I had a pretty amazing day today. Four hours before kickoff, I did not have a ticket to the match. My man, Victor Ubogu and his staff (thank-you Felicia, and his wife Ang) completely squared me away. I got a text , go to such and such address to pick up your ticket… I get there and I peak in and there are some pretty decent former players in there. Two RWC Champions (David Campese AUS, and Chester Williams RSA) and the great Mark Ella who retired in 1984 after leading the Wallabies to a Grand Slam tour of the UK.
I started in the chemical industry in 1988. Anyone long enough in the tooth to remember that time (pre-email, about 50% of companies had fax machines) will recall the product shortage that ruled the day was Titanium DiOxide (Tio2). List price at that time for the standard Dupont R-900 grade was about $1.00/lb, and the first deal I ever put together was with a great guy, still in the business – Warren P. We bought a truckload (40,000 lbs) at $1.50/lb FOB and sold it at $1.60/lb FOB to a company called GoldBond Products in Sumter, SC. There were two very nice ladies in the purchasing department that must have felt sorry for me or something – I really didn’t know what I was doing at the time, but they placed a purchase order nonetheless. At that stage of my professional life (fresh out of the Army, 27 years old and about 4 months in the business), I didn’t have $60,000 to fund the deal; Warren funded it, and we split the $0.10/lb profit. About 30 days later when GoldBond paid Warren, he sent me a check for $2,000. This was the greatest day of my life to that point. I was hooked.
It seemed like that shortage lasted many months. If you are under 35 years old, it must be impossible to imagine not having email to transfer offers and specs/analysis by attachment. In the late ‘80’s the fax machine was just reaching the ‘tipping point’ of adoption. The physical act of communicating information to suppliers and potential buyers was comparatively done at a snail’s pace and the entire process of conducting commerce exponentially less efficient than it is today. To a chemical trader, ‘those were the days’. No really, they were. I talk to some old timers in the business about the Oil Shortages of 1973 (arguably the year that the chemical trading business started), and they talk of those shortages as the true ‘gold rush’ of our industry.
Since that time I’ve seen numerous shortages with various lifespans and degrees. The Chinese ‘cartel’ of Ascorbic Acid (aka Vitamin C) manufacturers appear to create a shortage every 3-5 years, moving prices from $3/kg to over $20/kg in one case. That’s fun on the way up, and can be very dangerous on the way back down to $3. The phrase ‘don’t try and catch a falling knife’ is in play on shortages such as these. It took weeks (months?) for the price to rise 6-fold, and literally one week for the price to drop a similar amount. Multiplying the dollar amount times 20,000 kgs per container – a lot of money can be made or lost. I know of one company that actually made over $100,000 on each of two containers (as the price rose), and having not followed the age old principal of ‘take your first loss, it’s the best loss’ held on too long the final container and literally gave back all the profit made on the first two. A loss of $200,000+ on one container! It’s only money, right?
Other shortages have included products like Methyl Ethyl Ketone (MEK);this product used as a cleaning solvent in high end electronics became very short after the horrible aftermath of the Japanese Tsunami several years ago. An MEK plant in Japan (designed specifically to service the high tech industry in Japan) was knocked out and the likes of Sony, Sharp, etc… were forced to buy MEK on the open global spot market. That shortage lasted about 3-4 weeks.
Purified IsoPhthalic Acid:
Fast forward to just a few weeks ago when the major USA manufacturer of Purified IsoPhthalic Acid (PIA) announced o/a March 1 that their plant would be out of commission until mid-late April at the earliest. Common sense thinking would assume this shortage would last several weeks. ‘Back in the day’ we would be chomping at the bit, salivating over the import opportunities that could come from Taiwan, Korea, etc… for PIA. Reality is that this ‘shortage’ literally lasted 2-3 days for the spot market to be open and shut. Emails flew around the world, international text messaging ramped up, and new communication Apps like ‘WhatsApp’ allowed instantaneous communication from mobile device to mobile device transcending former barriers such as time zones. Users of PIA placed orders in 2-3 days to cover the next 6-8 weeks of shipments (including one container I know of that was air freighted from Korea!), and the ‘shortage’ was over.
As anyone who participates in these shortages knows, it can be alot of ‘fun’, and very rewarding to assist company’s & customers who need to find product to keep their plants up and running. Those same people will recognize the many sleepless nights of owning product at well over market prices, and the fear of selling in a market that is ‘the falling knife’.
Technology continues to change and evolve our industry. It’s exciting; fast and furious, and creates the need for the occasional ‘all-nighter’. And until the next ‘shortage’, its back to the daily grind…chemical distribution the old fashioned way. Bags, drums, pallets and truckloads at a time.
Share your ‘shortage’ stories!
