Need to Know

As most industry players are aware, the deep cuts in lubricant supply during the past two years have primarily been due to disruptions in the supply of lubricant additives.  Some additive manufacturers—Lubrizol in particular—struggled more than others to keep pace with demand.  With that, there was increased demand placed on other additive suppliers to meet the needs of existing customers and those of new customers who couldn’t get product from their usual suppliers. Consequently, shortages became contagious.  

While there are many reasons for the additive supply crunch, most can be attributed to cascading events caused by the pandemic, which pulled the rug from under additive manufacturers in several ways. First, lockdowns at the start of the pandemic resulted in refineries slashing crude runs in response to the sharp drop in global demand for fuel. This resulted in constrained supply of many raw materials used as precursors to manufacture additives.  Some refineries also took advantage of the downturn to conduct maintenance, which further cut into raw material supply.  

In addition to a sharp reduction in crude runs, lockdowns created staffing issues and disrupted ocean and land freight. This further hobbled the ability of additive suppliers to move raw materials. 

If this wasn’t enough to fracture links in the supply chain, a staggering number of force majeures were declared at various refineries, chemical plants and other manufacturing facilities when a winter storm hit the Gulf Coast in Feb. 2021. 

Other disruptions include a fire in June 2021 that destroyed Lubrizol’s Chemtool grease manufacturing facility, one of the world’s largest container vessels halting maritime traffic through the Suez Canal in March 2021, Union Pacific and BNSF reducing the number of railcars in their networks to ease congestion, a category 4 hurricane disrupting freight movements when it slammed the Gulf Coast in Aug. 2021, and the ongoing truck driver shortage. 

 It’s little wonder why additive supply plummeted when demand for lubricants rapidly rebounded after the initial shock wave of COVID passed. But as challenging and disruptive as it’s been, additive supply appears to be catching up now. Although there are still shortages of some additives and finished lubricants, marketers say there are fewer. They are once again starting to fill their bulk tanks as well as their customers’. 

While the bulk tanks at most accounts sat at about 40%-60% of capacity for nearly two years due to allocations, there is enough product now in the pipelines to start working back to what marketers say was the pre-pandemic average of about 85%. Unlike the supply and demand chaos during the past couple years, marketers say the good news is that the pathway to building back inventories is becoming more predictable, reliable and measured. 

What has been learned from these tumultuous times and what can change as a result? 

Many lubricant marketers say the most important lesson is having plans in place to address supply line interruptions, recognizing when they are in the making, and having the discipline and support necessary to execute them. Such plans must afford flexibility and creativity as conditions change or plans don’t pan out as expected.  To be successful, plans require a high level of collaboration between channel partners, transparent and timely communications with suppliers and customers, and technology platforms that provide accurate, real-time data, analytics and intelligence. 

Many marketers and blenders say they also learned a hard lesson about the risks of single sourcing supply. If you rely on one supplier for product, it’s critical to understand and consider the supplier’s resilience. To the extent possible, it’s important to broaden the supply base to best manage risks. Many found this to be a tough road to hoe since alternative suppliers may also be facing challenges and working hard to meet the needs of their existing customers before welcoming new business. 

Although lubricant marketers say it’s tempting to take on new business when it comes knocking, it’s important to take care of existing customers before taking a risk with new business. Such business might not be sustainable and could compromise a marketer’s ability to service loyal customers. While this may seem obvious, marketers say it’s easier said than done. It requires a defined customer management strategy and the discipline to avoid being overwhelmed by conflicting priorities and ephemeral sales opportunities. 

Other lessons learned include the value of safety buffers in an environment where lean inventories and just-in-time delivery practices are commonplace, adhering to allocations and listening to suppliers’ guidance, and frequent and candid internal and external communications. The industry is still learning what it costs to get customers back when they switch suppliers due to supply line interruptions. 

The pandemic and other events laid bare vulnerabilities in lubricant supply chain and the damage that can be done when the chain buckles. Suppliers and buyers along every link will be asking some tough questions and looking for solutions to increase their resilience and assure business continuity when the next storm rolls in. 

Editor’s Note: At the time of writing, supply issues for lubricant additives appeared to be improving. However, Afton Chemical’s plant in Illinois was affected by flooding, and the company declared force majeure in late July, causing another disruption to the supply chain. Look to future issues of Lubes’n’Greases and Lube Report for more information about how this will affect the industry.

Tom Glenn is president of the consulting firm Petro­leum Trends International, the Petroleum Quality Institute of America, and Jobbers World newsletter. Phone: (732) 494-0405. Email: tom_glenn@petroleumtrends.com