War in Ukraine, Pandemic, Supply Chain Bottlenecks Create Challenges for Titanium Distribution Business

By Michael C. Gabriele

Titanium distributors and service centers, moving into the second quarter of 2022, are forced to navigate through complex global supply chain issues caused by the Covid-19 pandemic, bottlenecks at ports and warehouses, and disruptions in trade resulting from Russia’s invasion of Ukraine. Based on anecdotal feedback, it appears that, so far, the titanium industry is weathering the storm, but no doubt major challenges lie ahead.

Stephen Smith, director of marketing at Banner Industries, Carol Stream, IL, said the company is a major distributor of titanium and other specialized metals for the medical market, including cobalt/ chrome and medical grade stainless steels. Through its Supra Alloys division, Banner supplies titanium bar, plate, and sheet to the aerospace market and has recently added nickelbased aerospace grades to the list of products available from stock.

“To date (as of early March 2022), we have not seen any major impact on our business by Russia’s invasion in Ukraine,” Smith said. “The majority of our titanium and specialty metals is melted and rolled in the United States. There will certainly be some volatility in pricing; the recent surge in the cost of nickel and cobalt continues to trend towards the higher numbers last seen in 2018. For distributors, the concern is having too much high-priced inventory when raw material costs go down again.”

As for tracking current business conditions, Smith reported that Banner’s sales revenue in the first quarter of this year is higher than the first quarter of 2021, “but much of this can be attributed to an increase in prices due to escalating costs that are being passed on to the customers, rather than a surge in volume. However, I would say that overall, distributor inventories of titanium and related metals are currently lower than they were a year ago, due in part to constraints from the manufacturing mills.”

He explained that the response to federal- and state-mandated social distancing in the workplace due to Covid-19 has reduced mill capacity, at least temporarily, and the subsequent shortage of labor as the economy started to expand in 2021 led to further constraints on output. “Covid-19 has obviously had some negative effect on all aspects of business and the latest Omicron variant has certainly created more absenteeism than normal, but generally, especially with crosstraining, the impact on sales/output for distributors has been very limited. Many mills simply could not keep up with demand resulting in an even lower than normal on-time delivery performance. Normally, poor ontime delivery is a bonus for those distributors that have inventory on the shelf, and that has certainly been the case over the past year.”

Original equipment manufacturers (OEMs) believe that they should deal directly with the mills because of the perceived lower cost of materials, but buying direct leaves these companies subject to ever-fluctuating lead times and erratic deliveries, according to Smith. “Contract Manufacturers (CMOs), particularly the larger ones, would also prefer the lower cost of buying mill direct, but they do not always have the volume or the forecasting/firm commitments from the OEMs to take such long-term risks. Many CMOs are job shops and generally need material sooner than the mills can deliver.”

TMS Titanium, a stocking distributor of titanium mill products, provided photos of its inventory and warehouse.

Founded 15 years ago by Todd Harrison, TMS, based in Poway, CA, has a 10,000-square foot facility and 12 employees, with shear, plate saw and lathe production equipment.

“The important and vital role of the stocking distributor is having material readily available for immediate delivery, in less than mill minimum quantities,” he continued. “Distributors can help the CMOs and OEMs by a certain degree of cost averaging because they are supplying to multiple industries across a wide range of products.”

As for demand from key customers, Smith said medical is a major market for Banner Industries. “This continues to be strong as there is a growing aging population that wants to remain active as possible as they age. This leads to increasing demand for replacement joints, whose quality and longevity continue to improve.” In order to keep pace with that demand, Banner is responding to the continued increasing demand for all its value-added services and actively investing in expanding both our footprint and our capabilities. “We have a new location in Windsor, CT to provide both grinding and cutting services, as well as off-the-shelf deliveries to aerospace and medical customers in the Northeast. We are expanding the California location to include a wider range of grades and sizes and expanded value-added services, particularly for the aerospace market, which we believe will see a resurgence in demand as air travel shakes off the negative impact of Covid.”

Value-Added Services

This increased demand for providing expanded value-added services reflects how the role of the distributor is changing from simply being a resource for material off the shelf to offering a wider range of value-added services. “Especially with expensive material like titanium and other metals used in the aerospace and medical applications, CMOs in particular are looking for a greater degree of accuracy in sizes and tolerances than the mills are set up to produce,” Smith said. By offering in-house grinding services, companies like Banner Industries (incorporating Banner Medical, Edge International and Supra Alloys) can supply the optimum size with tighter tolerances with a short lead time (days, not months) that helps the CMOs achieve improved throughput. For example, using precision ground bar stock in Swiss Automatic screw machines enables companies to run lights out 24/7, increasing capacity without additional labor costs.” “There are a number of other value-added services that the pro-active distributor can offer such as precision sawing so that the cut pieces can go straight on to the CMOs machine, or water-jet cut profiles to provide nearer net shapes for reduced yield loss. Mills, on the other hand, need to concentrate on melting and rolling standard sizes to produce maximum output and achieve a better return on investment. Mills’ investment is in expensive plant and equipment: distributors’ investment is in inventory of bar, plate, sheet, and wire.”

