As a result of the supply chain disruptions of 2021, one-third of member companies of the American Chemistry Council (ACC) experienced or declared force majeure, which is when a company breaks a contract due to extraordinary circumstances.
That is among findings that the survey, conducted in November and December, discovered as it sought to determine just how last year’s supply chain chain challenges impacted the industry. The trade group also found that 98% of member companies reported modifying operations because of supply chain or transportation issues, while 93% of companies reported additional costs into the several millions of dollars, with more than a third of companies reporting costs higher than $20 million, ACC said.
FreightWaves recently chatted with Jeff Sloan, ACC’s senior director of regulatory and technical affairs, and Scott Jensen, ACC director of communications, about the survey and the broader supply chain issues that chemical shippers deem important.
This question-and-answer interview has been edited for length and clarity.
FREIGHTWAVES: Why spotlight with this report the supply chain issues your members are seeing?
JENSEN: “As we go into 2022, there’s certainly a lot going on. It’s a historic time with what we’re seeing in the transportation network, with the changes and the challenges that our members as well as shippers are facing across all the modes.
“That supply chain survey certainly was an important snapshot of what we tried to drill down into for this past quarter, with our members gauging the breadth of it and the impacts that they were experiencing. … We certainly see those issues persisting into 2022.
“If you look at what we’ve seen in the freight rail world with PSR [precision scheduled railroading] and consolidation, and then even the truck driver shortage is something that’s been building for a number of years — these issues are certainly very important for our members in chemical manufacturing. We do a lot of shipping, whether it’s stuff that’s inbound or finished product outbound. Our members tend to be some of the largest shippers by volume across the major modes of transportation, whether that’s rail, truck or even marine transportation.
“Our economics team is forecasting, even just for this upcoming year, production growing. But with that, shipments growing. But even further out, by 2030, [we’re] seeing an increase of about a million shipments per year as we see chemical manufacturing and production continuing to grow here in the United States. So, that certainly makes these issues even more relevant and important to our members and chemical manufacturers.
“There are things that we’re going to be focusing on in each of the modes, as far as what we see as potential solutions. Starting with the marine side of it: That’s certainly one that became No. 1 with a silver bullet to a lot of people through the supply chain crisis. [We were] very supportive of what we saw, with the White House task force trying to increase service hours, also taking a look at what was passed in the infrastructure package and looking at some of those longer-term investments to rebuilding the port infrastructure and seeing what can be done with capacity increases. But we’re also looking at the Ocean Shipping Reform Act, which is something that we’re supportive of and would really like to see Congress pass.
“On the truck driver issue, we’re very encouraged by what the White House is doing with its action plan aimed at trying to recruit more drivers, whether those are younger drivers, women in trucking. That’s something that we have been working with other industry groups on trying to get those initiatives passed, so it was good to see that as a part of the infrastructure package and to see the White House follow through on it.
“But again, beyond that, we think there are other ways to increase the capacity within the trucking network. Most notably, by looking at increasing the actual capacity of what you can ship by updating the gross vehicle weight limits and increasing those limits. We think you can ship more. And technology allows you to do that safely. And you can do that without increasing traffic and increasing emissions. …
“On the rail front, we’re seeing this is also as a very busy area and a big focus for us, with the STB [Surface Transportation Board] looking to ramp up its activities, with the reciprocal competitive switching hearing coming up in March but also hopefully finalizing the arbitration processes or the proposals: the final offer rate review, which is something that we’ve been very supportive of. On the service side, we’re looking at better service metrics with the first-mile last-mile proposal. So certainly, there’s a lot there that we’re going to be working on and pushing for.”
SLOAN: “I would note that the problems we’re seeing in the supply chain right now, to a large degree, are not new problems. They’re exacerbated problems that have been there for some time. And the solutions that we’re supporting across the board may not be silver bullet solutions to fix the current crisis in supply chains, but they may help it in the short term and certainly help in the long term if a comprehensive approach is taken to address some of these challenges.”
JENSEN: “These are systemic problems that really need an across-the-board approach, and certainly, it will take multiple policy changes to make it happen. And one thing that Jeff has been trying to point out is that we’d like to see the administration and Congress make freight transportation issues a priority. We know that there’ll be a certain ebbing of this crisis when hopefully the supply catches up with demand, but that doesn’t mean that these problems have been solved and fixed.”
FREIGHTWAVES: Are the political winds blowing toward focusing more on freight transportation, or do you see that there is more that can be done?
