Big changes are coming to the rubber industry in 2023. While the industry is expected to experience steady growth over the next decade, new regulations and ongoing supply chain issues present additional challenges for manufacturers and suppliers.
Demand Increases on the Horizon
According to the European Rubber Journal, the International Rubber Study Group (IRSG) forecasts that the overall rubber demand will increase by 2.8% in 2023, followed by an average annual 2.4% growth in rubber demand between 2023 and 2031. Other key takeaways from the report are as follows:
- The global natural rubber (NR) demand is forecast to slow down to 2.8% in 2023, following a sharp recovery between 2021 and 2022.
- Synthetic rubber demand recorded a solid recovery of 11.1% in 2021, and anticipated growth of 2.8% in 2023.
- NR production recovered by 5.4% in 2021, but still lower than its 2018 peak.However, natural rubber production is forecast to further expand by 2.9% in 2023.
In addition to these highlights was the expectation that the market will tighten due to the lower rate of new plantation development and replanting. Why this shift?
The German Supply Chain Due Diligence Act (aka the SCA)
On June 11, 2021, the German parliament passed the German Supply Chain Due Diligence Act. This act was created to regulate the responsibilities of companies for human rights violations and environmental damage along their supply chain. The law comes into effect on January 1, 2023, with additional requirements to follow on January 1, 2024. The SCA applies to all German-based companies that employ 3,000+ people at their headquarters, a threshold that will drop to 1,000 in 2024.
According to an article by Ralf Aumann, this act will have direct impacts on the rubber industry. Because rubber processing companies are very active in the B2B sector, they are subject to most changes that reach the supply chain. As a result, many rubber producers are likely to face stricter rules going forward.
The European Initiative
In addition to Germany’s efforts, the European Parliament is currently working to draft a law regulating the due diligence obligations of companies at the EU level. This law allegedly goes significantly beyond German standards. Among other things, it is expected to have a wider scope, and higher environmental standards.
The European initiative will apply to all companies that earn the majority of their revenue in the EU and employ 500 or more people. In industries dangerous to people and the environment, this threshold drops to 250.
How Will These Regulations Change the Rubber Industry?
According to the Germany’s Supply Chain Act, companies must take appropriate preventive measures toward their direct suppliers. These measures include establishing contractual requirements for human rights compliance, consultation, training, and monitoring. However, they only have to respond to rights violations by indirect suppliers along their supply chain if there is a concrete suspicion.
According to Ralf Aumann, the risk factors associated with rubber cultivation are forced and child labor, as well as environmental damage caused by overexploitation, soil erosion, slash-and-burn clearing of virgin forests, and the careless use of pesticides. For the most part, European rubber producers outlaw such practices already. However, as the Supply Chain Act stipulates that there is corporate responsibility for ethically questionable business practices along the supply chain, making it necessary for corporations to record and regularly review these risks.
Both the German Supply Chain Act and the EU draft pose challenges for the logistics of rubber processing production companies. The obligation to provide information to authorities and customers increases the administrative burden. Monitoring indirect suppliers in Southeast Asia is currently difficult for small and medium-sized organizations. However, new technologies and cooperation with interest groups will eventually ensure that European companies can better interact with their international business partners and more easily meet their due diligence obligations.
The rubber industry is therefore well prepared to assume its responsibilities and combat human rights violations and environmental degradation around the world.
Ways to Help your Company in 2023
As summarized in an article by Christoph Gähler, supply chain management aims to plan, control and optimize material and information flows within a value chain. In addition to finding ways to comply with the new laws and guidelines going into effect next year, here are some ways to mitigate negative repercussions from supply chain changes to your company.
Rely on local suppliers
The monetary benefits companies expect from global sourcing dwindle in the face of delivery delays. Long transport routes make it more difficult to achieve climate protection goals and shrink your global footprint. It therefore makes sense to rethink procurement strategies and focus on local sourcing. For US based companies seeking a rubber sealing manufacturer, Apple Rubber is a trusted supplier.
Foster partnerships with suppliers
When it comes to supply chain management, high responsiveness and flexibility are the key to success. Establishing a positive relationship with your suppliers based on open communication and mutual trust is the fastest way to achieve these.
Keep an eye on the commodity markets
In the rubber and plastics sector in particular, you should constantly be monitoring for developments on the raw materials market. Supply problems with certain resources and materials are usually the result of developments that experts can predict with relative precision.
Take care during transport and storage
Rubber and plastic components bring with them specific requirements for transport and storage. If handled improperly, these components can become damaged and unusable. This is another reason why supply chains in the rubber and plastic sector are more susceptible to disruptions.
Select the right suppliers
The prerequisite for stable supply chain management is a network of reliable suppliers. Particularly in the procurement of rubber and plastic materials and precursors, supplier selection is of high strategic importance. Orientation is provided by international management standards such as ISO 14001, which defines the essential requirements for corporate environmental management.
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