Episode Transcript
Rafe: Hey everyone. Welcome to the Lubrication Experts podcasts. My name is Rafe and with me today, uh, we've got a bit of a special episode with the folks from, the independent lubricant manufacturers association. Um, so we're going to talk about a lot of different topics; in general, about how the industry is going, where the industry is probably headed as well, and the role of ILMA in shaping some of those trends.
So I'm very excited, I both got Holly Alfano as well as Caitlyn Jacobs with me. Um, both of them going to pinch in.
So, um, both Holly and Caitlin, thank you so much for taking the time to join us here. Um, maybe if we can just jump right in, we'll talk a little bit about your sort of like career and, and role in ILMA a little bit later, but, Maybe just as a start. Um, I'd really like to get an understanding of just how your members are going.
I mean, the last 12 to 24 months has been a pretty crazy, I think some would say, unprecedented. Maybe if you could please give us just a bit of a flavor for the types of businesses that you represent and then maybe how did the pandemic, affect their business?
Holly: Sure.
Well, um, the types of businesses that we represent, first of all, are the smaller- I wouldn't say smaller, but typically smaller than the big, massive companies, smaller, independent, lubricant manufacturers, and by independent that means they can't be owned by a large, more major chemical company or a major oil company.
They have to be an independent blender.
We lost a few members during the pandemic, but interestingly, it was still due to the usual reason of, um, consolidation in the industry. Uh, the industry continues to consolidate and overall, I think they're doing better than I would have expected considering all that's happened, all that's transpired.
Of course, the members that manufacture PCMO really took a big hit during the pandemic.
Volume took a major blow and it started starting to come back, but of course, as it comes back, then we have chain issues that are really affecting all types of businesses around the globe. And they're, you know, they are struggling to get raw materials to get base oils uh, you name it. And, you know, despite that they are managing to go about business as usual. We just had a meeting in Florida. We have two meetings a year, and this was our smaller meeting. And we set a record by far for the highest number of attendees; and they were all networking and going about their business.
For all of them to show up that tells me they're doing okay. If I, if they didn't show up, then I would know that, you know, something's wrong.
We heard a lot about supply chain at the meeting. Um, but I I'd say they're doing better than expected, but I know they're probably not satisfied with the state of affairs.
Rafe: Yeah, the supply chain things continues to be an issue that plagues a lot of industries, but our industry specifically, uh, I know it's been really hard with yeah, base oil shortages and additive companies calling force majeure and it's, uh, it's been a bit of a mess. In terms of navigating the continuing supply chain challenges, maybe if you could speak to maybe, um, is the situation any different for some of the independent lubricant manufacturers, compared with the majors or sort of everyone's in the same boat in terms of, uh, supply and raw materials challenges.
Holly: I do think everyone is pretty much in the same boat. Although I would say that our smaller members can be a little bit more nimble and they can adapt a little bit more easily to changing conditions. But at the same time, they don't have the weight of the bigger players in the marketplace. So, uh, it's been, it's been tough for all of them, but, uh, you know, they are managing and like everyone says, I think this is just an issue that's going to have to work itself out over time.
You know, we had a backlog of uh, containers at our ports and ships and it improved, but then it, you know, then we had the shutdowns in China and then had a new whole new set of problems. And I think this is just evolving and it's going to require patience and that's hard to tell people, but I'm hoping that things will begin to unravel.
Rafe: Yeah. We can all hope for the best that's for sure. Um, you've touched on a little bit just then on, um, maybe some of the the advantages to being a smaller and more nimble operator. So, um, I think that's an interesting one because that speaks to a bit of a theme of the pandemic, right? That there was this prevailing kind of economic theory that the bigger is better and consolidation was really important so that you had economies of scale. Um, and that's been true, not just of our industry, but of many industries.
Um, I think that the pandemic is exposed, maybe some of the fragilities of that model and the fragility of, some of these globalized supply chains and business models. With the pandemic, maybe shining a bit of, a lot on the importance of let's say local manufacturing, um, local distribution, having local supply chains, an emphasis maybe on being a bit more, um, robust rather than lean, maybe could be sort of like the theme.
