To take only a single aspect of the current “deportation of illegal aliens” dialogue as an example, deporting children of illegal immigrants born on U.S. soil (“Dreamers”) would deplete the U.S. workforce of ~300,000 future U.S. workers at a time when the U.S. is at full employment (i.e., unemployment was at 4.3% as of the end of August). Losing this many workers would create a future disaster. Where, exactly, will the workers come from to fill the void? The U.S. birth rate is below replacement rate, so future workers essential to maintain GDP will not come from within the borders of the United States. Period.

Deporting 7MM? 9MM? 11MM? (pick a number) of illegal immigrants will affect the following areas in which ways and to what degree?

› Seasonal harvesting — the U.S. is currently experiencing a significant shortage of career and seasonal farm workers
› Seasonal farmworkers aging out — resulting in higher prices to consumers and putting some farms out of business
› Migrant workers are not illegal immigrants nor are they deadbeats — they are mandatory for maintaining a healthy economy, both now and into the future.
› Illegal immigrants are not automatically criminals, other than for committing the crime of crossing the border without permission — the clear majority of “illegal immigrants” have no criminal records.
› In fact, according to the Department of Homeland Security, of the 11 million undocumented immigrants in the U.S., only 3% are convicted felons, and an additional 4% have non-felony convictions.
› Per the University of Georgia, of the 341 million U.S. citizens, 8% are convicted felons and 20% have non-felony convictions.
› The world’s largest economy is coming precipitously close to doing what the Germans call, “Das Kind mit dem Bade ausschütten” — “throwing the baby out with the bathwater.”

Politics – selected global geopolitical concerns

› Changes in supply – typical example:
› China used to produce copper phthalocyanine pigments for finishing in India.
› China is now able to manage the entire Cu/phthalo supply chain internally, from basic reactions to drying and finishing.

› Concerns about trade route security/stability:
› Houthis in the Red Sea
› Potential blockading of the Strait of Hormuz by Iran
› Possible American interference in Panama
› Importance of GIUK (Greenland, Iceland, United Kingdom) Gap? Real? Perceived? Military only? Maritime only? Both military and maritime?
› Concerns about Hong-Kong-based operation of ports at either end of the Panama Canal

› Implications of Russia/Ukraine War
› Negotiated settlement
› Enforced settlement
› Continued warfare — including the role of North Korean military personnel and Chinese munitions?

› Increasing dissatisfaction with China by both the U.S. and EU
› Tariff issues
› Concerns over Taiwan
› Support, albeit minimal, for the Russians in the War Against Ukraine

› Belt and Road Initiative (BRI)
– Silk Road Economic Belt
– 21st Century Maritime Silk Road
– Polar Silk Road
– Other components of BRI

– Degenerating diplomatic relationships — we are in a “Geopolitical Recession,” which is characterized by Borge Brende, president of The World Economic Forum, by global fragmentation and polarization, leading to less cooperation and more competition than in the past.

– Supply concerns — China produces:
• 42% of all epoxy resin
• 44% of all chemicals
• 50% of the world’s steel
• 70% of all rare earth ore
• 90% of all refined rare earth metals

TIMELESS LESSONS LEARNED FROM THE GREAT SUPPLY CHAIN CRISIS OF 2020–2022

The lessons the world learned following The Great Supply Chain Crisis will continue to be of great value as geopolitical, economic, and other challenges impact the supply chain. Specialty chemicals companies should particularly remain cognizant of issues related to raw material supply, logistics, customers, and research and development.

Raw material supply

Every raw material used to make paint and coatings – as well as all other formulated specialty chemicals in other areas, such as adhesives; lubricants; household, industrial, and institutional cleaners (HI&I); sealants; plastics; and elastomers – should have at least one reliable vendor in either the country or the region that either makes the material in that country or region or has significant stocking capacity thereof. Within the broader supply chain, raw materials that are single-sourced are accidents waiting to happen. Whenever possible, it is best to have alternate raw materials (and alternate suppliers) approved for every raw material that is used in routine production. Every formulating producer should have multiple suppliers whenever possible (at least 2–3), so that it has a purchasing record with companies other than its primary supplier. Violation of this rule should be tolerated only due to the absence of a second source.

Logistics

Possibly the most devastating aspect of The Great Supply Chain Crisis was the inability to ship and receive goods, even when there was supply and orders could be filled. Containers were often in ports where they could not be easily retrieved, and panic orders were so high that there would have been insufficient containers to carry the goods, even if they had been in more convenient locations. Container ships were anchored and moored at sea and stacked up at ports where there was insufficient manpower to unload them and too few trucks to provide intermodal transportation from the docks to the final destination. Shipping costs rose dramatically, and the entire global trading community had to sit helplessly by, because so little could be done to rectify the situation in anything approaching real time. While transportation costs came down post-crisis, they have never returned to pre-crisis levels.

The message here is both easy to visualize and difficult to achieve: Availability of raw materials is of little value if they cannot be transported to the facility that will turn them into saleable formulated products. Manufacturers absolutely must be building reliable logistics capability now, and pressure testing it in real time to make sure that when the next supply chain crisis strikes, they have maximum ability to transport materials from the source to their production facilities.

