By George R. Pilcher, The ChemQuest Group and The ChemQuest Technology Institute

If you are a raw material supplier, you probably don’t need me to tell you that Khaos (“Chaos”), the first of the Primeval Greek Gods, reigns around the world at the present time. As of the end of February 2021, the entire supply chain is a mess:

  • Titanium dioxide is difficult-to-impossible to obtain from China.
  • Raw materials that have historically had lead times that ranged from just-in-time to two–three weeks for imports have increased to multiple weeks for domestic materials and three–four months for many imported materials.
  • Production for virtually everything cannot keep up with demand.
  • Shipping costs doubled and, in some cases, tripled.
  • The great American seaports such as Los Angeles, Long Beach, New York/New Jersey, Savannah, and Seattle are being taxed beyond their capabilities—ships are waiting weeks to be unloaded.
  • When ships are finally unloaded, the lack of gate appointments on the docks for trucking companies to load goods and transfer them to other parts of the country creates even more delays moving goods from the seaports to the interior of the country.
  • Even when trucking companies can obtain gate appointments, and goods are finally ready to be loaded for land transport, there are insufficient trucks (especially tankers) and drivers to handle the volume of goods.
  • S. Consumer spending created a very significant increase in demand for imported goods—January 2021 marked the sixth month of year-over-year increases, with no end in sight.
  • At the same time, U.S. exports declined for 25 of the previous 27 months, creating, in the words of Port of Los Angeles Executive Director Gene Seroka, “one-way trade, which has created challenges for the entire supply chain.”1
  • The cost of lumber, a major component of the booming U.S. residential housing industry, rose 180% during the 10-month period from April 17, 2020, to February 25, 2021. Per the National Association of Home Builders (NAHB), this added $24,000 to the cost of an average new single-family home.2
  • Lead times for lumber went from two weeks or less pre-pandemic, to 12 weeks in mid-February, and the situation did not suggest an early resolution.
  • On Monday, February 15, temperatures dropped as low as -17 °C (0 °F) in Midland, Texas, and production across the Permian Basin dropped by an average of more than 2 million barrels/day during the next three days—a significant dip in average, anticipated production.3
  • Predictions were that, with rising temperatures, petrochemical facilities on the Gulf Coast would be up and running in mid-March. That’s the good news. The bad news is that the few weeks needed to get the oil and gas wells back to normal production will translate into many, many weeks getting downstream chemical products back to their pre-freeze levels.
  • Raw material price increases for a basket of paint and coatings components appeared to be increasing by 2–5% in January 2021, but by mid-February price increases, in the range of 5–9% and often higher, were flooding the offices of coatings manufacturers’ purchasing departments.
  • Also flooding these same offices, between mid- and late-February, were force majeure notifications on a broad variety of raw materials, the majority of which were sourced from the Gulf Coast.
  • After a strong start of $64/bbl in January 2020, West Texas Intermediate (WTI), plummeted to -$37/bbl (not a typo) in April, then averaged roughly $40/bbl for the remainder of the year. After hearing most the globe’s most illustrious economic prognosticators confidently declare, as recently as Q3 of 2020, that the price of WTI would average roughly $35/bbl in 2020 and $40/bbl in 2021, we were sitting in February 2021 with the price of WTI climbing from $54/bbl on February 1 to $64/bbl on February 25, before slipping down to $62/bbl on February 28. The projections for WTI from the U.S. Energy Information Administration (EIA) on February 9 indicated an anticipated average price during 2021 of $53/bbl. Clearly, the future price of crude is an open question, with multiple—and varied—implications for the future.4

None of this news is good, and most of the problems are being blamed on some combination of COVID-19, the “Great Freeze of 2021,” and increasing consumer demand. To an extent, it is reasonable to lay the current problems at the feet of these three sources of disruption, but I would posit that all three of these sources of shortages, compounded with late deliveries; force majeure declarations; the sharp and rapid increases in the price of raw materials; the resultant price increases in finished products, such as paints, coatings, varnishes, stains et al., have merely decreased the timeframe in which our current problems manifested themselves, rather than caused them.

The handwriting has been on the wall for quite some time. Erratic oil prices during the period 2014–20204; rising consumer demand during this same period of time5; historically low mortgage rates6, which have fallen steadily from a high in 16+% in 1981 to ~2.5% in early 2021, before rising to ~3% in early March, fueling a major residential housing boom; serious problems, during the past decade, with insufficient personnel and equipment in the trucking sector, that is galloping into the current decade with a vengeance7; an extremely high savings rate; high consumer confidence; and the list goes on, have all been acting, over the past several years, on the economy to bring us to the point where we are today.

There is no point blaming COVID-19, the Gulf Freeze, or any other factor or set of factors. The problem is that U.S. industry, in general, and the paint and coatings industry, specifically, have failed to build resilience into their supply chains, and are now paying the price for their negligence. The United States is now putting an additional $1.9 trillion in new stimulus funds into circulation at a time when many experts feel that we are on cusp of a consumer boom, and this will only exacerbate the situation for the most prepared of all manufacturers and potentially wreak havoc on less-prepared producers of raw materials and finished goods, who have failed to build sufficient resilience into their supply chain philosophies and practices.