Are your members starting to see any changes in preferences in the market at all for, a local presence and local manufacturing?
Holly: You know, uh, there's a lot of talk about that, but I don't see a lot of action to be totally honest. I think that, you know, there's a lot of work and time that goes into building a manufacturing plant, no matter how simple it is, it may be. Um, it's not an easy thing. And here in the U S there's a lot of, as I'm sure there are in Australia, there's a lot of bureaucracy, a lot of red tape, and I hear that that is going to happen with certain things. Certainly as an example, I think ships uh, they will be moving a lot on shore for a number of reasons, but I don't see a lot. That's going to affect the lubricants industry. And I guess I fear over time because we're so driven by price- and by the time they were able to get plants up and running, you know, people are going to be not looking as much at location as they are typically in this industry at price, because it is such a competitive industry when it comes to that. Caitlin, I don't know your thoughts.
Caitlin: I completely agree. Holly, that's, it's, it's a tough call. I mean, you see it with hurricane preparedness, for example, you know, um, when there's a big hurricane, everybody says, well, why don't we have more backup supplies? You know, when, when a lot of supply in along the Gulf coast here gets knocked out well, it takes time, it takes investment to build those back stocks.
Um, and so when you go a few years without a major disaster, um, you know, you kinda let it slide again now. Well, why are we spending capital on this? Um, I think it's a comparable issue.
Rafe: Yeah, that's interesting. Um, uh, I guess it, it really comes down to in many ways the preferences of the market, right. And ultimately it's probably the procurement practices of the end users that, that has to change. So I just wasn't sure if maybe you had seen any changes there, the, um, maybe some of the larger industrial. For example might be, um, pivoting towards wanting their suppliers to do things like carry a little bit more stock, and maybe they're willing to eat a little bit of a price hike, um, in, in order for that. But, but it sounds like that's not, not being the case just yet. Um, maybe it'll be something that we see in the future.
Caitlin: Yeah, I think maybe one thing that that might be happening in our industry more is, um, diversification, you know, backing up supply chain a little more.
Rafe: Yeah. Okay. Could you speak maybe a little bit more to that for an audience that's maybe not so familiar. When you talk about diversification in, let's say manufacturing, are you talking about mainly having, let's say example, multiple, um, additive supplies, for example, for certain product lines or what kind of diversification are you talking about?
Caitlin: Well, of course it depends on what you're making. I think it, it might be a little bit more difficult, um, with a finished lubricant product when it comes to things like additives because, um, certain approvals, like, you know, ILSAC oil approvals are tied to certain base oils, certain additive packages. I mean, there, there is some flexibility with the viscosity grade read across and base il interchange of course, but it only goes so far.
But you know, maybe if you're someone who's making that additive package or, maybe it's, it's your packaging that you're having trouble securing. Having more than one or two suppliers that are maybe in different areas of the world or the country allows you more flexibility. And it, you might not get quite as big of a price break because you're not buying as much from one from one supplier, but you have that, um, stability and that backup in case something goes wrong.
Holly: You know, part of the, I think one problem with that, and I agree that that's an approach that I think a lot of people are looking at and maybe practicing, you know, we've had some price hikes already in the marketplace that have been challenging for our members. We've heard about it. Uh, they're not happy about. They find them, you know, these price hikes with the current inflation, inflationary state that we're in to be difficult to pass on to customers. They have to obviously, but this is such a price sensitive industry. And how do we change that? That's a good question. Think that we could spend all day talking about that.
Rafe: Yeah, the price hikes is, is a difficult one because when it comes in the middle of a supply chain crisis, it feels like you're always going to customers with bad news right? Cause it's, it's either I'm running short on X, Y and Z products or it's "Hey, we got a pass on a five or 10% price increase, and maybe you can expect another one, you know, in two or three months time." the only maybe advantage is that everyone is really in the same boat, right.
So it's not like if, uh, If your customer goes to a different supplier, that they're going to hear a different story.
