[ID] => 10660
[post_author] => 5714
[post_date] => 2019-02-26 08:36:17
[post_date_gmt] => 2019-02-26 08:36:17
[post_content] => Chemical distribution is an important part of the US economy. While distributors have weathered the most recent economic downturn better than many industries, there are a number of legislative and regulatory issues that currently affect their ability to ensure continued economic growth and job creation. The ongoing truck driver shortage, developments in the US trade agenda under President Trump, chemical facility security, and freight rail challenges all pose significant hurdles for business success in 2019.
The National Association of Chemical Distributors (NACD), based in Arlington, Virginia, represents nearly 450 chemical distribution companies and their supply chain partners. NACD members represent more than 85 per cent of the chemical distribution capacity in the nation and generate 93 per cent of the industry’s gross revenue. NACD members, operating in all 50 states through more than 3,000 facilities, are responsible for more than 75,000 direct and indirect jobs in the US.
NACD works closely with Congress and the administration to ensure trade policies continue to afford American businesses, like chemical distributors, opportunities to thrive in today's competitive global economy. Distributors play a key role in today’s complex global supply chain — which has taken Americans decades to build and reflects the nation’s strengths and those of its trading partners. Years of trade relationships cannot be shifted overnight; therefore, it is imperative that the US continues to honour the relationships that have strengthened the economy.
The US trade agenda under President Trump has the potential to significantly impact the chemical distribution industry, in some ways positively and in others negatively. On the positive side, last year Congress approved, and President Trump signed, legislation that would reauthorise the Generalized System of Preferences (GSP) programme, which had previously lapsed. GSP provides US importers with tariff relief on nearly 5,000 products from 120 developing countries. Effectively, it saves American businesses $730m in tariffs each year. Without it, importers would have to pay an estimated $2m a day in new taxes on thousands of different products.
Similarly, the Miscellaneous Tariff Bill (MTB) was signed into law in the second half of 2018. This legislation provides tariff relief on more than 1,600 imported products unavailable domestically in the US. The tariffs on these products had been costing domestic companies $1m a day. Additionally, failure to approve the MTB, which expired in 2012, would have cost importers $1.1bn in tariff payments over the next three years if this legislation had not been signed into law. Taken together, the renewal of GSP and MTB will produce significant savings for chemical distributors that can be invested back into their companies and ultimately the broader US economy.
TAX ON CHINA
Unfortunately, President Trump’s decision to impose high tariffs on a broad range of Chinese products imported into the US will offset gains from GSP and MTB as well as recent tax reform legislation that lowered corporate tax rates. Last year, the administration unilaterally established a 10-25 per cent tariff on a range of imports from China. The tariffs were imposed under Section 301 of the Trade Act of 1974, which authorises the president to act on foreign practices deemed burdensome or restrictive to US commerce.
Hundreds of chemical products are included in the third list of products under the Section 301 tariffs. Currently, those products are subject to a 10 per cent tariff but, if trade negotiations between the US and China do not produce results soon, the tariff rate will increase to 25 per cent. This will increase costs by $26.4m for the chemical industry. Many chemical distributor companies lack the time needed to shift suppliers.
Multiple studies carried out by NACD show a direct link between tariff increases and reduced chemical sales - simply put, lower volumes result in job losses. NACD has been urging the administration to establish an exclusion process for List Three products to mitigate some of these increased costs, but so far the Office of the US Trade Representative has not done so.
Ensuring the security of high-risk chemical facilities is a vital part of the US national security efforts. To protect these facilities from potential acts of terrorism, in 2007 Congress created the Chemical Facility Anti-Terrorism Standards (CFATS) programme, administered by the Department of Homeland Security (DHS). NACD has been a long-time partner with DHS since CFATS was first created, and the association has been adamant about ensuring the continuation of the programme.
In January, Congress approved legislation that would extend CFATS in its current form for another 15 months, as it was set to expire that same month. However, given the upcoming presidential and congressional elections in 2020, industry and lawmakers need to make progress this year on securing a longer-term reauthorisation in order to avoid election-year politics that could bog down the legislative process.
Therefore, NACD’s priorities are to obtain a multi-year reauthorisation of the CFATS programme prior to its April 2020 expiry; to provide industry with the certainty needed to make long-term facility security investments and enable DHS to run the CFATS programme efficiently; to ensure the CFATS program properly protects against security threats at NACD member facilities; and to establish a CFATS Recognition Program
, an alternative compliance option to reward participation in industry stewardship programs that further enhance chemical security, like Responsible Distribution.
Through Responsible Distribution, participation in which is mandatory for NACD members, the chemical distribution sector demonstrates its commitment to continuous improvement in every phase of chemical storage, handling, transport and disposal operations. It also involves relationships with employees, involvement in local communities - including participation in Local Emergency Planning Committees - and careful compliance with numerous environmental, safety, and security regulations at the federal, state, and local levels.
