Supply Chain, Interrupted

Who knew a winter storm in Texas would trigger a shortage of plastic needed for pesticide packaging?

Or that a lack of semiconductor chips sparked by unprecedented consumer demand plus COVID-related factory shutdowns would make it nearly impossible to get service vehicles?

Would you believe a freighter stuck in a canal in Egypt and a scarcity of dock workers and truck drivers would mean it now takes weeks, even months, to get, well, just about anything?

Welcome to a seriously disrupted global supply chain that is affecting product availability, lead times and cost across industries, including pest management.

“I don’t think there’s a product category that we have that hasn’t been somewhat affected at some level,” said Karl Kisner, vice president of business and strategy development at Veseris, a pest control distributor that carries more than 10,000 specialty products from 800 suppliers.

Pest management professionals began noticing supply challenges in early 2020 when sourcing personal protective equipment. While standard equipment for pest control work, masks, gloves, Tyvek suits and respirators suddenly were in high demand by the entire world due to the pandemic.

Eventually, it has become more difficult to secure equipment, exclusion supplies and devices made with steel, brass, plastic and rubber components.

Tommy Reeves, vice president of Oldham Chemicals, a distibutor of pest management products in Memphis, Tenn., had 400 pumps on backorder in July. “The pumps are built; they just don’t have bolts to put them together,” he explained.

Sourcing backpack sprayers was an issue for Lee Thompson, director of operations at Prewett Pest Control in Auburn, Ala. He also experienced delays for replacement batteries for 60-volt drills, which his team needs to auger holes for termite bait stations. “It’s kind of hard to use a battery-operated product without the battery,” he said.

Courtney Carace, chief operating officer of Pest-End, in Plaistow, N.H., couldn’t buy new devices that locate in-ground termite bait stations to replace ones that were broken. “We have been unsuccessful in locating any of those and there’s a nationwide shortage,” she said, joking she could make “a ton of money” selling her working devices on eBay “because people need them so badly.”

Even more challenging was sourcing new service vans and pickup trucks for the 25 new employees Carace hired this year and replacing vehicles nearing the end of their service life. “We’re paying a premium to find trucks and they’re not even necessarily the trucks that we want but they’re all that we have,” she said.

When the engine blew on one Pest-End vehicle, her employee had to drive a spare sedan until the repair was complete. “It’s not an ideal situation. You have to improvise a lot and make do with what you have,” she said.

Prewett Pest Control needed another service truck after it picked up a local university as a new account. With none to be found, Thompson instead acquired a golf cart. His technician drives his own vehicle to campus, then drives the cart, stored on site, from building to building. This creative workaround saved the company considerable money. “The flipside of that is golf carts aren’t cheap right now either,” Thompson said.

Supply chain disruptions also made it difficult to get ingredients for chemical products, especially those used for exterior perimeter treatments.

Arrow Exterminators, which has 144 service centers across the U.S., “absolutely” has experienced product shortages and delays with most of its manufacturer partners, said Kevin Burns, the company’s chief development officer. The disruptions have not interrupted Arrow’s ability to provide services. “So far, we have been able to take care of our customers, which is job No. 1,” he said.

MORE DOWNSTREAM CHALLENGES. The global supply chain was hit by the proverbial perfect storm. “There’s just a barrage of hurdles that we’ve had to overcome this season,” said Mark Worthy, who leads planning and purchasing at Veseris.

First was the pandemic, which disrupted the workforce and shut down factories around the world. China is the global manufacturing hub and largest supplier of pyrethrin and the “lockdown of various plants and factories in China is affecting the global supply chains,” reported Research and Markets, an international market research firm, in October 2020.

In February 2021, Winter Storm Uri froze the Gulf Coast, causing mass blackouts that cut power to major petrochemical processing facilities that make materials like propylene oxide (PO). Derivatives of PO are used to make inert ingredients for pesticide formulations, and also are used in plastics, paperboard and construction materials, among other things. The storm caused some raw material processors and suppliers to declare force majeure, a contract clause that excuses a company from liability when uncontrollable events prevent it from delivering goods as promised and allows it to allocate lower quantities of goods to its customers.

In July 2021, EPA announced that pre-approved inert ingredients could be substituted for those derived from PO through Dec. 31 to alleviate supply chain issues facing the pesticide industry.

“We were able to work with the EPA to identify Federal Insecticide, Fungicide and Rodenticide Act (FIFRA)-compliant substitutions for products on a limited basis until the supply chain returns to full capacity, which is happening now,” wrote Megan J. Provost, president of RISE, in an email. Responsible Industry for a Sound Environment is a trade organization representing manufacturers, formulators and distributors of specialty pesticides.

But even if manufacturers had the raw ingredients needed to make pesticide, plastic bottles were hard to source. Or they had plastic bottles but no lids, aerosol actuators, glue to affix labels or corrugated cardboard to box up finished product. Some manufacturers switched to alternate packaging, such as using different-shaped jugs or different colored caps.