Now you spoke a little bit there. Um, the idea of how do we change the industry into something that's less price sensitive. Um, and that's definitely something we've addressed on these podcasts a few times and certainly not going to solve it here. Um, but maybe when, a little bit further in the podcast, when we talk about, some of the pivots that, uh, some of the businesses might make, we can maybe touch that a little bit more.
Kind of talked a little bit about the nimbleness or local manufacturing aspect of being one of the, the independence. Um, obviously there are going to be just some downsides as well to being small. And one of it would be, you know, the, the scale, um, and your bargaining power with, let's say, for example, the base oil and add cos. So maybe we can touch a little bit on some of the, drawbacks of being an independent and maybe as well how does ILMA help address some of those sort of those drawbacks maybe, um, or help its members.
So one of the themes that we kind of have had on this podcast is in some ways, the difficulty of attracting talent, um, in, in the industry. I don't know how it is in the U S but certainly in Australia we've seen a lot of talent leave the industry recently. Most that has been, uh, kind of the upper age bracket, you know, maybe they used COVID, uh, as a good kind of life evaluation point and they decided to retire or leave the industry, but it's meant that we've lost a lot of knowledge and a lot of expertise, and there's not that many young people coming through the industry to sort of replace that knowledge base. Um, is that something maybe at a broad level, do you see that in the us as well? Um, and maybe what is unique about attracting talent as a, as an independent?
Holly: Yes, we call it the silver exit; they're all moving on to other things and we can't blame them a bit, but there is a, um, lack of talent or an not a lack of talent, but not a lot of of younger people who are looking to get in the industry and learn about it and develop a career. And it's a, been a subject of, a lot of meetings here at ILMA.
We've spent a lot of time talking about different ways that we could promote the industry to college students and even high school students. And it's something we're working on. I, you know, we are looking at different, uh, possibilities of how we might go about that. The association has a scholarship program that we've had for many years that we award um, with so far, we have awarded over a half million dollars in scholarships to, uh, Graduating seniors and college students, any graduate students. And we want to try to parlay those relationships into educating those individuals, those young people about what lubricants are the good that lubricants do in the world when it comes to sustainability and efficiency.
And, uh, so we're looking at different programs and I, I, I wish I could tell you that we had the answer there, but I will say the big and the small are struggling with the talent problem. It is a little more challenging for the smaller companies to attract talent because they don't have the resources to totally honest. They don't, they don't have the, uh, resources that the larger companies have.
Rafe: Yeah, it's a, it's a, um, it's such an interesting problem. I've told this story a few times, but, i, I basically fell into the lubricants industry by accident. And in many respects, I didn't even know that the industry existed in, in the form that it does, but once you get into it, you realize how dynamic and environment it is and how it's so essential to so many different Uh, applications. I mean, realistically it's anything that moves. So that's, that's a pretty broad, um, uh, base to be working with. And, and as an engineer, for example, it's like the ultimate playground. Cause you literally get to play with every kind of machinery and it's that awesome mix of a bit of mechanical engineering, a bit of fluid dynamics, a bit of chemistry.
I just don't, I don't really know of another field, but it's quite like it. And so, um, yeah, it's, it's just so interesting and it is a shame that not more many normal people understand that. Uh, cause I think, uh, once, once they dive in, they they'd see a lot of value in it. And like you said, you know that sustainability theme and we'll touch a bit more on it um, soon um, which really resonates with sort of the younger generation as well. Uh, maybe that's something that is not as, as obvious to people until again, they get into the industry and they realize how essential lubricants are to sustainability.
Caitlin: I was just say something else that a lot of people don't realize, that ILMA learned from a 2018 economic study that we commissioned is that our industry pays 25% more than comparable manufacturing jobs. So, you know, at least here in the US, um, you know, it's, it's even better paying in addition to all those interesting opportunities that you were talking about.
Rafe: Yeah. Okay. That's awesome. And that touches a little bit about what I wanted to talk about, about sort of ILMA's role in, in helping shape, you know, both the industry as well as kind of the future. So maybe we can jump a little bit ahead here. You described, for example, commissioning, a study to be able to demonstrate some of these benefits. Is that something that, that the ILMA commonly does when it wants to investigate, let's say issues that are affecting its members? Because I guess you guys have that sort of, once you have, I mean, it's a couple of hundred manufacturers right, under your banner. Once you sort of have that, that scale, you guys can afford to commission studies like that. Um, so maybe if you could talk a little bit about that, cause that sounds really cool.
