As the Independent Lubricant Manufacturers Association (ILMA) prepares for its 2020 Annual Meeting – this year limited to a virtual event due to the coronavirus pandemic – its members gear up to discuss many of the pressing issues relating to one of the most essential industries. As the unofficial slogan goes… “Without lubricants and metalworking fluids, North American businesses and manufacturing would grind to a halt.”
2020 has thrown unprecedented challenges at almost every business sector, including the lubricants and grease industry. The sheer number of challenges landing in such a compressed time period means that company owners and their management teams have had to think creatively and make bold decisions to keep their business moving forward.
Four unique challenges that the industry has faced in 2020:
- Regulatory Challenges: While companies have been complying with the new labeling requirements imposed by California’s OEHHA revisions to its Prop 65 Article 6 “clear and reasonable warnings” regulations, other complicated issues remain. The future of proposed EPA regulations currently being debated during this election cycle, including issues around climate change and what might be included in a Green New Deal, will undoubtedly force some new thinking.
- Supply Issues: Stockpiling due to fears over product availability and just-in-time supply chains has impacted the ability for many manufacturers to meet short-term demand spikes, particularly for additives, base oils and finished lubricants. Although most manufacturers have caught up with demand and stockpiling has fallen off, many believe this situation could repeat itself this coming winter and persist into next year.
- Wild Demand Swings: Stalled industrial activity due to global shutdowns has impacted many industries – including all end-use industries of metalworking fluids. The largest impact on demand has been seen in the transportation equipment industry which accounted for nearly 44% of total demand for these fluids in 20191. The precipitous drop in airline passenger traffic has also dramatically impacted aviation lubricants2. In contrast, the demand for small engine and diesel oils have surged as retailers have increased “last mile delivery” options to meet consumer demand.
- Automotive Marketplace: Although OEM manufacturing has returned to pre-Covid-19 levels, the overall automotive industry continues to be affected by a global economic contraction. The industry’s complex supply chain has also caused many problems for suppliers. Companies providing the engine oil, transmission & hydraulic fluid, gear oil, grease, and process oil are also under pressure from tightening government regulations around the world related to emission and disposal.
Taken as a whole, company owners and management teams have taken extraordinary steps to address the dizzying number of challenges landing on their plates in 2020. Questions around the economic recovery timelines, potential for significant regulatory changes and other immediate disruptions will soon shift to long-term considerations, such as value growth.
While industry experts have forecasted modest growth over the next five years, some business owners may be considering the operational and financial implications of pushing forward over that timeframe. Some companies may be focused on survival, while others may be well positioned to make bold strategic moves and use the current turbulence as an inflection point to enter new markets, capture market share through new channels or by innovating new products.
In either scenario, business owners should understand the options they have and the role that a financial partner can play. Owner Resource Group (ORG) stands with ILMA members during this unprecedented time. Our team takes pride in working with founders, owners and management teams to offer strategic counsel and capital structures to deliver flexibility and long-term success.
We see the next few years as a critical time period for companies in the lubricants and grease industry to execute on strategies that will propel value growth and hedges against the long list of challenges that are coming over the horizon.
Our congratulations to ILMA on pressing forward with its annual meeting, and our sincerest thanks for all the organization does to keep its members informed and connected.
Want to learn more about how your organization could partner with ORG? Contact Mandy Patterson, Vice President (and ILMA member), at 512.653.4508 or mpatterson@orgroup.com
Mandy Patterson is a Vice President in the Industry Group at Owner Resource Group (ORG). She is fortunate to meet with hundreds of business owners across the country each year to learn about their unique challenges and goals for the growth of their businesses. Outside of work, Mandy enjoys traveling, college football and anything outdoors – hiking, fishing, hunting and skiing.