Supply Chain Threats Persist

Abstract

Since early 2020, critical infrastructure sectors have endured myriad conditions that have threatened their continuity of operations. Most business entities are not autonomous or self-sufficient; rather they depend on a complex and often global supply chain of essential goods and services—this is certainly true of drinking water and wastewater systems. Supply chain matters were a roller coaster last year, and several of those challenging supply chain conditions will persist into 2023 and beyond. The following is a high-level summary of supply chain challenges and their effects on operational continuity in the water sector. The February 2022 Russian invasion of Ukraine exacerbated existing COVID-19-related stress on commodity markets, triggering price shocks in food and fuel. The reduction in natural gas exports from Russia has caused significant increases in the cost and availability of anhydrous ammonia—prices have spiked over last year to roughly $1,400 per ton in late 2022. This has direct budgetary impacts on water treatment operations, especially systems that use chloramines as a disinfectant. Also, Russia is the world's largest producer of fertilizer, and reductions in fertilizer exports have had far-ranging effects. Shifts in fertilizer markets have caused China—the world's largest exporter of phosphorus—to restrict exports in 2023. In addition to escalating costs, water systems in several states have reported availability issues with phosphate corrosion inhibitors. In mid-2022, a long-term railroad labor dispute resulted in government intervention to negotiate a contract. An 11th-hour agreement in September averted a strike that came very close to cutting off the supply of chlorine and other critical treatment products that are transported by rail. Subsequent votes by the various labor unions to ratify terms had mixed results and again threatened a strike in early December. Water sector associations urged President Biden and Congress to intervene, and ultimately Congress passed legislation that prevented a nationwide rail strike; it should be noted that the contract will end in 2024. Policy factors have also complicated supply chain issues. The US Environmental Protection Agency (EPA) proposed new rules in 2022 that could have direct impacts on the water sector. The most concerning change was the proposal to ban the use of asbestos diaphragms in chlorine production, which would affect 50% of the retail market that supplies the water sector. This rule would require chlor-alkali plants to switch to an alternative method within two to three years, with an estimated cost burden that is 119,000–287,000 times greater than the expected health benefits. Water associations called on EPA to provide a more reasonable timeline for the transition to ensure the availability of chlorine for water sector operations. This request noted the statutory obligation that EPA has under Section 1441 of the Safe Drinking Water Act to ensure the reasonable availability of critical drinking water and wastewater treatment chemicals and materials. This regulatory pressure is amplified by external factors and basic economic principles. Overall demand for various materials slumped during the height of the pandemic. In late 2021, as economic activity returned, the demand for products quickly outpaced supply. Currently, pipe manufacturers are reporting delivery timelines of 15–24 months, and similar delays in other manufactured goods have been observed. If you factor in the massive infusion of federal infrastructure funds for projects of all types, including water-related improvements, the inflationary impacts are notable. The boost in funding for infrastructure programs is welcomed, but the reality is that current economic conditions mean utility customers will be paying more for less. Chemical supply is a prime example of recent challenges. Numerous systems throughout the nation experienced significant delivery disruptions and major spikes in the unit cost of chlorine. AWWA has found that the average cost for each ton of chlorine delivered has increased more than 120%. That alone has had significant budgetary impacts on many water systems and ultimately the rate payers. Last year, one southeastern utility reported that it recently spent an additional $1 million on chlorine—money that will not be spent on operations and maintenance needs. In some instances, chlorine production has been reduced because of disasters, equipment malfunctions, and facility closures. As a result, systems must adjust to chemical costs that are 10 times what systems budgeted. Rate payers will bear the burden of these economic changes. These supply chain issues will likely persist into 2024. Assessing supply chain dependencies will help utilities consider options to mitigate the impacts. Kevin M. Morley is manager of federal relations at the AWWA Government Affairs Office in Washington, D.C. He can be reached at [email protected].