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Have you ever been in a social setting and someone asks what you do for a living? You pop up your chest, stand a little straighter and reply ‘I’m in the Chemical Business’. Or, do you actually stand up straighter? Rather you might temper your answer depending on the audience.
I imagine the chemical industry is celebrated in places like Houston, Delhi, Antwerp, Singapore, and Shanghai – but in Seattle, there is an audience always ready to malign our chosen profession at any opportunity. Sometimes I am in position at the family dinner table to have to argue (i.e. defend) my positions on things like why the XL Pipeline should cut across Nebraska, and have documented my thoughts on fracking as a necessary technology risk while alternate energies become more viable.
At a convention of the National Association of Chemical Distributors (NACD) a few years ago, I got into a choice discussion with a female guest who spent much of the day roller blading while our group was in sessions. When she took the time to ask about our business, she came over the top with the usual ‘chemicals are bad’ generalizations and I proceeded to explain to her how chemicals were rooted into her life (products in her hair, makeup, pigments in clothes, textile chemistry, etc..). The best moment for me was when I focused on the wheels of her roller blades and was able to talk about the reaction of such substances as Isocyanate and Polymer being reacted to create PolyUrethane Resin, basically the entire wheel. And every time she slid on those wheels, a little slice of this nastiness is released to the environment. So much for her ‘green’ workout.
I bought my first personal computer in 1986 in Lawton, OK while at the Field Artillery Officer’s Advanced Course. The IBM PC Jr. was little more than a word processor, calculator and organizer of digital 3 X 5 cards. And, it was the coolest thing ever.
Fast forward 1994….my first email address… SomethingSomethingSomething@Compuserve.Com. For those of you too young to experience going from a world with no email to a world with email, that was something special. Nothing short of amazing. Fast forward to 2014… email is amazing alright. An amazing pain in the … More…
On December 15, 2013 I posted an article, GSP Reinstatement. Help or Hurt the Chemical Industry?? which reiterated the need for businesses to press Congress to reinstate the General System of Preferences (GSP) and offered ways that companies could make their voices heard. In short, by allowing the GSP to expire, Congress is forcing all importers, small and large to have customs duty preferences revoked without notice or recourse – thus creating unanticipated increase in duties paid, a direct (and completely uncalled for) negative impact to their bottom line. In a recent post by The Coalition for GSP titled GSP in 2013: Companies Should’ve Saved…Could’ve Hired?, Jeff Wright (Exec VP and CFO of TRInternational, Inc) points out the actual unanticipated loss for his company…the result of which causes our company not to be able to hire 1 or 2 people to spur its growth. Here is the excerpt:
TRInternational, Inc. (TRI), a global wholesaler of industrial chemicals, headquartered in Seattle, is just one of the companies forced to pay higher tariffs because of Congressional inaction. In the 20 years TRI has been in business, it has made the Puget Sound Business Journal’s “Top 100 Fastest Growing Private Businesses in Washington State” list on three separate occasions. Yet the absence of GSP has cost the company more than $50,000 in higher customs duties (as of this writing the amount now approaches $70,000)
As noted by Jeff Wright: “On an annual basis, that’s 1 and 2 new hires that TRI could be employing to help our growing company and the Puget Sound region.”
Surely this is Congressional inaction that must be rectified immediately. Job Creation. Stunted. Seems like a no brainer to me. Do you agree? What is the counter argument?
Last weeks post How do Chemical Buyer’s Buy? Will it ever really change? discussed how chemical buyer’s buy and the trends they see moving forward. The focus was on personal relationships vs. ‘internet’ relationships and chemical exchange possibilities. Based on significant feedback (and over 200 replies/comments in various forums – thank-you everyone who took the time to read and comment!), the overriding consensus is that (at least for the chemical industry) the ‘old school’ way of working (personal meetings, anything face-to-face) will continue to rule the day. I admit that perhaps not many ‘twenty-something’s’ may have taken the the opportunity to weigh-in (perhaps they were too busy placing their chemical spend on-line), but it is reasonable to conclude that any Amazon.com type model will not be taking over the chemical industry any time in the immediate future.
So, this leads to a new question… ‘what exactly constitutes a ‘face-to-face’ meeting’?. As a business owner with 15 people in our commercial department (i.e., buying and/or selling), we spend tens (100’s?) of thousands of dollars per year on travel. We also have a conference room filled with the latest and greatest; a 120” drop down hi-definition screen, and Logitech ConferenceCam CC3000e ready and willing to take on all of our audio-visual needs). Can this travel expenditure be effectively replaced by the use of video-conferencing?