GET MORE DRIVERS
There are few issues as vital to chemical distribution as having a vibrant trucking sector. Unfortunately, for many years the US has been facing a shortage in the number of qualified truck drivers. The American Trucking Associations (ATA) estimates that the US would be short 63,000 drivers by the end of last year, and that number could balloon to 174,000 unfilled driver positions by 2026. In order to keep up with demand, ATA estimates that the trucking industry needs to hire nearly 90,000 drivers each year through 2026. If this shortage is not addressed, carriers, shippers, and businesses like chemical distributors will continue to see increased costs.
One of the major drivers behind the shortage is an aging workforce. The median age for a truck driver is 49 or higher and, as the older population begins to retire, one can only expect the shortage to get worse. This is exacerbated by the fact that the current age limit for interstate trucking is 21 years old and that a patchwork of state laws imposes high insurance requirements on younger people getting started in the industry, meaning a young, vibrant workforce seeking high-paying, stable employment is going untapped.
To address these challenges, NACD supports efforts in Washington, DC that would make it easier for young people to enter the workforce as truck drivers. There are a couple of solutions currently in the works that would serve as a big step to making this happen. First, the Trump administration is seeking to advance a pilot programme that would allow drivers under 21 years old with training and experience in the military to engage in interstate trucking. Second, under the last Congress, the US Senate and the House of Representatives both introduced the DRIVE Safe Act, which would lower the interstate driving age to 18 years old and would implement a rigorous two-step training programme, increasing safety while bolstering the workforce. NACD is hopeful that similar legislation will be introduced, considered, and approved by the new Congress that was convened on 3 January 2019.
OFF THE RAILS
Roughly 40 per cent of NACD’s member companies receive product via rail, while only a handful of companies ship product out of their facilities by rail. Still, railfreight is an important component in the movement of goods for chemical distributors. NACD supports efforts that serve to promote greater railfreight competition and improve the efficiency and effectiveness of the US Surface Transportation Board (STB), which oversees freight rail services. Unfortunately, due to consolidation in the rail industry over the past three decades, most chemical distribution companies that rely on rail have service by only one railroad; this loss of competition can subject them to higher freight rates, capacity constraints and service issues.
One major issue with rail service is that companies have a hard time gaining access if tracks are not present, or if service to specific lines has been either reduced or discontinued. Demurrage costs set by the railroads is also concerning, particularly when railroads fail to meet on time deliveries and customers are faced with the bill.
Coal and crude oil shipments have also decreased car load availability in the past few years. In order to achieve greater operational ratios, regain market share lost to highways, and meet chemical transport demands, Class I railroads have started implementing what is known as ‘precision scheduled railroading’ (PSR). CN, Canadian Pacific, CSX, Union Pacific, Norfolk Southern, and Kansas City have all announced similar PSR plans to meet growing traffic demands. The result of PSR, however, is causing nationwide service disruptions to shippers, specifically chemical distributors. Shippers continue to experience inconsistent and unreliable service, while the railroads claim that transitional results and higher quality service are their end game. This is an issue that a fully functioning STB as mandated by Congress can work to address.
The challenges facing the chemical distribution sector, as outlined above, have come at a time when the industry has been experiencing a significant amount of merger and acquisition activity. Larger chemical distribution companies are looking to expand their regional footprints, while regional distributors are acquiring smaller distributors to become industry players at a more national level. Investment from foreign distribution firms, particularly from Europe and Japan, has accentuated this trend as they attempt to break into new markets.
Private equity firms are also playing an increasingly larger role in bringing about the consolation of the US chemical distribution industry. This is due in part because these firms have more cash on hand to invest in mid-sized companies, and because US interest rates have been at historically favorable levels for a number of years, making financing is widely available.
Lastly, advancements in technology are making it more attractive for smaller firms to be acquired by larger companies as they look to boost efficiency. New tools like inventory tracking technology, artificial intelligence and online product marketplaces are rapidly changing the nature of chemical distribution. Smaller companies may find they cannot keep up and look to larger companies with the resources to invest in those technology to make sure they can keep pace with the changes.
All of these factors mean that consolidation in the US market will likely continue for the foreseeable future, although perhaps at a slowing pace over time as fewer opportunities for acquisitions becomes more commonplace.
[post_title] => NACD: On your side
[post_status] => publish
[comment_status] => open
[ping_status] => open
[post_name] => nacd-on-your-side
[post_modified] => 2019-03-07 12:08:45
[post_modified_gmt] => 2019-03-07 12:08:45
[post_parent] => 0
[guid] => https://www.hcblive.com/?p=10660
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