SUPPLY CHAIN PROBLEMS IMPACTING OUR BUSINESSES
In the face of market uncertainty, how do you navigate it?
By Michelle Rae, CPCA
During our recent AGM, CPCA members recently discussed the current and long-term impacts of the pandemic and how it has disrupted the global movement of the supply of equipment for many businesses. These supply-chain disruptions, with many causes including port congestions, factory shutdowns and limited production has caused industry-wide supply constraints.
2020 was the year of Covid 19 shutdowns, layoffs, and work from home experiments. The market saw reduced demand and in turn reduced inventories and production, construction was halted or delayed, and the economy slowed as the world tried to stop the spread of a deadly virus.
Members also discussed some of the economic pressures that can be expected to affect our industry. “It has been widely reported that consumer prices in Canada had risen at their fastest rate in 18 years during the month of September and the world is working through a perfect storm of recovering consumer demand mixed with transportation labor shortages, rising oil prices, product shortages, high transportation costs and global supply chain issues” said CPCA President Marcus Cormier. Our industry will surely see some short-term effects related to inflation as global supply chains catch-up and suppliers work hard to replenish their inventory levels.
2021 was the year of global supply chain issues. As lockdowns were lifted the economy tried to rebound from the Covid sacrifices made in 2020, but hurricanes, winter storms, power outages in China, shipping bottlenecks, labour shortages, and other disruptive forces, translated into unprecedented supply shortages and shipping delays. Not only have the delays in materials coming from overseas impacted the situation, but there are also problems closer to home that have had just as much of an impact. For example, the winter storms that hit the United States this past winter disrupted production of epoxy, polyester, and vinyl ester resins.
Even as the world is slowly emerging from this global crisis, most business are more worried about the long-term impacts as they continue to grapple with these supply chain disruptions. In fact, the Canadian Federation of Independent Business polled business owners and found that 41% of business are worried about business logistics – compared to 29% back in April 2020, at the initial height of the pandemic.
But how is this all affecting our industry? We spoke to several industry representatives on the challenges they’re facing, and their insights based on the next couple of years. Ryan Vassos, Vice-President, and General Manager at Waleco Inc. notes the situation was slow to reach our industry. “We saw the signs of it last December, but nobody could have known the extent of it. There was a good amount of inventory out there, so it hit our industry a lot later than others, but as the situation started to spiral, we did our best to mitigate the situation by investing in stock and working with contractors to get them the materials they needed.” Their company is ordering material at a level they’ve never seen just to keep enough stock noting, “We’re trying to keep stock but it’s going out quicker than it’s coming in”. John Allen, President of PD McLaren agrees. “At first people seemed to be oblivious that Covid had an effect on our deliveries” noting he saw facilities shut down with outbreaks, suppliers not receiving material for several weeks, delays in transportation and so on.
John also notes the continued unpredictable supply chain issues make delivery timelines difficult. “One of the major challenges is getting confirmed deliveries from suppliers. It seems to be a moving target as they are having supply issues also, some are caused by raw materials getting to them. Casting plants have been an issue in the US, several facilities had shut down pre-pandemic as most was done in Asia (at reduced costs). With facilities in Asia having to shut down due to COVID cases this slowed down production then came the shipping issues we are still experiencing. Many ports on both continents are back logged adding to delays.” Brad Egeland, President & CEO at Keller Equipment Supply Ltd. agrees that while the supply chains choked off a lot of raw materials used to produce fabricated goods, the increase in costs is also concerning. “One of the biggest and most frustrating aspects of this supply chain problem is the increase we are seeing in our costs. Many manufacturers are increasing their prices overnight without notice. Either in the form of a surcharge of some type or simply they are increasing them because of supply and demand. Their costs are increasing so they just pass it on.” He also noted freight costs have gone up substantially because of the shortage of trucks on the road and the high price of diesel. Richard Whitford, Regional Fuel Sales Manager at Shawcor (which purchased ZCL | Xerxes in 2019), explains that for many manufacturers, the demand for new fuel storage tanks in North America is currently greater than the supply capacity. “This coincides with challenges in getting some of the raw materials we need,” noting everyone is facing similar challenges. “Between Covid-19 and extreme weather, we have all been impacted by that. That’s been obvious in every aspect of our lives for nearly two years”.
Jim Rodd, Sales Manager for Red Leonard Associates agrees with Richard saying 2022 is expected to be another year where demand outpaces supply. “With new ports and new cargo ships coming online and the labour force getting back to work, there is hope that the markets will be able to get back on track by the end of 2022.” But he says to expect 2022 to be volatile and unpredictable.
As a contractor dealing with these impacts, Ken Jamieson, President of Kenstruct Ltd., and the OPCA knows all too well about this unpredictability. “We as contractors have faced challenges before but never like this” noting the deadlines have made coordinating projects extremely difficult. “One of the most difficult problems has been having to re-mobilize projects after having crews on site but having to re-schedule our timelines due to delays, and because tanks will be a huge difficulty for next year, tank manufacturer’s planned deadlines will be pushed back even further, from eight months to a year.” Ken also explains petroleum equipment are not the only commodities that are hard to get right now, light fixtures and electrical components for example. “Those are just two examples of items that we can’t buy right now. Things that we didn’t anticipate would be a problem.” John Allen agrees, noting again that most of these resources come from overseas and as these facilities have had their share of shutdowns due to COVID, many can’t reopen as they do not have the funds to upgrade their facilities to meet the new standards.
