Insight

Here, Ian Doherty, chief executive at Owlett-Jaton, discusses the current market challenges faced by fastener distributors, such as shipping disruptions and tariffs, as well as outlining why it is now vital for distributors to focus on understanding the carbon footprint of its products.

The past two years seem to have passed in the blink of an eye, that might just be a symptom of getting older, but it does feel as if the fastener market is staggering from one crisis to the next. Whatever happened to boring normality?

When I last wrote for the distribution special, we had just been through a number of major challenges in the UK market, such as BREXIT, Covid-19, the shipping crisis and the introduction of an Anti-Dumping Duty (ADD) on fasteners from China. At Owlett-Jaton, we had completed our restructuring, launched our new rivet range, our new website and store had gone online, and we had increased our sales force presence. Everything seemed rosy, crises over, business in good shape, and the only cloud visible on the horizon was the war in Ukraine, which we thought might have some negative economic impact.

However, whilst it does at least seem that Covid-19 is thankfully behind us, the other challenges have not gone away. BREXIT is still negatively impacting our business; shipping is once more an issue; ADD is still creating issues; the war in Ukraine has had a major impact on the economy and led to the introduction of sanctions on Russian steel; and to top it all, we now have the challenges of the Carbon Border Adjustment Mechanism (CBAM) regulation in the EU, as well as being in consultation for the UK. It really seems like a case of ‘the more it changes, the more it’s the same thing’.

The war in Ukraine did indeed have an economic impact, with energy and food prices spiking – driving more general inflation and economic slowdown, which, in turn, depressed the market for fasteners and fixings. On top of that, sanctions on Russia were stepped up to stop Russian steel from being used in other products. The initial EU approach to these sanctions created panic in the market, as importers, ourselves included, struggled to obtain Mill Test Certificates. Fortunately, the UK government’s approach was more pragmatic, and the EU has now taken a more reasonable line, meaning there is less of an impact. 

The economic slowdown triggered by the war in Ukraine led to a build-up of stocks, unsurprising given the long lead time of the Far East supply chains providing the bulk of fasteners sold in Europe. We are also now in the midst of another shipping disruption as the actions of the Houthi’s have effectively closed the Red Sea and Suez Canal for transit between the Far East and Europe. 

As a consequence, ships are taking the longer Cape of Good Hope route, adding both time and cost to the transit. The initial disruption, certainly for us, was absorbed by stockholding, but now we are seeing much more marked capacity issues going forward. As a result of the longer transit times, capacity on the route has been reduced, I understand by 20% – 30%. This has not only led to further cost increases but, more worryingly, to real difficulty in getting all the desired products shipped. It is starting to look like 2021 again, with economic growth accelerating and insufficient shipping capacity. We could be facing another period of poor availability and much higher prices. I am sure the shipping lines who made such exceptional profits in that period will be very keen to see that repeated, and I do not anticipate any moves on their part to ease the capacity constraints. 

The new challenge for us all is CBAM. For the fastener industry, the inclusion of CN Code 7318 products in EU CBAM at a late stage and with little consultation was a blow, especially as these products are not part of the EU Emission Trading Scheme like the other products in scope. It is proving a complex and difficult, often impossible, task to provide all of the required data to meet what are legal requirements to report. The planned withdrawal of default values from the end of June 2024 will just make this even more difficult. 

EU CBAM is not only an issue for distributors in the EU. Many businesses want to be able to move products across EU borders and are requesting CBAM data for UK importers. Data is also needed if an EU produced product is reimported into the EU, everyone gets to share the pain.

In the UK, the government has been consulting on the introduction of a UK CBAM to start in 2027. I have no doubt this will go ahead, irrespective of who is in 10 Downing Street after the July election. The challenge for the fastener industry is the potential inclusion of CN Code 7318 products, mirroring the EU position. The British and Irish Association of Fastener Distributors (BIAFD) has been arguing strongly against the inclusion of CN Code 7318 and encouraging as many UK distributors as possible to do the same. 

Whether or not the UK CBAM includes CN Code 7318, it seems clear to me that sustainability issues, and in particular carbon accounting, are here to stay. Climate change is a real threat to us all, and reducing carbon emissions is vital. To quote an old adage: ‘If you can’t measure it, you can’t manage it.’ 

Measuring and managing carbon will become vital, and our business systems will have to adapt. At Owlett-Jaton, we are working towards the implementation of a new ERP system and ensuring it can capture and manage carbon data for the future. We hold the ISO 14001:2015 accreditation and have been recognised by EcoVadis for our efforts. We will continue to improve our own environmental performance, as I see understanding the carbon in our products as the next big step.