The chemical industry is poised for massive changes that will open huge opportunities for logistics providers, according to DHL Global Forwarding (DGF). The logistics firm recently published a white paper that points to a need for far-reaching changes in the industry’s logistics strategy and practices.
The authors of the white paper argue that so far, the chemical industry has not focused enough on logistics as a lever for cost optimization and improving competitive positions.
Compared to many other sectors, the chemical industry is a 900-pound gorilla. According to DGF, its global sales volume amounts to €3 trillion (US$3.18 trillion), generating over 700 million tons of freight in a year.
Its logistics are often complex. “The industry is exceptionally diverse with complex supply chains challenged by the variety of product, highly specialized transportation and storage requirements and growing safety issues,” the authors of the white paper wrote.
For all this complexity and heft, the chemical industry’s logistics appears to be largely running on autopilot, DGF found.
“Logistics in the chemical industry is expected to run smoothly and reliably, with senior executives usually only playing attention when something goes wrong and rarely regarding logistics as an opportunity,” said Michael O’Hara, global head of the chemicals sector at DGF.
“Logistics and supply chain management should be key elements in a formula for success for global chemical companies in today’s complex interconnected marketplace where products are fast being commoditized,” he continued.
To utilize logistics for competitive advantages as well as curbing costs, the industry should adopt five key levers at board level, DGF’s white paper finds. It urges clients in this sector to optimize costs, free up capital for better inventory management, embrace smart investment in logistics assets, step up their focus on end-to-end safety and security processes and to target differentiated logistics services.
The authors urge shippers to perform an end-to-end analysis of total supply chain costs and to develop strategies to optimize total costs rather than individual solutions. At the same time, they stress the importance of getting the right logistics services, writing that “differentiated services and supply chains specifically designed to meet customer requirements can crate a competitive advantage in an industry where standard molecules are basically the same no matter what region they are made in or by which company.”
The white paper also calls for a standardization of safety and related processes along supply chains, a reduction in inventory and a greater emphasis on J-I-T solutions.
Strategy&, a team of industry consultants at PwC, also find that the chemical industry – after massive expansion that saw revenues double over the last decade to reach US$5.2 trillion in 2013 – is now facing massive pressure to change. Its analysts diagnosed a shift from blockbuster innovation to incremental advances targeting solutions for particular problems, increased commercialization of alternative manufacturing technologies, a shift in manufacturing footprints and the emergence of new customers in a wider variety of regions and markets.
To manoeuvre through this change, chemical companies need to adapt and refine their business models and identify growth opportunities in emerging markets, they argued, highlighting China, where chemicals sales expanded at an average compound annual rate of 26% between 2003 and 2013. In the coming years, the industry is expected to see 2-3% annual growth in mature markets, whereas emerging markets promise growth between 6% and 10%.
The changes outlined by DGF would spell out considerable opportunities for logistics companies, and the margins associated with special handling requirements associated with many chemicals are attractive. On the other hand, they require a high level of expertise, said Rich Zablocki, vice president of global product development, North America at CEVA Logistics.
“You need specialists on board at every touch point. It could be an absolute disaster if you are not careful,” he remarked. CEVA handles chemicals, but in relatively small quantities, as it is not a focus for the company.
DGF’s white paper stresses the importance of J-I-T solutions, but Zablocki doubts that there will be a significant shift from ocean transportation – traditionally the main domain of international chemicals logistics – to air freight.
Lufthansa Cargo does not identify chemical shipments per se and therefore has no clear handle on the scope of this traffic or shifts in demand patterns, but a sizable proportion of this cargo has special handling requirements and is moved on the carrier’s Care/td service, sometimes in combination with other special services like cold chain or express features, noted a LH Cargo spokesperson.
“In general, the growth of our special express variants of Care/td shows that the time factor is playing an increasing role also in the dangerous goods sector, such as the radioactive isotopes segment,” she added.
Regulatory change has propelled transformation in some supply chains, but at this point there is nothing on the horizon as far as hazardous materials are concerned. LH Cargo does not anticipate any requirements to capture more data, faster transit times nor geographic shifts in the foreseeable future.
By Ian Putzger
Air Freight Correspondent | Toronto
