As if recent years haven’t been difficult enough for NACD members, the instability seen in the banking sector these past few weeks has only added to the uncertainty.
With the news headlines changing by the minute and the world waiting to see the effects and implications of the economic turbulence, the best thing chemical distributors can do is watch the situation closely as it unfolds – and plan for any eventuality.
Chemical distribution has had a particularly tough time of late, with the sector impacted by severe supply chain disruption, rising costs, and reams of new rules and regulations. Questions remain as to how the sector may be affected by the tremors now taking place in the banking system.
Monetary policy has been problematic for decades. On the surface, it looks like there are some mid-sized banks that are experiencing runs because of a nondiverse clientele. These banks need cash to cover positions. While I don't personally see that as being a problem right now, there's a lot of systemic risk in the banking sector that could cause it to come crumbling down. Contingency planning in this environment is a wise approach. Have a strategy in place so you can react quickly and effectively should the worst happen.
There is a lot of debt out there and liquidity is drying up from the markets. Good management practice is to not rely on just one bank. Chemical distributors need to be wary in this environment and possibly divide their assets between multiple banks to get the maximum Federal Deposit Insurance Corporation (FDIC) insurance coverage.
Not only should businesses protect themselves and plan carefully, but it is wise to be ready to capitalize on the situation as well.
Now is a good time for chemical distributors to start thinking about investment, expansion, and growth if they can get a good return. Opportunities always exist to invest. For industries that use a lot of trucking, for example, conversion to natural gas fleets is usually a very profitable investment. The fact that natural gas prices have come down so much in the U.S., even with the export volume being high, is remarkable and shows that there is plenty of natural gas available.
I also believe there may be opportunities in the labor market as well, particularly with distributors’ ongoing search for drivers.
Unemployment rates are the lowest they’ve been for over 50 years and finding skilled people has proven particularly difficult. However, some trucking companies have begun layoffs because they over-hired during the COVID-19 pandemic. The resulting availability of these drivers could be the reset that’s needed and good news for those seeking new hires.
We've all gone through a unique period with congestion at the docks, a lack of shipping capacity, and the inability to find truck drivers. It’s definitely calming down and overall prices for shipping containers are about back to where they were pre-COVID-19. On the logistics side, things finally seem to be getting back to normal.
Right now, we're living in a world of no growth, or stagflation. When you look at the numbers, there’s nothing to say the economy is going to grow, and I don't think it will this year. Unfortunately, I don't see high inflation going away in 2023 and think this is a year where we must ‘muddle through,’ while at the same time taking advantage of those opportunities that come up.
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