INSIGHT: US supply-chain woes raise prospects for logistics reforms

HOUSTON (ICIS)–The coronavirus pandemic has injected a new sense of urgency to update US regulations covering railroads, trucking and maritime shipping, increasing the likelihood that policy makers could adopt reforms for decades-old provisions.

• Problems predate pandemic
• Challenges cover maritime, rail, truck
• Urgency increases likelihood of reforms

Problems with supply chains were cited by several chemical companies in their fourth-quarter earnings reports and guidance. They expected the problems will persist during the first months of 2022.

The logistical challenges are preventing companies from meeting demand. US-based paints and coatings producer PPG ended 2021 with an order backlog that exceeded $150m.

Unlike the previous economic recovery, demand has not been the factor limiting growth. Instead, the limiting factor has been supply constraints, which have been worsened by long-standing problems with US freight.

An update on US regulations governing trucks, rail and maritime shipping could remove some of those constraints, making it easier for chemical companies to meet demand and for the US economy to grow without inflation getting too hot.

The American Chemistry Council (ACC) is working with other trade groups to push through updates to US regulations that it said would relieve some of the constraints on logistics.

It is promoting a bipartisan bill that would increase the gross vehicle weight for commercial trucks on federal highways, updating the limit that has existed since 1982.

The ACC is among several groups supporting the bipartisan Ocean Shipping Reform Act, which would mark the first overhaul of maritime shipping since 1998.

The ACC also wants the nation’s main railroad regulator to allow customers like chemical companies to request reciprocal switching. Under reciprocal shipping, one railroad company handles a customer’s cargo on behalf of another railroad company.

NEED FOR LOGISTICS REFORMS
Many of the logistical problems predate the pandemic.

In 2018, a logistics CEO warned about a shortage of drivers in the trucking industry.

Before the coronavirus, the port of Houston had a shortage of containers.

The rapid expansion of petrochemical capacity in the US added more pressure to the nation’s highways, railroads and ports. They successfully were handling the additional output for the most part, but that was before the coronavirus.

The pandemic worsened all of these problems and created some new ones.

Among 67 chemical companies that the ACC surveyed in November and December, nearly all of them said that problems with supply chains and freight transportation disrupted their operations.

Among the highlights of the survey:

– Nearly a quarter reported costs of $100,000-$250m resulting from disruptions in supply chains and freight transportation, while a third reported costs exceeding $20m.

– More than one-third experienced or declared force majeure because of problems with supply chains and freight transportation.

– Nearly half reported port delays of 4-6 weeks. Inland shipping took an additional six days on average.

– Rail shipments took an average of eight days longer.

– Companies reported an average trucking delay of 7.9 days.

Amid these challenges, the US petrochemical will continue to grow, which will place more demands on the nation’s infrastructure.

Shell’s new cracker and polyethylene (PE) complex in Pennsylvania is set to come online around the middle of 2022. The new Bayport Polymers PE plant is also expected to come online around the middle of 2022. Bayport Polymers is a joint venture between Total and Borealis.

In addition, NOVA is expected to start-up a new PE plant at its Sarnia, Ontario complex during the second half of 2022. Although this plant is in Canada, the US is an important market for NOVA’s plastics.

By 2030, there will be an additional 1m shipments/year for the chemical industry, according to the ACC.

“That is why we are very focused on transportation issues and trying to work with policy makers to come up with solutions,” said Scott Jensen, ACC spokesman.

TRUCK PROPOSALS
For trucking, the ACC supports the adoption of a 10-state pilot programme that would allow 6-axle trucks weighing 91,000 lb (41 tonnes) on federal interstate highways. Right now, the limit is 80,000 lb, although individual states allow heavier trucks on portions of their roads.

The US last changed the gross vehicle weight limit in 1982, according to the Safer Hauling and Infrastructure Protection (SHIP) Coalition, a group including the ACC and more than 80 trade groups, manufacturers and agriculture companies.

The various exemptions granted by the states cause truckers to choose less efficient routes so they can avoid federal interstate highways and their weight limits. Plus, the US weight limit falls well below those for the Canadian provinces and Mexico.

Proposals to increase the weight of US trucks have failed over the years. The American Association of Railroads (AAR) has warned about greater wear-and-tear on roads and traffic congestion, all points contested by the SHIP Coalition.

While the two sides debate weight limits on trucks, the US has taken other steps that could remove the bottlenecks in trucking.

The infrastructure package of 2021 lowers the age at which people can get commercial drivers licence, Jensen said. The lower age should attract more people to the trucking industry before they choose different career paths.

MARITIME OVERHAUL
The ACC is calling on Congress to pass the Ocean Shipping Reform Act of 2021, a bill sponsored by US Representatives Dusty Johnson (Republican-South Dakota) and John Garamendi (Democrat-California).

The bill would shift the burden of proof on detention or demurrage charges from the invoiced party to the ocean carrier. These fees would also have to comply with federal regulations.

The bill also expands the oversight of the Federal Maritime Commission (FMC), allowing them to address unfair contracting practices from ocean carriers.

The last time that Congress overhauled the FMC’s authority to regulate global shippers was under the Ocean Shipping Reform Act of 1998, Representatives Johnson and Garamendi said in a statement.

The bill passed the House of Representatives and has been received in the Senate.

RECIPROCAL SWITCHING ON RAIL
Another area the ACC is addressing is reciprocal switching, Jensen said.

Railroads negotiate reciprocal switching agreements with each other on a case-by-case basis.

The ACC would like shippers to have the ability to make that request, Jensen said.

The new administration of President Joe Biden has indicated openness to revisiting reciprocal switching. He mentioned it in his executive order from July 2021 that covered competition.

In March, a proposal about reciprocal switching could reach the Surface Transportation Board, the main regulatory agency that oversees the railroad industry.

The US would not be the first country that allows the practice. Canada has had a version of reciprocal switching for years, Jensen said. “It is important to note that they have been able to operate under those rules quite well and have thrived.”

AAR – which describes reciprocal switching as forced access – has warned that such operations are complicated, costly and time-consuming.

“Reciprocal switching is not usually the most efficient way for railroads to provide service,” the AAR said in a video explaining the steps involved in the operation.

With that, the AAR said the Surface Transportation Board should avoid new regulations about reciprocal switching. The AAR said new rules could discourage investments, degrade the health of the railroad network and make it less efficient.

Instead, the AAR said the board should keep its current standard. Under it, the board can order switching only after it finds that the railroad company is engaging in uncompetitive conduct.

Additional reporting by Zachary Moore

Thumbnail shows a railroad. Image by Shutterstock

By Al Greenwood