Many pesticide manufacturers use third-party producers to make products and if they didn’t have all the components required for production, they got bumped from their place in the production schedule. And some copacker facilities prioritized the production of disinfection products, which made it hard to get line time to make structural pesticides.

Transportation has been a huge problem. “The logistics side is a mess and has been since March of this year,” said Steve Gullickson, president of MGK, which manufactures insect control solutions. That’s when the massive Ever Given container ship got stuck in the Suez Canal, adding to a worldwide transportation bottleneck that kept ships and shipping containers out of ports for months, trapping material supplies.

Logistics issues made it difficult for Control Solutions, a specialty chemical manufacturer, to bring in raw materials from Asia and products produced at its facilities in Israel, Europe and India. Because it couldn’t secure bookings, it had to prioritize what was shipped over, sometimes leaving needed, ready-to-ship materials sitting at supplier locations. Once materials arrived in the U.S., port congestion and the scarcity of hazmat truck drivers caused more delays. “It’s just madness,” said Gabriel Phelippe, director of sourcing and planning at the company.

Truck deliveries to and from warehouses and to customers in the U.S. were stymied due to COVID and the shortage of commercial truck drivers. According to the Bureau of Labor Statistics’ April 2021 report, the trucking industry lost about 42,500 jobs in 2020. The boom in consumer e-commerce didn’t help as it has pushed demand for freight hauling to an all-time high. As a result, some manufacturers turned to air freight to transport materials and products, which is considerably more expensive.

Consumer demand also had an impact. Early in the pandemic, demand for products in general stalled. Then it rebounded to unprecedented levels, spurred by pent-up demand and government stimulus money. This caught manufacturers across industries unprepared and put pressure on an already constrained supply system.

A similar scenario played out in this industry. Demand for pest management last year rose significantly, especially for exterior perimeter treatments, and PMPs said growth has continued in 2021. Greater demand for pest control materials and devices depleted inventory. “We sold a lot more of some of our products and a lot less of other products. This put a big strain on our operations, which we are still experiencing today. (It’s) super frustrating when we solve an issue (and) a new one pops up,” said Gullickson.

Dealing with “areas of unplanned demand as well as certain raw material shortages” was a challenge for everyone, agreed Stephanie Jensen, director of professional and specialty solutions at BASF. “The economy re-lifting at about the same time as the Gulf Coast freeze really put a lot of strain on the global logistics infrastructure,” she said.

As such, manufacturers across industries began buying more raw materials, exacerbating the shortages. “It was almost the ‘toilet paper effect’ for manufacturers, where people were hoarding materials because they weren’t sure when they were next able to get it. That’s rational behavior but what it does is take a demand and supply imbalance and it makes it worse,” explained Steve Levy, president of Bell Laboratories, which manufactures rodent traps and bait stations.

A labor shortage due to COVID and generous unemployment benefits was yet another issue to tackle. “There’s not one problem to fix; it’s like a cascading problem,” explained Gullickson.

“The supply chain is complex,” agreed Cisse Spragins, CEO of Rockwell Labs, which makes products for the professional pest management industry. “We’re a small company but we have over 1,000 inventory items that we manage, and those components use thousands more things to make them in a lot of cases. It’s amazing how everything is really tied together and it’s quite far reaching,” she said.

HIGHER COSTS + DELAYS. Costs are increasing as a result. “It’s an easy equation: The more disruption, the more costly,” explained Douglas Kent, a supply chain expert at the Association for Supply Chain Management (ASCM), which has more than 45,000 members in 100 countries.

All costs to manufacture and transport products have increased in the past six months, and they’re still rising, wrote Brannon Coulter, operations manager at Liphatech, which makes rodent control products, in an email. Resin prices, he wrote in July, were up more than 40 percent and were in scarce supply.

The cost to ship a 40-foot shipping container skyrocketed. On Sept. 2, the average cost was $9,987, an increase of 344 percent from last year, according to the Drewy World Container Index.

Some suppliers of raw materials seemed to exploit the market. Rockwell Labs’ Spragins said even with confirmed purchase orders in hand, vendors increased material prices before shipping; if you wanted the material, you had to agree to pay more for it. “They put you in a situation where you really have no choice, and they know that,” she said.

Such costs only could be absorbed for so long and this summer manufacturers across pest control product segments announced price increases. “We’ve seen more in-season price increases than we’ve ever seen,” said Kisner, Veseris.

Clark’s Termite & Pest Control in Columbia, S.C., felt the sting. “The mid-season price increases are a big deal for us because we don’t normally see that,” said Alan Wilson, the firm’s technical and training director. “You’re looking at inflation across the board: gas, products, everything. Inflation is everywhere and we just don’t know how long it’s going to last.”

Distributors expected to increase prices, as well. “Our company has tried to keep the prices stable and absorbed the increases to try to offer competitive prices to the end user,” said Reeves, Oldham Chemicals. At some point, however, costs must be passed on, such as by requiring a higher minimum order to get free shipping.

