Company Leaders Report Increased Investment in Sustainability and Digital Tools, According to First Annual L.E.K. Consulting Specialty Chemicals Study

BOSTON, MA (Aug. 9, 2022) — A vast majority (80%) of chemicals industry professionals report labor shortages from the COVID-19 pandemic are impacting core areas of their business, according to a recent study by global strategy consulting firm L.E.K. Consulting. Distribution and supply chain top the list of areas respondents strongly agree are affected by labor shortages, and the resulting disruption to the industry continues to put pressure on operating costs.

Those are among the findings from L.E.K. Consulting’s first annual U.S. Specialty Chemicals Survey that examined an industry adapting for the long term in the wake of the COVID-19 pandemic and ongoing global upheaval. The survey polled 260 chemicals sector professionals across an array of chemical segments and executive functions to assess how their priorities have changed over the past three years and what their most pressing concerns are for the next three years.

“COVID-19 has disrupted supply chains, impacted labor supply and transformed the workplace for chemicals companies in ways that will likely outlast the pandemic, each imposing added costs and margin pressures,” said Amanda Davis Winters, Managing Director and Partner at L.E.K. Consulting. “Our study indicates that the turbulence of the past three years within the chemicals industry is not going away anytime soon.” 

Among the study’s key insights:

  • Labor shortages are increasing wages. Sixty to eighty percent of professionals in the chemicals sector expect labor costs to increase over the next three years, with an average wage hike of 8%-10% anticipated by 2024. 

  • Higher labor costs are moving down the value chain. Leaders of chemicals companies expect 60%-70% of labor costs to be passed along to customers across all end markets and expect their own organizations to shoulder the burden for the additional 30%-40% of wage increases. 

  • Regulations and tariffs are also driving up costs. Over 70% of respondents report that government regulations affected operations continuity, price, production costs and supply base. Respondents also report that new tariffs on chemical manufacturing had the most significant impact on reducing margins (44% of respondents) and increasing production costs (43%).

  • Distribution strategies appear to be unchanged. While industry professionals expect pandemic-driven labor shortages and cost escalation to continue over the next three years, they anticipate no changes in distribution channels. On average, chemicals professionals surveyed prefer regional distribution (ranked first as a preference by 41%), closely followed by end-market-specific distribution. Broadline distribution was a distant third (ranked first by 22% of respondents).

  • Supply chain concerns soar compared to pre-pandemic levels. Supply volume (68%) and on-time shipping (58%) top the list of industry professionals’ most pressing supply chain concerns. Asked which of their concerns had increased the most during the pandemic, respondents cite on-time shipping (72% saying it went up “significantly” or “moderately”), price stability (70%) and supply volume (64%).

  • Mitigating increased supply chain risk has involved more suppliers and more local sourcing. Chemicals companies have restrategized their sourcing tactics over the past 18 months to diversify their supply base and limit delays and liability. Over a third (38%) have increased their number of suppliers. Forty percent of those surveyed report they reduced imports and sourced more supply locally; in fact, over two-thirds of all raw materials utilized by specialty chemicals companies are now sourced domestically. 

  • Pandemic supply chain trends are likely to continue, though not at the same pace. Most of the surveyed professionals involved in manufacturing and distribution report they expect to continue adding new onshore capacity over the next three years, but at a slower rate than during the COVID-19 period.

“The added costs driven by COVID-19 labor trends and government regulation may lead to an accelerated pace of mergers and acquisitions and vertical integration, as organizations seek to maintain margins and streamline processes,” said Carol Wingard, Managing Director and Partner at L.E.K. Consulting. “Industry leaders may still want to revisit their suppliers, diversify risk and consider increasing their inventory to remain profitable in a changing landscape.”

In addition to pandemic-driven labor shortages and supply chain challenges, the U.S. Specialty Chemicals Survey also explored other pressing issues for the chemicals industry, including sustainability and digitization

Additional findings include:

  • Customer demand for green chemicals is driving investment in sustainability. Over 50% of specialty industrial and consumer chemicals manufacturers across all end markets report double-digit demand increases for green chemicals from 2018 to 2021. In response, chemicals companies have increased their investment in green chemicals across all end markets over the past three years.

  • Digital tools investment is up across companies of all sizes. About 50% of survey respondents increased digital investment between 2018 and 2021, while about 75% expect to do so by 2024. The increased investment over the next three years is driven by both small companies with under $10 million in annual revenue (31% increase expected) and larger firms with more than $500 million in revenue (30% increase expected). Companies with revenue between $10 million and $500 million expect to increase spend as well, but not by as much.

“Our survey provides insight into the investment plans of chemicals companies in a post-pandemic world, revealing that the industry is expanding its commitment to sustainability and digital initiatives,” said Morgan Callahan, Principal at L.E.K. Consulting. “It’s clear these priorities are gaining traction, and we expect them to be an even bigger factor moving forward as companies place more importance on environmental, social and governance efforts and become more reliant on digital tools.”

For additional insights on the chemicals industry from L.E.K. Consulting, visit

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