“Where did all the salt go?”
This question is coming up increasingly in the market this week as buyers and end users are running into supply problems and lack of availability on deicers.
The last four to five years has seen a trend toward a “just-in-time” inventory management approach work for many snow contractors given the infrequent storms of previous winters. However, when we get into a pattern of snow every few days -- which is the situation now -- it is inevitable that the velocity of demand will overwhelm and choke the supply system.
The reasons behind the “where’s the salt?” answer are both simple and complex.
On the simple side, demand has exceeded supply in some regions and with some suppliers. On the more complex side, the answer has many layers and contributing factors.
Generally speaking, most suppliers of bulk salt will take their best guess estimate at what they will need in a given winter and then schedule ships, trains, and timing and build stockpiles accordingly. They use professional weather forecasting, historical sales data, and customer estimates to make a decision on how much salt to put into any stockpile location.
There is only so much space on the ground for storage. In a perfect world, suppliers might pile up a year or more of inventory in their stockpile. But understanding the costs associated with that approach will help readers to understand why that never works.
The first and most important issue from the supply side viewpoint is the customer estimate. These estimates must be accurate because all of the economics are based on it. For example; if someone estimates they will require 2500 tons of bulk salt for the winter, and then it doesn’t snow, the supplier is left holding all the tons that were not delivered and paying storage on them and loss of revenue from not selling those tons. The carrying costs continue to fall on the supplier.
On the other hand, if the customer burns through those 2500 tons with six weeks of winter left, then the supplier is tapped out because they based their stockpiles on the estimates. This is why most salt suppliers use contracts; to avoid over-selling.
Those who follow my State of the Salt Address newsletters and articles will know that I’ve called for the end users and the market to accept more risk to avoid being caught in a shortage.
To that point, every buyer should have at least five storms of inventory on the ground when the season starts, and then continue to reload that to the five storm minimum as product is used maintaining five storms of inventory throughout the winter.
Only municipalities practice this approach, which is largely why municipalities are the last to experience shortages. But they too are not immune.
From the supply side, there are a lot of factors that enter into the decision tree with regards to scheduling delivery of salt for the stockpiles.
- Which regions are expected to be hardest hit?
- What did they take last year?
- How many events last year?
- What is predicted for this winter?
- What can determine based on historical averages?
- What are the economics of bulk vessels and rail in-season versus off-season?
It is more expensive to move bulk in winter in nearly all cases, so many will pile to the maximum in the spring and summer when costs are generally lower and try to push those tons into their customer base so they can reload to the maximum.
The fleet of bulk ocean vessels shrunk significantly with the implementation of IMO2020: the law demanding ultra-low sulfur fuel and scrubbers for the ship’s emissions. Most couldn’t comply. Some newer ships that couldn’t comply at their regular cruising speeds, found that they could comply by reducing speed by thirty plus percent. Now the voyage from point A to point B will take longer, and therefore cost more making even the perceived inexpensive vessels now expensive.
The weather pattern that we are in currently is going to hang on for at least another 10-14 days. Forty five percent of the US is covered with snow as I write this, and another arctic blast that will reach to the Gulf of Mexico is coming, further stressing already low stockpiles.
Shopping around is futile as the suppliers that have carefully balanced the demand and contract estimates from their customers will not “rob Peter to pay Paul” -- so no luck there.
What you can expect for the balance of this winter? It will get worse and could get a lot worse. On the plus side, we are very late into the winter and when this final cold does pull out, it will be very unlikely for its return. Had this all happened in December and January, we would be in deep trouble as an industry on a broad scale.
I need to also talk about packaged deicers, as they too are pretty stressed right now.
The problem in packaged deicers, interestingly enough, is not lack of inventory so much as it is managing the demand velocity. While we have plenty of packaged product inventory, nationwide trucking shortages caused by reduced over-the-road driver availability coupled with winter driving conditions nearly half of the nation have caused delays on the few available trucks on roads making deliveries DOT rule changes also have put additional pressure on the over-the-road drivers because of new DOT regulations on driving hours.
Hours waiting line to load are counted as driving hours now, so a driver that is in a five hour loading cue (which we are seeing right now) finally gets on the road to their destination and then have to layup for required rest time. Now, an expected a same delivery stretches into multiple days.
Lastly, there is a major problem in ocean shipping by container.
The entire system is out of balance. It’s complex and hard to grasp all the factors involved but 20,000 TEU vessels obsoleted smaller container ships and actually created shortages in vessel space availability. This has led to astronomical price increases and problems.
You can search the Internet for information on this problem, but it will continue to plague the global ocean transportation and drive prices through the roof where they are already. Realize that a significant amount of packaged deicers have used ocean container shipping and this will further pinch an already challenging condition.
DHL published an informative article in their February 2021 update that is worth reading if you want to understand this and future impact on costs of ALL goods: CLICK HERE to check it out.
Snow Magazine readers can hopefully begin to see how all of these issues have combined into a perfect storm of conditions to put some suppliers – not all by any means - into the current shortages. I should also mention that we are fine with supply of all products, however, we are not able to take on new customers at this time and are focused only on our existing customer base.
Contributing Editor Robert S. English is president of Chemical Solutions Inc., based out of Franklin, Mass. He writes often about issues pertaining to the salt and deicing industry including his regular State of Salt columns. You can reach him at firstname.lastname@example.org