Holly: Well, we did commission this study a couple of years ago. Well, right before the pandemic, we got the final report and yes, it's, it is something that we are getting more and more into is research about, um, not so much technical information because there are a lot of people who are doing that and they do it very well. We are more looking at Market trends. And we just, uh, awarded a contract to Kline to do a very comprehensive study on electric vehicles and lubricant demand forecasting year by year, what they project we will see in all different segments of lubricants, greases, metalworking, fluids, of course, motor oils.
But. You know, because the electric vehicle is going to like anything, have challenges and opportunities. and we want it to identify what those opportunities are. And so that people will be aware of them at the same time, provide some good, hard data, that members can look at on a global basis. So they can see maybe the internal combustion engine and certainly in certain countries is going to be declining over time pretty rapidly, but in others, that is not the case. So that's the kind of information that we're trying to provide to our members. And we hope to have that report in October at our annual meeting.
Rafe: Oh, that's, that's, that's awesome. It's so funny you say that, cause that's a question that's come up a few times in, in, you know, people just generally asking me questions is, oh, what's, you know, electric vehicles going to do to your industry? And I think up until now, you can only, I've only ever been able to give a very generic answer, which is, I think volumes might decrease a little bit and that the mix of products might change.
But beyond that sort of very broad generalization, I, you can't really give any hard data. So it'd be cool to see, um, the results of that Kline study when it's eventually finished, cause I think having very specific, uh, data help the industry as well. Right. I understand what the future is going to look like.
Holly: Yeah. The high, the idea is to give them the, the information that they need to make strategic decisions about their business and to see where. The challenge, challenges and opportunities. Where are they and where are you where you have a challenge in one area, you have an opportunity in another. So we're hoping that this will provide business intelligence.
And I think that's what we are striving for with these research initiatives that we are working on. You know, ILMA's role in terms of, you know, the services that we provide. Um, we actually have a mission statement just like every body. And it is one that we actually have, uh, we work off of every day and it drives all the programs that we, that we offer. And that is to be the leading trade association in the global lubricants industry, providing value for our members, through networking opportunities, advocacy, ethics, education, and information, and all of those items are um, what uh, drive us on a daily basis in terms of, um, staying on top of regulations here in North America, um, advocating on the member's behalf on the end with the appropriate agencies, um, providing information. That's a lot of what Caitlin does is educating and informing the members of trends and regular regulation and all kinds of things, but anything that affects the operations of their, of their business. And it's a pretty lofty, mission statement, but we work to, follow the goals and strategies of it on a, on an ongoing basis.
Rafe: Yeah, that's great. And so one thing I would want it to pick up on there, I think a lot of what you described is maybe what people expect, uh, I trade association to do, right. In terms of advocacy and dissemination of information and things like that.
The one that I wanted to jump on there was you mentioned ethics. I know that ILMA has a, sort of like an ethics program. How, first of all, could you please describe that? What that is and how it affects your members and maybe how it affects, uh, the perception of the industry. The ethics bit, it's in the mission statement, it's obviously core to what ILMA does. So maybe, could you please elaborate on that a little bit?
Holly: Sure. We've had an ethics program for a number of years and every member before they join, has to agree that they will abide by the code of ethics and allow ILMA to test their products. They have to agree that they have a, um, obligation to manufacture their products following appropriate specifications to present their products to the public and an honest way.
And we do go out and test products and, you know, we require that if we find an issue out there and we will follow up with the member and honestly, the ILMA staff is insulated from that, we it's done in confidence. We don't have any um, dealings with the ethics committee. They are separate entity, I guess and they make all their deliberations and confidence. So if there is an issue out there, they will deal with it. I know there when there are issues, but I don't know what they are. They involve. And. So there is a confidentiality, but they will work with the member to try to correct the issue. And if it's not corrected, then they're no longer eligible for ILMA membership. think it's really important, especially in our industry where there are some issues out there in the marketplace with counterfeit products and with products that don't meet the specifications on the label with obsolete products that are out there and not labeled properly.