I know of a lot of companies using this technology ‘intra company’, but have not seen/heard many conversations (in the chemical industry anyway), where parties say – ‘let’s meet by video conference’, as opposed to ‘we’ll fly down to Houston and make a presentation’. It might not be such as coincidence that I am currently on Alaska Flt 730; Seattle – Houston, to go make such an in-person presentation, although I proudly will be wearing my #3 jersey of the recently crowned World Champion Seattle Seahawks! More…
I am not old enough to have experienced the ‘two martini lunch’ technique of ‘doing business’, nor am I young enough to fully grasp the trends on ‘how buyers will buy’ 10-15 years from now. However, I do know that the chemical industry has actually regressed in the past 15 years with respect to our use of technology in the conduct of day to day business and transactions.
How are Buyer’s buying differently than in the past, and where could it lead in the future?
Last December, I visited a very progressive chemical marketing/sales company on the East Coast. I was impressed with the sheer volume of computer monitors and the atmosphere of a Wall Street trading floor. The founder graciously took me through their offices and explained how their website gets approximately 1,200 hits/day and 40 solid inquiries for their products. They literally are ‘fielding calls’ and reacting all day long. I am not ashamed to admit I was slightly envious, but I have to think this is a unique situation.
I look at my company’s website and while a little outdated in appearance, we provide solid information to customers/suppliers (and apparently headhunters as well) and try to offer a little personality with our company newsletters. We get nowhere near 1,200 hits/day and are realistically lucky to get 5 solid inquiries per week, if that.
I consider us to be fairly progressive on the technology side; our CRM and ERP systems are reaching the tipping point with our entire staff learning the value of a central repository of information and how profit and value can be generated. But I constantly wonder; “what are we missing, what is a better way?”
When I entered the chemical industry in 1988, only about 30% of companies had fax machines. We literally had to ask contacts, ‘do you have a fax machine?’. I contrast this to just this morning when a customer notified me of a purchase order via Facebook message. Truth! Back then, salesmen made phone calls and the occasional visit, and customers hopefully called back with purchase orders that were written into notebooks and somehow transcribed into systems that processed the orders and paperwork.
An excellent article written in 2001 by Rajat Agrawal discussed opportunities for chemical companies and specifically customer-related opportunities and supplier opportunities as well utilizing e-commerce. Based on my recollection, his vision at that time was spot on. Suppliers on a mass scale would literally link into customers using EDI or an extranet to monitor inventory, and share real time information. Smaller companies who could not afford such luxury were doomed! Buyers could use e-commerce for cost containment. Employees were leaving brick and mortar chemical companies to work for any entity that contained “dot com” in the title. The labor market to hire recent college graduates was completely turned upside down by the dot-coms as these kids all wanted minimum 6 figures to start as a junior salesperson.
The Dot Com’s and Exchanges…
At the millenium, there were in fact three dozen or so chemical exchanges that were destined to cause the end of the traditional model of chemical selling. They are ALL now gone… Powerful names like ChemConnect, e-Chemical, and Elemica were going to change the world, and here we are today… still on the phone (and with more – much more! email) making offers and still working for orders.
Perhaps these exchanges came too early, and this model will return again. I am aware of several new chemical exchanges that are trying to resurrect this model today, but are buyers ready for this yet? Will the chemical industry change it’s ways? Does it need to? What value does the exchange provide other than sharing of someone’s inventory and electronically react to a buyer’s eBay style wishes? And how much is that worth to a buyer/seller?
The two martini lunch days are certainly over, and the 5 hour golf rounds are getting fewer and farther between (maybe people just don’t like playing with me and I haven’t caught on yet). Email is getting more ferocious to manage, and business moves at the speed of smartphones… but has anything essentially changed? Are buyers buying any differently than 20-30 years ago, and more importantly will these habits change in the near future?
Personally, I don’t believe the chemical industry can be served by an Amazon.Com type model. There are just too many ‘special requirements’ in this business. Perhaps I am wrong, and I’d welcome any conversation about buying/selling habits. Thanks for reading.
Although books are being written (and movies made) on the pro’s and con’s of Hydraulic Fracturing (correctly abbreviated as “frac’ing”) and the related revolutionary technology of Horizontal Drilling, I’ll give my opinion in the form of an ‘elevator speech’ (i.e. 600 words or less), understanding that I’m an American business person and recognize my views are USA biased. More…
I have always thought ‘Wall Street’ was one of the all-time great movies, not only for enjoyment but as a business movie. There are some great principles to be learned (and also several to be avoided; i.e., Greed is actually not good), but one of the lines I thought is great was “Wake up Buddy boy, Money Never Sleeps”.
My wife runs an event business on our farm, and this year she has initiated a Country Christmas Event starting the day after Thanksgiving. At 6’6” and a deep voice, I was the clear favorite to be ‘Santa’ for these days. This would mean taking a few Friday afternoons from my ‘day job’ in the chemical business at TRInternational, Inc where I am enjoying my new role as full time trader and salesperson (see my blog posted earlier). November 29 was to be my first day, and suffice to say I had a lot of business stuff on my mind. More…