The fall of 2021 has culminated with many of the adverse conditions I wrote about over the past year. COVID19, which seemingly dominates every report and conversation, affects the supplies of all commodities and materials globally with disruptions to transportation, mining, and manufacturing caused by loss of time through illness and quarantines. It’s not over by a long stretch.
OCEAN SHIPPING
My focus has largely been on ocean shipping since many winter deicers reaching the North American markets arrive by ocean vessel. Port operations will likely continue to be adversely impacted, and delivery schedules will come under pressure as vessels are forced to remain at anchor while authorities screen incoming crews. Many ports in China are also requiring vessels to quarantine for 14 days if they performed a crew change withing 14 days or arriving in China and up to 28 days if the previously berthed in India. Rates for container shipping continue to spiral out of control. Hapag Lloyd, the German-owned container ship company, issued an earnings report for the first half of 2021 that was staggering. They earned more profit in the first six months of this year than in the last 10 years combined. There is no regulatory agency that attempts to “keep them honest” and all the shipping companies are taking full advantage of this condition with “take it or leave it” pricing that has increased by as much as a factor of ten in some cases.
On Jan. 1, 2020, the International Maritime Organization’s IMO2020 ruling went into full effect requiring the use low sulfur fuels and strict emissions levels on all international vessels. Many were fitted with stack gas scrubber systems to remove offending greenhouse gasses and others found that cutting speed enabled them squeak under the wire of emission compliance. A large number of vessels had to be mothballed with no hope of compliance with the new environmental law. This has obviously been negatively impactful financially in many ways from the very limited supplies of low sulfur bunker C fuels to the impact of longer slower transit from port to port; and the quarantine restrictions of potentially infected crews all making voyages longer with ships at anchor in ports and not generating revenue. The container shipping debacle drove some shippers to use break-bulk for cargo further stressing the limited number of vessels, voyages, and ports of call. The value of container shipping is so high that for the first time Cape Class bulk only vessels are lashing containers on the decks and carrying up to 1000 containers per ship in addition to their bulk cargo. It is that lucrative. It’s really very bad and we’ve not yet seen the full impact of these disruptions in pricing. These problems will also impact all aspects of all industries with things like spare parts and repair parts for all forms of application equipment. Caveat emptor.
TRUCK SHIPPING
The shutdown of the Keystone pipeline project along with the loss of truck drivers in the US continues to drive freight and fuel costs skyward. The average price of diesel in the US was $3.34/gallon in the US in July 2021; an increase of $0.90/gallon over the previous year same time. Again, Coronavirus strangled our economy to a virtual standstill in 2020 and idled many trucks causing driver layoffs of nearly 30% overall as demand plunged. As the economy fights to return to normal, those drivers that lost their jobs either retired or found new jobs. Everywhere you look there are help wanted signs up for all levels of workers from laborers to qualified truck drivers with CDLs that include all the necessary endorsements for the equipment that they operate – air brakes, hazmat, etc. With these driver and truck shortages, the cost of transportation for products from the stockpile to your location have also skyrocketed. The trucking industry overall had been taking a beating on pricing from over-supply in the preceding decade and the situation in 2020 was the perfect storm to recover all of those lost costs and profits as they return to an under-supplied market in 2021. Like ocean shipping, trucking costs have spiraled up and availability has spiraled down further stressing the selling prices of everything including deicers.
SALT
There more than enough salt on the planet to manage the harshest winter that nature could throw at us. The problem is not the reserves of salt but the logistics of mining and delivery.
Earlier this year, Stone Canyon Industries, a Los Angeles-based holding company, acquired the assets of Morton Salt which brings their total ownership to six US-based salt companies. They quickly became the 600-pound gorilla with the Morton purchase. They are shrewd investors who also have acquired the assets of six rail service and related companies.
Whereas all salt products need to move to their respective market areas, rail is the second key in the logistics puzzle after ocean shipping. Mining operations are often disrupted by various unforeseen circumstances such as flooding and environmental impact, but for the most part domestic US salt mining is holding steady overall albeit increases in production costs as fuel and labor must increase to offset these costs.
Imported road salt from all sources have taken increases in their costs of moving it from their sources. Port congestion in all ports worldwide run up costs of parked ships, longer unloading delays, and demurrage costs.
LIQUIDS
One bright spot in the supply chain are liquid products. Innovative Surface Solutions in Glenmont, NY, have filled their former oil terminal tanks with huge inventories because they have the capacity and knowing prices are not decreasing, they took advantage of the slow periods in 2020 and early 2021 to bring in the largest inventories ever of calcium chloride liquid and magnesium chloride liquid. Natural well brines that contain mixtures of calcium, sodium, magnesium, and potassium chlorides and the use of salt brine have continued to gain market acceptance further enhancing that alternative option, however, be careful to avoid fracking brines which have been problematic with unwanted element contamination.
Compass Minerals liquid magnesium chloride facility in Salt Lake City are very close to being sold out as new markets in aerial firefighting and other uses have brought significant new demand.
Occidental Chemical’s Ludington, Mich., calcium chloride facility is running well and in balance. Co-product production of calcium chloride exists but is insignificant overall to the market. With the limited imported products from Asia and the Middle East, dry calcium chloride and magnesium chloride could become scarce very quickly if we have significant demand. Transportation will still be the Achilles’ heel of all commodities for pricing, but liquid deicer inventories are looking pretty solid at this point.
PRICE
You can see where I’m headed here. As I write this in mid-September, prices for all deicers are a moving target and not moving down. Many producers and suppliers have carefully approached their markets with “trial balloon” prices as they try to find the new baseline and normal. Additionally, many commercial and private companies are still awaiting the issuance of pricing for their needs and all producers are holding their cards close to the vest. In some areas, salt prices have increased by up to $20/ton or more for the coming season. Also, many may find that “fixed” seasonal prices are a thing of the past and until the logistics costs are settled, you may find bulk salt, calcium chloride, magnesium chloride, and blended products are increasing and no longer firm prices for the season. Add to that transportation increases and this is nearly impossible to predict where it will settle for the coming winter season. The one guarantee is that all deicing product prices are up and going up. Of that, there is no question. Now, the only issue is by how much.
WHAT TO EXPECT
The Farmer’s Almanac issued their 2021-22 winter forecast and are predicting a “winter whopper” for parts of the Northeast and Ohio Valley. The National Climatic Prediction Center of NOAA are not as alarming, but they are clear that it is a very complicated landscape for predictions. They see a 70 percent chance of a La Nina returning between November and January which would suggest warm and dry through the South, but nothing is cast in stone with weather predictions as we’ve all seen and know. A dartboard and blindfold may have as much accuracy as any forecasting model at this point in my humble opinion. A busy hurricane season of late also might suggest wet patterns that move up the East Coast. Will the cold be there to create winter conditions? Who knows?WHAT TO DO
I think that the best solutions are shared risk; your customers have to accept more risk in holding inventory and sharing in the costs of that if they demand a high level of snow and ice management.
The entire market is at the mercy of the weather and the supply chain, and this is no longer a buyer’s market for all deicing materials. The disruption in supply from ocean shipping will severely limit the inventories of premium deicers from overseas.
My advice, take your best guesstimate on what you will need this coming winter and buy as much as possible now and get it under your control. If we do happen to get into a robust winter condition, it will quickly deplete inventories and the problems in all forms of logistics and vessel availability will further pinch the supply side for any quick reactions or reloads.
Winter has been coming later in the recent years and that is not good for suppliers as they have to take gambles late in the season on bringing in more inventory and holding it if late season demand doesn’t develop. The perfect world on the supply side is an empty stockpile at the conclusion of the winter season.
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