U.S. Companies Ponder ‘Reshoring’ And Restoring Domestic Production

Disruptions in caused by Covid-19 and other issues during the last two years have led to much discussion about re-examining the length and strength of global supply chains. The Brookings Institution, the highly regarded non-profit public policy organization based in Washington, DC, published an essay in July 2020 that offered commentary on “reshoring advanced manufacturing supply chains to generate good jobs” in the United States. “Reshoring is the practice of bringing manufacturing and services back to the United States from overseas,” the Brookings’ essay stated. “This process can help balance trade and budget deficits, reduce unemployment by creating well-paying manufacturing jobs, and develop a skilled workforce. Reshoring also benefits manufacturing companies by potentially reducing the total cost of their products, improving balance sheets, and making product innovations more effective. While many of these supply chains can operate less expensively in Asia, the COVID-19 crisis has underlined the societal risks of leaving this production offshore.” It’s fair to say that “operating less expensively” meant many U.S. manufacturing companies searched for cheap labor markets as the integrated global economy unfolded in the 1980s and 1990s. The New York Times, in a Jan. 5, 2022 news article, reported that the Covid-19 pandemic sent shock waves through many organizations, forcing executives to focus on supply-chain resiliency. “A quarter of a century ago, U.S. factories employed more than 17 million people, but that number dropped to 11.5 million by 2010. Since then, the gains have been modest, with the total manufacturing work force now at 12.5 million.” The Brookings essay pointed out that supply chain issues and labor costs are being re-evaluated throughout the world. “It is widely accepted that countries such as China are evolving their manufacturing from cheap labor to capabilities such as custom machining, design, and product innovation. Therefore, incentivizing or funding existing manufacturing-enabling organizations such as Manufacturing Extension Partnerships could guide new and existing manufacturers in creating or expanding capabilities.” In recent months, major companies like Intel, Ford and General Motors have announced plans to invest billions of dollars in new American-based production facilities. A September 2020 report by Forbes (“Why Reshoring U.S. Manufacturing Could Be the Wave of the Future”) observed that “many countries, including the United States, will need to recalibrate the delicate balance between on-shoring and offshoring to maintain the autonomy needed to survive future crises while supporting a consumer-driven economy. Reshoring U.S. manufacturing would not only save enormous transportation costs; it would tie up less capital for less time.” However, an online essay from Harvard Business Review, posted on April 15, 2020, cautioned that bringing manufacturing back to the United States is “easier said than done.” In order to successfully re-shore industrial production, “a manufacturer not only has to source all of the components of a product, it also has to scale up production,” the essay stated. “This task is often taken for granted, but it is part of the really hard work of taking a product to market. The process includes setting up the supply chain for all of the raw materials, designing an assembly process with the appropriate tooling and fixtures, building or securing test equipment, establishing testing and quality procedures, and working through materials handling, staffing, and countless other details.” The Harvard Business Review essay suggested that companies could consider conducting a “stress test” to measure the resiliency of supply chains (foreign or domestic). Once a supply chain is defined and mapped, manufacturers “can think about executing a series of programs and strategies to address some of the concerns regarding cost competitiveness.”

West Coast Flexibility

Given the current business conditions, titanium stocking distributors and service centers must demonstrate “flexibility;” not only in the in-house production services they can offer, but in their response to particular customer needs. Todd Harrison, the chief executive officer and president of TMS Titanium, Poway, CA, a supplier and stocking distributor of titanium mill products, said “we need to be very creative and have outside-the-box thinking to accommodate customers and their specific needs. Without our customers, we do not exist. We need to be very flexible in our ‘new-new’ world.” TMS Titanium defines its flexibility to its customers in the car racing business sector by fulfilling small orders and last-minute requests for repairs, as well as providing quick-turnaround on broken parts. Harrison indicated that this agility pays off in the long run by gaining the trust of customers for ongoing business opportunities. As posted on its website (https://tmstitanium.com), TMS “has become a go-to supplier of titanium for the racing industry, and we work with our trusted network of suppliers, finishers and fabrications in order to provide the best quality products available.” Founded by Harrison 15 years ago, TMS has a 10,000-square-foot facility and 12 employees, with shear, plate saw and lathe production equipment. Flexibility cultivates good will between TMS and its customers, which includes metal finishing distributors and companies in the aerospace, architectural, automotive, biomedical, chemical processing, industrial, marine, and oil and gas markets. Harrison said that, while the current business environment is particularly stressful, “most of our customers are very good about understanding what everyone is going through.” Good will also means that TMS is candid and forthright with its customers. “We don’t promise what we can’t do. I think our customers appreciate that. All sectors are up and down, depending on the time of year and economy. There are so many outside influences that dictate what sectors are busy at any particular time.” He said TMS’s vendors are also feeling the pinch on supplying titanium stock (sheet, plate, block, bar, fasteners, tubing, pipe, billet, ingot, and forgings).