With iceman on the way, US plants and suppliers get ready

By James B. Kelleher

Chicago (Reuters) - U.S. Steel is stockpiling extra iron ore ahead of what could be another record-long freeze-up of the Great Lakes.

General Motors has built up inventories of critical parts at its plants and established a supply chain "crisis room" that will swing into action in the event of a major winter storm.

Con-way Freight is issuing strap-on cleats to its drivers and dock workers.

The blast of unseasonably frosty air gripping much of the United States has served as a reminder of the polar vortex that sent a chill through the U.S. manufacturing sector last winter, causing part shortages and plant closures and triggering a 2.1 percent drop in first-quarter gross domestic product.

Manufacturers and their suppliers are scrambling to avoid a costly repeat if this frigid autumn morphs into Polar Vortex II. Companies are stockpiling parts at factories, increasing the amount of goods in transit, reviewing weather contingencies with their freight carriers and booking extra trucks and trailers so shipments do not get sidelined by nasty storms.

The precautions will add hundreds of millions of dollars in cost, supply chain experts estimate, and could temporarily depress the sector's profits. But Whirlpool, General Motors, Ford Motor Co and Con-way, and other companies contacted by Reuters said they aimed to avoid the even more costly disruptions, like those that hit in early 2014.

"It's an insurance policy," said Chad Moutray, the chief economist for the National Association of Manufacturers.

Companies such as U.S. Steel believe they have little choice. The country's No. 2 steel producer is moving a key raw material, iron pellets, south and increasing the volume of semi-finished product at steel works around the country.

Last winter, locks on the Great Lakes froze for 145 days, more than double the usual 62, and at one point in March more than 90 percent of the lakes' surface was under ice.

That stranded raw materials and cut production and shipments of flat-rolled steel alone by 344,000 tons during the first quarter, a six percent drop compared with the same period of 2013, according to U.S. Steel.

WINTER FLOAT

CEO Mario Longhi says the Pittsburgh-based company is "definitely preparing operations for a longer period of shutdown of the locks" this winter, which "will consume an additional level of cash."

Freezing weather forced Ford to idle several facilities last winter just as the company was kicking off the biggest year of new model launches in its history.

This year, Ford has added what company planners call a "winter float" to its just-in-time production plans. The approach puts extra parts in transit and allows additional time for the parts to arrive at plants.

GM has identified high-risk regions, in terms of supplier locations and logistics routes, and is monitoring them round the clock from a crisis center for any weather-related disruptions. It has also added extra snow removal equipment at its distribution centers.

Whirlpool, meanwhile, is talking to non-rival consumer goods companies about sharing space on delivery trucks in the event of a weather emergency. The company is also investigating short-term trailer rentals in case of winter capacity disruptions.

The efforts come as some leading meteorologists are predicting another icy and disruptive winter.

The Commodity Weather Group, which sells forecasts to farmers, believes this winter could be even colder than last year. Forecasters at AccuWeather and National Weather Service, though less worried about a broad repeat, are predicting below-average temperatures and heavy snowfall in the south-central and southeastern states, home to many auto assembly plants.

That region was especially hard hit last year. When two inches of snow fell in Atlanta in late January, thousands of drivers abandoned their vehicles, gridlocking area roads for days.

Kurt Kuehn, the chief financial officer of Atlanta-based United Parcel Service Inc, says weather will be a wild card, threatening traffic snarls during the company's peak season.

"It's very hard to move goods if highways are clogged."

Con-way Freight is changing the fuel mix in its on-site storage tanks, after last year's cold snaps made diesel fuel in some locations so thick it would not pump. The company, which delivers parts for the automotive, heavy manufacturing and chemical sectors, also is issuing cleats to drivers and dock workers, so they will not fall in icy conditions.

"We learned a lot of lessons from last year's polar vortex," says Gary Frantz, a company spokesman. (Additional reporting by Nick Carey in Chicago; editing by David Greising and Tomasz Janowski)