Supply issues also meant PMPs experienced more backorders and out-of-stock issues on a wide range of items. Manufacturers told Veseris in early July that some products would start shipping out again to distribution later that month while others would be delayed into fall.

A manufacturer of a steel product pushed back the lead time 26 weeks. “Literally, half a year, so we’re seeing those delays and shortages in multiple markets,” said Veseris’ Worthy.

To address labor shortages, the corporate staff at Bell Laboratories worked on the production line for two months in 2020. “We have maintained supplies and kept our customers in stock and really as of today have not missed a beat. I say that very humbly because tomorrow could be different,” said Levy.

Rockwell Labs, which also manufactures products in house, was holding more inventory due to longer lead times. Plastic bottles ordered last October, for instance, arrived in late June. Still, getting finished product out the door was taking longer, causing some backorder situations. “It’s been a massive effort to not be in that situation more than we are,” said Spragins.

Manufacturers have tried to make sure all customers get the products they need, even if that isn’t all they products they want. “They’re basically just trying to equalize the supply and that’s happened several times. I think every vendor we have tries to be fair and do that,” said Reeves, Oldham Chemicals.

Not all PMPs were affected by supply chain issues. Some were buffered by surplus inventory, contracts that protected pricing, or were using materials not impacted by shortages/backorders. Gullickson called this “the luck of the portfolio.” Some products, he said, were in fine shape from a supply chain perspective; “then there are other products that got a whammy.”

Timing also was a factor. If this was the year to trade in your fleet, you felt supply chain disruption much more than if you were not in the market for vehicles, pointed out Kent, ASCM.

Even though distributors and manufacturers were working to minimize the impact on PMPs, they said PMPs need to pay attention to supply chain issues or they may get caught unprepared. “It’s surprising how many people aren’t aware that this is a global issue,” said Arrow’s Burns.

THE FUTURE. The supply of raw materials and finished products is expected to improve this fall. Control Solutions’ Phelippe said the supply of plastics and some pesticide ingredients was “starting to loosen up” as Gulf Coast petrochemical processors continue to recover from the winter storm.

Some manufacturers told PCT they believe the pest management industry will have more inventory for some products and devices by year end because more companies were willing to sit on inventory than they were a year ago. This inventory would lessen their need to order more product, giving supply a chance to catch up, one manufacturer told PCT.

Despite this, higher costs were expected to stick around. Disposable gloves, for instance, are available now, but the price has risen exponentially. “It’s come down from the peak, but it’s still double what it was a year and half ago,” said Austin Burns, operations manager, Burns Pest Elimination, Phoenix. Pre-pandemic, a box of gloves cost him about $8; now he pays $16.

During a PMP Industry Insiders podcast that aired July 22, Marshall Gaster, head of marketing, Professional Pest Management Syngenta, North America, said, “I think the cost increase in plastics and raw materials, it might be here to stay for a while. All of our data shows that it’s going to be rough on that stuff for the next few months, for sure.”

Kevin Burns, Arrow Exterminators, expected higher costs and product delays to last longer: “I fully expect it to continue through the remainder of 2021 and into 2022. I already know from some of our manufacturers; they’ve already said that in some cases they won’t have product until 2022.”

Rising labor costs will impact prices long term. “Labor costs, once they go up, they don’t go down. You don’t give someone a raise and then take it away,” said Dooley from Forshaw.

And transportation will remain a major pressure point. “The challenges with logistics, freight, transportation, whether it’s intermodal, rail or waterway transportation; those challenges are going to be around for a long time,” he said.

In fact, the American Trucking Associations reported that roughly 1.1 million new drivers will need to be hired over the next decade — an average of nearly 110,000 per year — to offset higher demand and anticipated driver retirements. Holiday shopping was expected to put additional strains on logistics, both here and abroad.

And then there are emerging COVID-19 variants. Another round of potential lockdowns around the world could be “disastrous” in terms of prolonging supply chain woes, said Spragins. “The supply chain issues we’re seeing now, the seeds of that were planted a year ago,” she reminded. Getting back to “normal,” it seems, is going to take time.

“Normal will look and feel different going forward,” said Kent of ASCM. That’s because companies are developing new operating models to support resiliency in the supply chain. “We need to understand risk and our ability to be resilient to it because all indications are that disruptions of different types and sorts and magnitudes are going to be the new norm,” he said.

“There are things you can control and then there are those things you can’t control. We’re trying our best to control the controllables so that we minimize the impact on our customers wherever possible,” added Jensen, BASF. She expected supply chain challenges “in some form or fashion” to continue through the end of 2022.

Jensen acknowledged the frustration of PMPs and distributors. “We’re doing our best to manage through this situation and minimize impacts to their business wherever possible. There’s full commitment up and down our organization to do that and that’s our No. 1 priority,” she said.

Disruption isn’t all bad, as it can provide opportunity. “Whenever there’s flex in the market, if you can be the supplier that delivers, you’re going to get the business. My goal is to be the supplier that delivers at the end of the day,” said Spragins.