So if you're going to be an ILMA member, you can't, uh, you've got to abide by our code of ethics. So what did I miss Caitlin?
Caitlin: I think that's exactly right. I mean, we're, we're interested in, The reputation of the industry, through this program. So that you know, hopefully anyone in the public knows that if a company is an ILMA member, they are making quality products and I don't have to worry that what's in the bottle does not match what it says on the outside of the bottle.
Rafe: Yeah. That's definitely, uh, kind of like that noble goal, right. Because, uh, I mean, we face the same issue in Australia here too. You obviously have a lot of reputable manufacturers out there who are, you know, doing the right thing and manufacturing exactly to the spec, um, or, or obviously above the spec.
Um, but there are, colloquially, I guess they could call them bucket blenders, that, they're kind of flying by the seat of their pants and, you know, chopping and changing formulations, as it suits. So anything that can be done to raise the profile of the industry is great because that then flows on to what, like we talked about before, you know, attracting talent and all that kind of stuff, too.
Holly: And I just want to make one more point to that. You know, and one thing I remember when I met, I met with some Australian folks a couple of years ago, back in 2018, we were looking at forming an association and we talked quite a bit about the ethics program. And at the time I was telling them about our efforts to work with a government agency to require labeling of obviously motor oils. And it actually ended up being a multi-year process, but we finally did get, a, law in place, it's actually in a handbook here in the U S that the states adopt, um, it's called handbook 130 and it's, uh, the national Institute of standards and technology, which is a government agency here in the U S under the department of commerce, they, um, work with the states to enforce the specifications and regulations and to help the states implement them really is what it is. So we were successful. I remember talking at length about that and there was a lot of interest from the Australian folks at the time about, uh, about the obsolete oil issue. And I'm happy to say that that was a success. And now in tractor hydraulic fluid as well, which was another. Bucket issue that we had here in the us. So we were able to get those things resolved.
Rafe: Yeah, that's awesome. Um, and, and that, I guess, uh, is exactly what you hope a trade association would be doing, right. Acting on, on behalf of the entire industry, to sort of raise the overall profile and quality. So it's good to hear about, uh, the sort of the success stories. Um, Maybe if, just to pivot a little bit, we've talked a little bit about that sustainability angle, um, and, and the benefit that lubricants can provide, just to talk a little bit more about how it might affect the industry in the future and specifically, uh, your members as well.
Right? There's been a lot of uh, I don't want to just call it noise, cause that, that feels like it's dismissing, um, the transition, but there's been a lot of talk about, you know, electric vehicles, um, hydrogen combustion, hydrogen fuel cells in the Marine industry. They're talking kind of ammonia and methanol combustion as well.
So basically a lot of kind of alternate power sources or alternative powertrain, um, designs. Um, how are your manufacturers kind of looking at that transition and. Are you able to sort of talk a little bit to, um, maybe some of the pivots that they're, they're trying to make. Uh, the only reason I say this is because it seems like a lot of the, the technology and the discussions that are happening at the moment are kind of happening at that, that, um, OEM and R&D level.
Right. So it's having to engage the OEMs that are themselves trying to make this pivot. Um, if you are a, uh, a small lot independent manufacturer, I can imagine it's a little bit more difficult to get in front of the OEMs right and establish those relationships. So, um, how has the industry kind of looking at, at this pivot to, um, maybe alternate fuel source.
Holly: Well, I think they're cautious. Um, certainly I think the pandemic has amplified their cautiousness. They saw miles driven drop overnight to really low levels. They had already started to decline for a lot of reasons and um, then the pandemic hit and now, you know, more and more, uh, the OEMs are announcing their transition to EVs. You know, I don't think they have necessarily a definitive plan. I've hear bits and pieces of some of those strategies that are out there. Um, but I think they're cautious and waiting. And its part of the reason why we are doing the EV study is to provide them with additional information so that they can make those business decisions.
