In an ever-changing world we find less and less anchors and certainties. In the recent past, people and businesses tend to follow trends and plan their path and future supply chains in line with these expectations.
Trend-watchers supported us with new developments and innovations along the route but, all in all, we stayed on the projected path forward.
With the spread of the Covid-19 pandemic, that comfortable feeling of knowing where we are heading was brutally stopped. Our supply chain management strategies were merely based on reliability, sustainability and optimised costs. That was the trend for quite some time. Of course, also trends in supply chain management are not carved in stone, but it gave us at least a way to go and we had the feeling that we were in control.
Today, managing any supply chain becomes a real challenge. Trends are falsified by day-to-day practice with an ever-increasing pace. It seems as though supply chains are far less predictable and it is complicated to manage your in/outbound flows. The same can be said of our CO2 supply chains across the world. For example, in the middle of September 2021 CF Industries announced it would stop operations at both of its UK sites – facilities that are crucial for the supply of CO2 within the UK market. The company added that it did not know when production would resume, though it has since been supported in resuming some activities.
Immediately, the CO2 consuming industries became alarmed. The beverage industry, slaughterhouses and nuclear plants found themselves confronted with huge challenges to safeguard production.
The UK-case is just an example of how a supply chain can be suddenly disrupted. Since the onset of Covid-19, supply chains are on the move; sometimes gentle, but often violent and not always with a planned outcome.
The Netherlands-based organisation, European Supply Chain Foundation, stated at its forum on 30th September that we will see more often a reversion of supply chains. For example, we will see more regionalisation of global supply chains. Another reverse movement we will see is the adage from just-in-time to just-in-case. It was the accepted supply chain strategy in the past decades to receive the goods just-in-time in order to produce at the most economical level. The purpose of the just-in-case methodology is to provide relief and extra buffer in case we are surprised by sudden supply chain disruptions – but it can be an expensive method and creates fragmented and nervous demands.
These supply chains on the move, combined with increased economic growth, have the resulting effect of skyrocketing sea freight prices, a lack of space on vessels, driver shortages, and increasing energy rates. We need to take action to stay in control. Is more stock an option? Do we want to go back to just-in-case supply chains? Probably not, in both instances. We need to look for a new mix of solutions in a world where a trend of today is surpassed tomorrow. We need a flexible and hybrid model in a world where unpredictability is the only fact we can count on.
In the CO2 industry, we are confronted in Europe this year with many crises; from the UK to Russia and from the South of Spain to Germany. We have seen shortages everywhere. According to a recent article in the Financial Times, we can expect future shutdowns of fertiliser plants if energy prices stay at these high levels. I know this is something gasworld has alluded to, if not questioned, too.
The recent reopening of one fertiliser plant in the UK was only because the UK government intervened and found an agreement with CF Industries. But how long will that last? Again, I know this is a question gasworld had itself posed. I believe the only honest answer is that we do not know.
In these crises, the air gas industries try to deliver their key CO2 customers first, but next to the sourcing problem they bump into a lack of transport capacity as well. In this period of economic growth, especially after the relaxing of Covid measures in large parts of the world, (consumer) demand is increasing. Increased demand and reduced supply naturally make supply chains longer and ask for more transport capacity. The distances are longer, and the hurdles are higher. Think about the huge congestion of railheads and ports and the increased customs procedures to and from the UK. Today, the market is in short supply of CO2 trailers and containers. This gives once more an extra challenge to the deliver the CO2 in time or even at all.
In past months, the demands for CO2 equipment came in every day at Den Hartogh. Large CO2 customers that normally have end-to-end contracts with CO2 suppliers, now ask logistics companies for direct support. In most cases with disappointing results, because the capacity is already fully occupied. So, what to do?
Lessons not learned?
In 2018 I wrote an article in the December edition of gasworld magazine, after the big CO2 crisis of that summer. The root causes of that specific CO2 supply crisis were different, but the disruptions were the same.
A lot of CO2 users I noticed at that time had end-to-end supply deals with the CO2 suppliers and they relied fully on that. Customers expect the suppliers to find other sources to safeguard their production processes. But what happens if the supplier does not have an alternative? We concluded that a plan B was often lacking at suppliers and receivers alike, and that a decent contingency plan could help to cope with future disruptions. After a crisis people start looking for back-up plans, but as soon as things are up and running again, it is business as usual – and we tend to move on and forget.
In the years directly after 2018, the attention for contingency planning increased. Some suppliers and end-users considered to have supply guarantee programmes in place; but slowly the focus on contingency planning faded away again.
In the past years the supply of CO2 in Europe was relatively under control. Certainly, there were ups and downs and we have seen some hectic moments in 2018 and 2019. During 2020 the demand was limited, and we faced less supply issues. In 2021 the heat is on and the contingency discussion is back on boardroom tables.
A contingency plan for CO2 supply can consist of a strategic stock close to the production sites or can consist of hub locations from where back-up supply can be arranged. These back-up scenarios can be realised in advance if a supply constraint is known upfront. Think about planned maintenance stops or holiday/seasonal shutdowns. Normally there is enough time to prepare. However, we are more often faced with unexpected disruptions. In that case we need to be prepared for the unexpected event where we can’t rely any longer on the end-to-end agreements. If companies, try to find last minute supply and capacity, they often find themselves in the same bleak situation, crowded by others and mostly the answer is negative.
Den Hartogh has in recent years set up contingency and strategic stock planning with suppliers, bottling facilities, and glass producing companies for safety stocks in both CO2 and oxygen. These companies now take full advantage of the fact that they are prepared. We provide flexible equipment and driver capacity, and we can load and deliver at almost any location within the agreed timeframes. This secures production continuation and controls cost.
In the coming years we continue to plan along the lines of the good old end-to-end contracts. These models still provide a secure supply most of the time. However, we also know now with certainty, one day they will break and back-up will be needed. Let’s ensure we learn the lessons this time.