FocusShell moves to FCA only pricing in Europe

13 October 2008 13:14  [Source: ICIS news]

By Heidi Finch

LONDON (ICIS news)--Shell has implemented a free carrier (FCA)-only pricing policy for its European distributors to streamline the business and offset the current economic climate, market players in the solvents sector said on Monday.

This move would mean that the company no longer factors in transportation costs to distributors, which was thought to be triggered by the recent surge in fuel and freight costs.

It was not clear whether this policy applied to all chemical products, although there was particular talk about the FCA only pricing in the solvents and monopropylene glycol (MPG) sectors. Shell has declined to comment.

The FCA-only policy would also enable Shell to concentrate on larger-size direct customers and limit administrative costs associated with distribution business, said a solvents seller.

One European solvents producer said the sector was particularly sensitive to high transportation costs because of its low margins.

The source, however, said that it would not follow suit, stating that it would remain consistent in its free delivered (FD) pricing policy, with FCA only quoted in a few exceptional cases where transportation costs were particularly high.

One Shell distributor said: “We now have the responsibility of sorting out logistics and ensuring the security of the goods to their destination".

As a small player, it said it does not have the same leverage as producers when dealing with haulage companies. In addition, it was now experiencing the difficulties first-hand in securing railcars, particularly for journeys to southern France.

This change in policy has resulted in the firm concentrating on solvents business located close to production at Pernis in the Netherlands and Berre in southern France, said the distributor.

"The change in policy has also given us the ‘opportunity’ to sell in southern France," a region where it had previously not had any exposure.

However, the risk is that competition was likely to intensify in the regions near the plants, which could squeeze out the smaller-scale distributors in the surrounding areas, added the source.

One reseller in Germany said it had not seen any changes to our client base, adding "although the pricing policy has changed, we have not seen any real adjustment in prices".

Another MPG reseller said it has always agreed on FCA pricing with Shell and had not seen any change in its case.

The seller said it considered FCA pricing "a fairer way" to differentiate between end-user destinations and for distributors to take care of the transportation themselves.

It also enabled "Shell to stick to its core business and outsource the logistics", said the seller.

"Everyone hates change, but it is just a question of getting use to it," added the source.

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By: Heidi Finch
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