26 March 2010 17:22 [Source: ICIS news]
By Malini Hariharan and John Richardson
MUMBAI (ICIS news)--A big challenge facing many companies that have built large polymer plants that are located far from key markets is how to move product most efficiently.
These facilities have been built to take advantage of competitive feedstocks in regions such as the ?xml:namespace>
Companies have approached this problem in different ways. Some have stuck to the traditional model of producing, packaging and storing product at site and shipping it to the market once orders have been received.
The problem with this is the delivery time, as it can take up to two months to ship product from the Middle East to Asia, by which time prices could have changed two or three times.
Other companies have developed distribution hubs at strategic locations, or hired warehouses at multiple locations to minimise shipment times to customers.
But more innovative solutions are now being adopted. An example is the model that Borouge has developed.
Polyolefins that are produced at Borouge’s plants in
All three hubs will become officially operational in mid-2010 and will handle material from the Borouge 1 and Borouge 2 facilities, which have a total polyolefins capacity of 2m tonnes/year. Borouge 2 will be commissioned over the next few months.
“Other petrochemical companies are looking at what Borouge is doing, which is unique, and trying to decide whether to take this type of visionary concept or gamble their existing supply chain models will keep them competitive in the changing environment,” says Eric Herman, CEO of CWT Logistics, which is handling Borouge’s southeast Asian logistics Hub in Singapore.
This is the first time that CWT is going beyond traditional logistics services.
For the Borouge project, it has built an integrated solution, including packaging lines, a container yard and a warehouse designed to handle 330,000 tonnes of polyolefins annually.
This gravity system reduces product handling as well as the chances of contamination, Herman points out.
CWT’s overall model allows for shorter delivery time, and there are potential savings of up to 30% on ocean-freight costs from shipping product in bulk containers rather than as packaged goods in containers, he adds.
The decision on how to package products can be decided closer to the point of the order from the final customer, avoiding the need for costly repackaging as is often seen in European logistics centres, he says.
In addition, having a packaging and distribution hub in a location such as Singapore means a Middle East-based company can deliver to China or other Asian markets in shorter lead times, enabling it to compete with South Korean and southeast Asian companies that have always had a delivery-time advantage.
“The strategy is to position products closer to the main markets and reduce the overall time it takes to deliver to the end-users,” says Herman.
This is possible from
“It can be seen as expensive to outsource the supply chain. But, firstly, you are only talking about a fraction of overall product costs,” he adds.
Secondly and much more importantly, in increasingly volatile markets a shorter lead time preserves cash flow and hedges your bet on product price fluctuations, Herman says.
“You can say that it is cheaper to pack product at the plant itself, but customers are demanding a shorter lead time, similar to the just-in-time concepts developed in the auto industry by the Japanese.”
A source from a polyolefins company with joint ventures in the
“Outsourcing of packaging and warehousing reduces capital costs and improves the project’s return on investment, which is important when you are fighting with other divisions within the company for investment dollars,” says the source.
CWT’s Herman adds that outsourcing of packaging and warehousing also allows companies to save land for future plant expansions.
To make this model more accessible, CWT is also establishing a multi-user packaging and distribution centre in Singapore, where a company can experiment with, say, 50,000 tonnes/year, says Herman.
He is convinced that now is the time for the petrochemicals industry to learn to outsource.
“You look at Nike - it has outsourced its entire logistics. Most industries have learnt to outsource. The petrochemicals industry is changing fast, and logistics is going to be a key component as more products need to be moved closer to the market,” says Herman.
Logistics could well become the next platform for companies to differentiate themselves in the market.
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