to 60%. Prices for polyester resins, which are often used in powder coatings, have also risen significantly – by up to 45%. Looking at solvents, we see price increases of up to 100%.

Over the last weeks and months we also noticed that the limited availability of one of the very basic ingredients for coatings, titanium white, led to a broken supply chain in many different sectors. You can thus see how individual shortages and problems impact the overall value chains, across market segments.

What market development do we expect in the coming month?

Governments worldwide are trying to accelerate the economy’s recovery with stimulus programs. This will most likely lead to a worsening of the logistics crisis as more goods will be in circulation.

The solution to the problem requires time, new investments in ports, and capacity. Therefore, probably many companies will rethink their sourcing strategies and try to reduce the risk of disruption through diversification. Already now we see intensified efforts to find local alternatives for sourcing in order to reduce shipping risks.

In summary we can say, a quick improvement of the situation is unlikely in the coming weeks.

How CheMondis helps you to overcome these issues.

CheMondis might help you to diversify you sourcing strategy and can get you in touch with new potential business partners, in your region and beyond. We are currently working with more than 1.300 suppliers from all over Europe, offering more than 45,000 products. In times where logistics resources are that scarce, it is also worth mentioning that we can help with this as well. You can book your required logistic services in cooperation with the German logistic company Alfred Talke Logistics right on our platform.

Now it is up to you.

Benefit now from the advantages of the leading marketplace for chemicals in Europe and register your company on CheMondis.

Sources:

Yergin, D. (2021). Supply chain slowdown hits at key pillars of economy and will likely get worse. CNBC.

Richardson, J. (2021) Global supply chain disruptions may maintain, or even add to, regional petchem imbalances. ICIS.

Construction PMR. (2021). Pandemic causes shortage of raw materials – price rises on construction chemicals market.