There is a lot of concern about the rate of adoption among the consumer, the prices of EVs are still very high. The battery prices have not come down a lot. And I think that issue is going to have to be resolved. Even Elon Musk has struggled with it. You know, he had said at one point that he was going to be able to build a vehicle for under $30,000 and he hasn't been able to do it. So I think our members are watching all of this out there in the marketplace and taking a little bit of a wait and see approach.
Rafe: Yeah. I think, you know, being too early can almost. You know, as damaging for your business as being too late, right. Um, to invest a lot of time and energy into a transition that maybe isn't quite ready.
Holly: And there are some issues here in the U S you know. The one thing I don't hear a lot of talk about is how are we going to upgrade our electrical grid? And so far there hasn't been a ton of investment in that. And there's going to have to be a lot more if we're going to make this transition at the rates that have been suggested. So I know we recently passed an infrastructure bill and some of that money was, is supposed to be dedicated to that. Uh, but so far there hasn't been a lot of activity in that area.
So there's a lot of unanswered questions that I think people are just waiting for more information.
Rafe: Yeah, definitely. As we start to wrap up a little bit here, how do you see ILMA's role in the industry changing, let's say over the next 10 years, or do you think that, that, uh, basically what you do now, um, will be the same, but just maybe the technology stack might be a little bit different? Um, do you see, I guess what you guys do is as, as likely to change in the next, let's say decade or so?
Holly: Well, we certainly changed in the last seven years that I've been here at ILMA in terms of digital transformation of the association. I've been in the association world for a long time, and I remember doing mailings every Friday and blast faxes to our members. And now we're doing podcasts and virtual town halls and we have an ILMA app and everything is technology driven.
So that has changed. And I think change is gonna continue, um, in terms of how we deliver to the members. I think the needs are going to be similar to what they are now. But I do think consolidation is going to continue, unfortunately. So we're going to see bigger companies and fewer of them, and that's going to be a challenge for ILMA going forward.
Rafe: And, uh, maybe just, um, on, on a personal level as we wrap up here, um, you know, if you wouldn't mind just telling me a little bit about your time in the industry, um, maybe what you see as being, uh, the most major changes. And then maybe it's the last question. If, if you could meet your younger self, as you were about to enter the industry, what, what kind of advice would you give you you?
Holly: Well, um, you know, I've been in the oil industry for my entire career since the nineties. I hate to admit that, it's been a long time. I started in 1992. And, um, I was representing wholesale jobbers, which I know they have in Australia. There's an Australian jobber association. And they're the middle men between the oil companies and the gas stations.
And they buy the product and they sell it to the gas stations are in a lot of cases they own and operate the gas stations as well. So I started learning about the industry from from that perspective and lubricants were a sideline for them. They sold lubricants to their gas station customers and to convenience stores.
And so that, that was my first exposure to the lubricants industry. Then seven years ago, I joined ILMA and I had to learn a whole lot more about the lubricants industry and the other sides of it. And I wasn't as familiar with the metal working and industrial segments of the industry. So I will say this; um, if I were meeting my younger self, I would say that being a part of ILMA and being a part of the lubricants industry, uh, is an opportunity to learn something new every day. And I found someone who likes to learn new things and is very interested in what's going on in the business world. You know, it's like you said, it's like a dream come true.
So I love what I do, and I feel very fortunate to have landed here. I would tell myself, uh, you know, yeah, this petroleum thing is fun, but you know, there's a whole other side that you don't know anything about. Go, go find it. So I guess that's my answer to the question. question
Rafe: Yeah. Thanks. That's a, it's a, it's a really good perspective. Hopefully we can bring more people into the light, so to speak. Um, so, uh, Caitlin and Holly, it's, it's been an absolute pleasure. Thanks so much for, um, you know, spending the time to talk to us today. Um, Um, sure. Uh, the audience as well as your members will, will find that conversation quite enlightening.
Um, so yeah, really appreciate your time and we'll talk soon.
Holly: Thank you so much. We enjoyed talking to you.
Caitlin: Thanks very much.
