A variety of factors drives the specialty chemical market and chemical industry as a whole. Material availability, price fluctuations, geopolitical issues on a local and global scale and more, all contribute to cost changes, either for or against profitability. However, all potential hiccups to a production timeline are at the mercy of the transportation & logistics industry, one that accounts for 10 cents of every dollar in the U.S. economy (Donald Broughton / MSN).

The first half of 2018 saw unprecedented changes across the logistics industry. The average age of truck drivers continues to sit around the age of retirement, approximately 65 years old, an age that continues to skew older as ELD mandates are fully enacted, and today’s millennials choose not to enter the logistics marketplace. This tightness is clearly reflected in the rising cost of dry van trucking, raising the spot price from $1.41 in 2014 to $1.85 per mile in 2018 (MSN).

As of April 1, 2018, ELD Mandates proposed and enacted by the Federal Motor Carrier Safety Administration (FMCSA) officially went into effect, meaning drivers found out of compliance may be ticketed, and placed out of service until their trucks comply. Acutely opposed to significant industry changes, many older drivers have chosen to retire or find other work rather than submit to a new way of working, an issue that continues to push drivers out of the market faster than they are coming in.

Unforeseen and unprecedented shortages of OTR (over-the-road) freight options has pushed capacity onto railroad transportation, a medium that saw 6.5% growth in March 2018 compared to the same period in 2017. While railroad may be a savior for particular products or transportation lanes, it is a slower mode of transport, and often requires much further advanced planning and processing, which some shippers aren’t able to provide.

Nearly all goods manufactured, produced and/or sold in the United States are aboard a truck or rail car at some point in their lifespans, whether as early-on raw materials or as last steps before reaching end consumers. In many situations, and especially in the specialty chemical market, goods are moved multiple times as they go from raw materials to usable pieces or portions of final, consumer-ready products.

No industry or product category is exempt from these assumptions, whether it is produce, children’s toys, technology, agricultural or farming product or quite literally, anything else one might see in a shopping mall, industry wholesaler, or grocery store.

A comment from Donald Broughton of Broughton Capital published in a recent report on MSN stated, “Logistics and transportation account for almost 10 cents of every dollar in the U.S. economy. If there is a 10 percent increase in transportation costs, that gives you a 1 percent increase in inflation for the broader economy. That’s real.”

The logistics market is accustomed to tightening and easing market conditions like weather, seasons, seasonal product demand, and available truckers fluctuate. The current major issues in today’s freight market, however, don’t appear to be tightening market conditions. The market seems to be entering the new norm of the logistics industry for what will likely be years to come.

References
www.MSN.com

Trade relations between the US and China improved this weekend.

The Trump administration made meaningful actions to put the looming trade war with China on hold after Treasury Secretary Steven T. Mnuchin said they would refrain from implementing significant tariffs on various Chinese goods.

In a joint statement on May 19, China agreed to purchase increased amounts of U.S. goods, including agriculture, energy, and manufactured goods. However, China has not formally released a quantitative figure committing to the amount they will purchase, and when.

The announcement comes after President Trump announced tariffs of $150 billion on Chinese goods, including an initial $50 billion set to take effect in the coming weeks. China retaliated with tariffs of an equal scale, all of which has been in stalemate and a state of uncertainty over the past month.

The U.S. – China trade deficit reached $337 billion last year, by far the largest of any country.

These announcements come through a mix of the joint statement, statements by Treasury Secretary Mnuchin, and President Trump’s personal Twitter account.

President Trump is scheduled to meet with North Korean ruler Kim Jong Un in Singapore in early June, and the trade talks with China may be a precursor to assistance soliciting North Korea to give up their nuclear arsenal.

It is unforeseen and unpredictable what may happen with the U.S. and China trade relationship, and tariffs may likely not be entirely off the table. However, the recent news and announcements appear to be a sign toward deescalating potential trade war concerns and economic stability between nations.

Resources:

http://www.latimes.com/business/la-fi-china-us-trade-war-on-hold-20180520-story.html
https://www.cbsnews.com/news/trump-says-barriers-and-tariffs-with-china-are-coming-down/

China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!

— Donald J. Trump (@realDonaldTrump) May 21, 2018

https://abcnews.go.com/Politics/wireStory/us-china-beijing-commits-buying-american-goods-55297175

In early January 2018, oil prices hit their highest levels in more than three years. “U.S. crude oil inventories are at their lowest level since August 2015. OPEC is getting closer to its target of reducing OECD industrial stocks to the five-year average,” says PVM Oil Associates analyst Tamas Varga.

Data from the U.S. Energy Information Administration showed that crude inventories fell by almost 5 million barrels to 419.5 million barrels in the week of January 5, 2018. This drop is likely due to the extreme cold weather that stopped some onshore output in North America, which was expected to be short-lived. Production cuts led by OPEC and Russia that started in January 2017, and are set to continue throughout 2018, have underpinned charges. There is still downward pressure in the physical market, where the second and third largest OPEC producers have cut their prices to remain competitive.

The oil price decline that began mid-2014, when the price of oil was consistently over $110/bbl, has changed the fundamental economics of the global chemicals industry, and has brought about widespread uncertainty. Additional supply from North American shale oil and continued high production levels from OPEC are likely to make a slow but steady recovery.

Nonetheless, prices will need to recover over time to permit investment in production and exploration. Over the past ten years, oil prices have gone through at least two complete cycles, and more significant swings are likely to happen. During this time of ever-changing prices, setting short and mid-term plans will continue to be necessary.

Oil is one of the key ingredients in the manufacture of various chemicals and related products. Consequently, many chemical firms benefit from lower crude oil prices. However, companies using natural gas as opposed to oil for their feedstock do not enjoy those benefits, resulting in the cost of natural gas affecting chemical firms more than the price of oil in those cases.

Additionally, a substantial decline in crude oil prices would impact the market in other ways. It makes the economics of petroleum substitutes a great deal less attractive, including bio-based and battery chemicals. This issue is causing companies, from global powerhouses to niche firms, to reevaluate their strategies.

Sources:
https://www.cnbc.com/2018/01/10/oil-markets-near-3-year-highs-on-tighter-us-market.html
https://www.icis.com/resources/news/2018/04/10/10210537/us-on-pace-for-record-oil-natgas-production-in-2018/