Dive Brief:

• H.B. Fuller, an adhesives manufacturing company, dealt with a number of supply chain constraints, from supplier shortages to the blocked Suez Canal, that pushed the company to more expensive alternatives during its most recent quarter, company executives said last week.
• In one case, the company had a shortage of steel drums, so it purchased raw materials and had one of its suppliers convert it into the needed product, President and CEO Jim Owens said.
• "We had one supplier who had a ship stuck in the Suez Canal, one of those famous ships," Owens said. "We work with them to airfreight material from the U.S. to Europe in that case. And that was a significant cost that we share with that supplier to keep our customers running."

Dive Insight:

H.B. Fuller's experience over its most recent quarter highlights the number of supply chain issues a company can experience in the current environment where freight capacity is tight and suppliers across industries struggle to keep up with demand.

"Throughout the quarter, H.B. Fuller experienced raw material and container shortages," Owens said, adding that strong supplier relationships helped them keep their customers supplied.

The shortages have made multiple aspects of business more expensive. The company experienced a 10% uptick in raw material costs, which resulted in a 120 basis point reduction in the gross profit margin, according to its earnings release.

H.B. Fuller is far from alone in facing shortages and high prices of materials. Automakers and other industries have struggled with a shortage of semiconductors. A winter storm affected the output for a number of suppliers in the southern U.S. And construction industry executives reported rising prices and short supplies of steel and lumber.

In June, raw material prices increased for the 13th consecutive month, according to the Institute for Supply Management's Manufacturing Report on Business, released Thursday. The prices index registered at 92.1, the highest level since July 1979 when it registered 93.1.

"The pressure is really on every member of the supply chain to push prices through," Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, said on a Thursday press call.

It's a strategy H.B. Fuller has used. "We ... moved quickly to raise prices in the quarter," Owens said. "We are prepared to do more as necessary."

The company expects its own price increases will offset raw material cost increases by Q3, but pricing will stay elevated and supply will remain tight through 2021, Owens said.

"Suppliers have made good progress in restoring capacity for the commodity and specialty chemicals we purchase," Owens said. "However, the rate of recovery going forward will likely be uneven until inventory levels are rebuilt to fully meet demand."

Demand is also strong in the global freight market, and many companies have turned to airfreight to speed shipments.

H.B. Fuller used air cargo to move raw materials from China to the U.S. and when a supplier ship was stuck in the Suez, Owens said last week. The earnings call last week was not the first time H.B. Fuller spoke about being impacted by the Suez Canal blockage. In March, Owens said, "We're tracking exactly what materials that our suppliers have that might be on those ships."

On the March call, he also underscored that the company's sourcing team, supply chain team and commercial team already meet daily to talk about sourcing for "thousands of materials" and that strategizing for "a ship stuck in the Suez is exactly what they're set up to do."

If H.B. Fuller was able to navigate the blockage by turning to airfreight, it might consider itself lucky, as capacity was very tight during that period, according to reports from The Loadstar and Freightwaves.

Capacity in the ocean and airfreight markets continues to trend down on Asia to North America lanes, according to C.H. Robinson. The forwarder's market update listed ocean as "critical" and air as "strained" in June on the Transpacific.