A computer chip shortage crippled the electronic and automotive industry, steel production shortages saw prices on light poles and other steel products more than double, resin shortages caused major delays in the production of fiberglass tanks and piping, and labour shortages added fuel to the fires. The supply chain has been getting worse, not better, heading into 2022. Manufacturers are struggling to meet demand and confirmed shipping dates. “Supply issues are to blame for unexpected push-out notices, and long lead times have become the norm in the sector.” notes Jim Rodd “It is almost impossible for manufacturers, distributors and contractors to make any kind of a time commitment to end users”. Like Ken, Brad Egeland says with the supply chain disruptions like resins for FRP and Computer chip shortages it could be the smallest component in a system that can holds things up. “We had to postpone jobs until spring because of some twenty-dollar parts that were just not available anywhere but were key to the overall project” adding that fiberglass products such as underground storage tanks, piping and fittings are also difficult to get. “The use of plastics increased, such as containers and packaging which added a strain on the supply of resins, and I don’t think this will resolve itself quickly”.
The cost of living is rising from pandemic-era lows due to a combination of rising consumer demand, global supply chain challenges, product shortages, and rising oil prices. Current inflation rates are at their highest level since 2003 and while some experts say the high inflation is transitory, it is likely rates will continue to rise well into 2022. For our sector, expect 2021 surcharges to be rolled into new price increases for 2022.
“It’s the unpredictability of the current market that makes forecasting the 2022 market so difficult” says Jim Rodd. “Shipping costs are expected to continue to climb until workforce issues are resolved. New container ships and ports will be coming online but it will take time to catch up to the backlog.” As freight charges increase so does the cost of goods, this often translates into added price increases and surcharges. Brad Egeland also says that contractors need to prepare themselves for the price increases. John Allen agrees, “we are seeing price changes from our supply chain monthly and don’t see that ending any time soon”.
Short and Long-Term Solutions
While raw material availability is a worldwide challenge and is not specific to any industry, companies can take the opportunity to look at new innovations to ease the strain but throughout these discussions they all agreed transparency is important when relaying timelines to customers and everyone should learn to be a bit more flexible when it comes to equipment needs. “We all know what the manufacturers are up against and are obviously doing the best they can” says Ryan Vassos, “While we work with our key contractors to forecast the number of jobs they’ll be doing, it’s important to be as transparent as possible with respect to lead times”. According to Ryan, it also helps if contractors have some flexibility with respect to the process or the products they are using and discuss alternatives. He also noted his company has been more innovative when it comes to managing stock by creating analytical tools to look at longer horizons and their replenishment model.
Richard Whitford says Shawcor is also approaching this as an opportunity to explore using alternate materials for their non-fuel fiberglass tanks, which increases our ability to produce more fuel tanks. “Enhancing proven methods with innovation is always a good idea” he said, “now it’s more important than ever”.
To address this both short and long term Shawcor is also developing an even more detailed plan for both the production and the delivery of our fiberglass fuel tanks. “This has always been a priority for us, but it’s more important than ever to sync our production schedule with our customers’ needs. One of the ways we’re doing this is by asking customers to work with us so we can have detailed plans built on what’s needed and what’s possible.” They’re also working with customers to look further ahead than they normally would so they can create a long-term plan while doing their best to meet short-term needs. But he says the higher-than-expected demand for fuel tanks – due to unprecedented growth in new c-store and fuel stations, along with replacement of aging tanks – does not allow for a quick resolution of supply issues. “While we are making strides toward meeting the demand, it will take longer than a few months”.
Brad Egeland agrees communication with their customers is key and his advice for contractors and oil companies is to plan projects well ahead and understand that doing business is different than what it was a few years ago; prices and deliveries are not what they used to be. “We keep close to our customers to find out what their plans are for the next few years and then work with our vendors to make it work. We are also investing lots in our inventory for the upcoming season. Smart purchasing and inventory management is key”. John Allen has also had discussions with oil companies and contractors to plan and order way ahead of their project timelines so that equipment can be ready on time. He also says PD McLaren has also tried to increase their inventory and pre-buy material to offset delays, but this hasn’t always been successful as demand increased and the supply chain bottlenecked. “Long term ideally would be back to a more local supply chain. Better forecasting of needs to assist supply chain with their requirements and planning, but in the meantime the days of getting equipment within six to eight weeks is no longer attainable and probably won’t be for another one to two years”.
Protect yourself – make sure that your customers understand the volatility of the current market and prepare them for unexpected price increases, surcharges and pushed out delivery dates. As everyone we spoke to agrees, everyone in our industry is in the same boat, and we must all pull together to get through these challenging times while we wait for things to get back on track.
Short Term Solutions:
- Protect yourself – make sure that your customers understand the volatility of the current market and prepare them for unexpected price increases, surcharges and pushed out delivery dates.
- Inventory product – don’t assume that products available today will be available tomorrow. Product prices are more likely to go up then down in 2022. Manufacturers are already planning 2022 price increases.
- Remain Flexible – to complete a job, contractors may need to purchase piping from one manufacturer, manholes from another and sumps form a third. Be sure to keep all options open.
- Be very careful when making time commitments. Expect unforeseen delivery delays! Shipping bottlenecks and production delays will continue to cause manufacturers to push out delivery dates last minute.
Continue to be diligent with Covid protocols, an outbreak within the company could lead to added work slowdowns and delays.