Customers

Both raw material suppliers and their customers, whether they are producing paints and coatings, adhesives, lubricants, household cleaners, or anything else in the specialty chemicals value chain, rate their customers and suppliers (officially or unofficially) on an “A,” “B,” “C,” scale:

› “A” customers — Participate in genuine partnerships; purchases made on overall value, not lowest price; loyalty; fair payment terms; on-time delivery; overall quality; quality of technical service; quality of sales service; significant history of working together, clear establishment of trust; etc.

› “C” customers — Chase every penny down the rabbit hole; consolidate purchases with minimum number of products to obtain pricing; indulge in hoarding behaviour; treat R/M suppliers as if they were loan officers at banks; are guilty of poor forecasting; have excessive “RUSH” orders; refuse to pay small-batch upcharges; etc.

› “B” customers — Mixtures of “A” and “C” characteristics. What does it take to turn a B customer into an A customer? How about turning a B customer into a C customer? When are these changes most likely to happen?

In a stable business environment, it is possible to have an “A-B-C” classification without the need to actually invoke it. Business is good, orders are heavy, time is limited – so little thought is given to the overall effect that different raw material suppliers and customers are having on your bottom line, much less on your supply chain.

During hard times, however, it is important to make sure that those suppliers and customers that enable you to realize the highest value for your business are absolutely the focus of your attention. If you are a resin producer with only a single tank wagon of a resin that six of your customers are begging for, and one of them is a small but growing “A” customer and another is a very large but excessively demanding “C” customer, give some serious thought to rewarding the small “A” customer. You are likely to find that your action will be rewarded many times over.

Research & development

Any raw material supplier or producer of formulated products is in a technology market space, and it is incumbent upon them to keep a clear focus on this fact. The development of new and significantly improved products is the lifeblood of any producer’s efforts to enhance its market share in the specialty chemical industries. Absolutely nothing should prevent at least a minimum amount of true R&D from taking place, even during the darkest hours when all hands are on deck trying to put out fires. Coatings is a technology-based, global industry — those with a strategy focused on the continual development of new and improved products will be the winners.

Closing thoughts

There is a desperate need in paints, coatings, and other formulating industries to learn from the past, including from the recent, post-Covid past. When it comes to being prepared for geopolitical shifts that might affect global supply chains, developing resilient and transparent supply chains is of primary importance. This is closely followed by building a geopolitical view from the perspective of your own company. It doesn’t require additional computation power or fancy systems, but it does require that everyone within the specialty chemical value chain who either produces raw materials or final formulated products, become more familiar with what’s going on in the world and how it might affect them. Being prepared for a variety of events that could occur is the only way in which anyone can be protected from those that DO occur. Become informed about your supply chain — those who purchase a mixed metal oxide pigment containing cobalt should at the very least know what is happening in the cobalt mines in the Democratic Republic of Congo. This is not an unreasonable step to take — if you need a cobalt-based coloured inorganic calcined pigment (CICP) in your paint products, you will need this knowledge to protect your supply. Enhance your organization’s ability to sense and respond to changing geopolitical landscapes — encourage the appropriate parties in your organizations to read publications such as The Economist; Financial Times; and The Wall Street Journal. Never view the time spent studying these publications as “wasted” or “down” time – we live in a new age, and it requires that we be knowledgeable about different issues that may have been of significantly less importance in the past.

Along with these actions, provide whatever in-house or outside training is necessary to strengthen decision-making processes to remain agile and to enable your company to embed geopolitical scenarios and analysis into capital allocation decisions and strategic planning exercises. Make a concerted effort to expand your presence in growth markets – what was once a “hope for the future” should now be considered to be “what is needed right now.” Above all, embrace smart nearshoring, friendshoring, and reshoring. These are not merely slogans designed to get industry participants excited about changing the future – they are the means by which industry participants will be able to change the future.

While recognizing that not every company can invest in regional differentiation, there are, nonetheless, many raw material and finished product producers that could, if they wished to do so. In our current geopolitical climate, it is better to try and fail, than not to try at all. Most companies are capable of doing far more than they give themselves credit for, so challenge those items that the organization is sure that it cannot do – and, when in doubt, give the author a call at The Chem Quest Group. We’ve spent the past 49 years helping members in the specialty chemical chain do things that they never dreamed were possible.

Bottom Line

As global trade fragments and regionalization accelerates, organizations will need to adopt differentiated structures and technology stacks – a one-size-fits-all approach will no longer suffice. Neither does it make sense to do everything on your own, when help is available. We should try not to think in terms of “inside help” and “outside help.” This is a misleading differentiation that has prevented many, many organizations within the specialty chemicals value chain from realizing their full potential. Now is not the time to “do it yourself.”

In the changing world in which we live, in-house assets are increasingly challenged, and strategic product development must either involve the expansion of current R&D staff or the use of outside know-how and expertise to augment internal efforts. Fortunately, it is both possible and profitable to take this latter approach. Independent third-party individual knowledge experts, strategic consulting firms, and technology organizations are able to bring extensive knowledge in multiple fields of specialty chemicals to bear on the advancement and cross-fertilization of technology at both raw material suppliers and coatings producers.

We are poised upon the threshold of a “Brave New World” of sorts, and it is time to step over the threshold, reconsider how we perform R&D, and enter into the future of the global coatings industry with appropriate strategy and technology to prepare us to overcome the stumbling blocks of global geopolitics and flourish in the future.

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