SLOAN: “I would say there’s certainly more that needs to be done. I think in the current environment, freight transportation has maybe more people’s attention than it does normally just because of the acute crisis. But hopefully, that attention doesn’t end when the immediate crisis abates and [instead] there will be more focus on long-term investments in planning and policy changes that will help capacity over time and help build resilience for the overall supply chain.”
JENSEN: “You’d asked about the political winds. I think we have seen some change there. If you look at some of the proposals and initiatives that we’ve been working on in Congress, there has been bipartisan support for that. So, there has been some bipartisan opportunities there, whether you’re talking about marine or some of the trucking issues.
“And then when President Biden came out with his executive order on competition, he had singled out transportation as being an issue, seeing issues with monopolies and how that’s played out with ocean carriers and rail carriers. It was interesting to see the White House add that into the executive order and put some of their political willpower behind it.
“We wanted to test that out and so we worked with Morning Consult on a national survey, and we found some pretty good public support for promoting competition and, even in particular, addressing some of the transportation issues. And that support cut across the political spectrum as well.”
FREIGHTWAVES: For the survey that you unveiled earlier this month, were there any results that surprised you or affirmed what you had been observing?
SLOAN: “I don’t think there was anything terribly surprising, just based on what we knew anecdotally, but I think it’s certainly confirmed that the current challenges in freight transportation are significantly impacting our members. It’s forcing them to change their operations, it’s imposing new costs on them and it’s harming their ability to meet their own customers’ needs.
“In trucking, for example, I think 96% of the responses said there are at least moderate or major constraints in their trucking capacity, and almost everyone is saying they’re seeing cost increases for truck shipments. And beyond cost increases, it’s just the inability to secure transportation, not being able to get the truck service when it’s needed and averaging over a week, over seven days in delayed service. Those were what I thought were some of the more striking things in the survey.”
JENSEN: “A couple things that stood out for me. We were trying to get a sense of the geography of where the issues were, and I think we all viewed this as a West Coast issue or it was manifesting itself as that. But the survey showed that it was impacting basically every region of the United States. So, I think that kind of stood out to me.
“And as said, the depth of the impact also stood out. … A third of the members said they [had to declare] force majeure, where they had to tell their customers, ‘We can’t meet your order.’ And they certainly go to the extent that they can to make sure that they can fulfill an order, and for them to have to go to that level is — I was a bit surprised that a big percentage of members said that they did that.”
FREIGHTWAVES: Were the effects felt across the board in terms of upstream and downstream, or was one segment more impacted than the other?
SLOAN: “I think it was across the board. They talked about their inability to get raw materials in for their manufacturing practices and then their inability to meet their own customers’ needs.”
FREIGHTWAVES: What are some of the root causes that the supply chain disruptions last year exacerbated?
JENSEN: “The short answer is a lack of capacity. For trucking, the main capacity constraint is drivers. There’s been a need for tens of thousands of more drivers than before any of this. The problems with the spike in demand following the COVID outbreak — that exacerbated the driver shortage, where there just wasn’t the capacity to handle it.
“Rail is another good example. We’ve seen railroads move over recent years to really run more lean [through the] implementation of positive precision scheduled railroading, Some call it other things, but it’s running leaner operations: cutting costs, cutting crews, cutting rail equipment and having very little resilience in the system. And so when demand crashed with the initial outbreak of COVID, they very quickly cut further into their staff and cut rail locomotives, further reducing their capacity. And then when you had this large spike in demand, it was much slower bringing those things back online than it was to cut them in the first place.
“You’re talking about systemic issues in rail, and it’s the lack of competition. And I think large rail customers to a large degree don’t have competitive transportation options for that service. … Without that balance of your customers having the market remedies to deal with service problems by going to another provider — without that balance, there’s been more pressure on the railroads to further cut service and capacity and costs, which has harmed the network’s overall resilience and capacity.”
FREIGHTWAVES: Why do you want to see the Ocean Shipping Reform Act pull through Congress?
JENSEN: “ The Ocean Shipping Reform Act would give the Federal Maritime Commission a bit more clarity in its authority for oversight of ocean carriers and port operators. I don’t think the authority that they currently have matches the needs of the current environment, where you have a very consolidated number of ocean carriers, mostly foreign-owned. There’s just more that can be done to ensure that those ocean carriers are operating in a way that is good for everybody, not just good for the ocean carriers.”
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