Market outlook: Creativity needed in chemical logistics

15 March 2013 09:28  [Source: ICB]

Europe's shifting trade flows and expanding supply chain will require a more sophisticated and international approach from logistics service providers

As more chemical customers expect global coverage, the best choice for smaller logistics firms could be consolidation

Copyright: Eric Raptosh Photography

A tough road lies ahead for the European chemical logistics industry. Notwithstanding the current fragile state of the economy, Europe will be in a difficult position in the coming years as it deals with rising imports from the Middle East as well as competition from the US, where shale gas has revitalised production economics.

This shift may force some chemical production sites in Europe to close and increase the trend towards the clustering of facilities. Product flows will change, volumes will be concentrated in hubs and the supply chain will expand. As a result, logistics providers will face increasing complexity, and will need to offer more sophisticated levels of service.

Jos Verlinden, director of transport and logistics at the European Chemical Industry Council (Cefic), says: "Concentration into clusters, sometimes linked to major ports, will lead to even more congestion around hubs and the industry will have to develop creative solutions to keep product flowing."

RISING TRENDS
One emerging trend is the increasing requirement from customers for pan-European, if not global, solutions. This will make it difficult for smaller firms to keep pace and consequently consolidation in the logistics sector will likely continue, or even gather momentum.

The faltering economy, rising costs and ongoing pressure on prices and margins will inevitably force small and some medium-sized companies to be taken over or to exit the market.

Paul Gooch, founder and managing director of Switzerland-based supply chain consultancy The Logical Group, says major chemical companies do not see western Europe as a growth market because of the region's non-competitive energy prices, lack of local feedstock, austerity-driven recessions in peripheral EU countries and aging populations.

With economic stagnation in Europe, and recession in some parts, less volume is being transported, with the result that the region's supply-demand balance is moving against logistics companies.

However, Gooch says Europe is still a large and profitable market for specialty products, even if major capital investments and resources are likely to be diverted to Asia, Latin America and the Middle East.

"This means that the European supply chain needs to be simplified, lean, flexible and responsive to changing flows and markets. We will see more consolidation as companies chase economies of scale and seek the critical mass necessary to deliver supply-chain solutions rather than just freight," he comments.

A call for collaboration in the supply chain is still being voiced, particularly from logistics service providers, but examples of successful partnerships seem hard to find, and chemical producers remain reluctant to engage fully.

Gooch says one development that is becoming apparent is the trend for producers to consolidate their suppliers, as well as the growing number of logistics companies that are offering fourth-party logistics (4PL). "There is also some evidence of alliances forming between companies which can then offer a total supply chain solution, or one-stop shop," he adds.

Transport operators are also grappling with multiple challenges: soaring diesel prices, which have doubled over the past 10 years; tightening legislation; the need to cut carbon emissions; driver shortages; reduced capacity, and a lack of investment in Europe's infrastructure are just some. These are not new issues but they have intensified during the last two years as the fiscal crisis bites.

For Andreas Zink, president of the European Chemical Transport Association (ECTA), the focus is on improving productivity, efficiency, and better use of equipment. He believes the only way to overcome the trend to push costs down at hauliers is to commit to quality, safety and sustainable services.

"Whatever rates are negotiated by the procurement managers, our members stick to high levels of health, safety and sustainability and deliver quality service. Concentrating on these areas is an opportunity to survive."

SAFETY FIRST
Safety and sustainability continue to be high up the agenda. Cefic is developing guidelines on how companies can assess their transport operation risks. Verlinden comments that it will become more difficult to transport highly hazardous goods through urban areas and authorities will increasingly require risk assessments.

With regard to the European Commission's target of curbing carbon dioxide (CO2) emissions from freight transport, Verlinden believes that by making the supply chain more efficient, lower emissions will automatically result. He says: "By improving their supply chain, companies will improve their environmental performance. Doing more with less, that is where we need to focus."

A shift to using more intermodal transport is one factor in addressing the issue. Zink strongly believes that intermodal is the way forward and that decoupling the driver from the truck, or industrialisation, is badly needed for the overall health of the industry.

"Industrialisation is important for the economy as well as transport. It is important in Europe that we become more efficient, productive and professional to keep costs at the lowest level," Zink says.

Unfortunately, rail - an important part of intermodal - is still the weak link. This, says Verlinden, is not only because of a lack of infrastructure but also a lack of efficient rail operators.

Cefic has a particular concern about single wagon transport (SWT), which it says is under threat of further decline. SWT represents more than 60% of the European chemical industry's total rail freight volume, and is essential for delivering raw materials to production sites as well as transporting finished product to customers.

SWT has been declining in parts of Europe, France and Italy for example, because of a lack of profitability. Cefic started an initiative in late February to map the needs of the chemical industry for SWT, and to develop proposals for improving the service at national and European level.

The Commission is also planning a study on SWT with professional services company PricewaterhouseCoopers.

Verlinden believes it may be possible someday to combine SWT with intermodal. A Cefic working group is now mapping intermodal flows to analyse the potential for further development and identify bottlenecks. It intends to publish recommendations before the summer.

While the use of intermodal will help reduce CO2 emissions, companies also need to look at other measures to improve their environmental performance.

One focus is on improving engine economy, including hybrid and electric technologies, although Gooch says trials have been less than encouraging. Verlinden adds that new technological developments will be needed if EU emissions targets of a 60% cut by 2050 are to be met.

In the future, the chemical logistics industry will be increasingly characterised by fewer, international firms with the talent and sophistication to offer high-end services on a global scale. Companies will need to continually develop strategies for sustainable logistics as political and public pressure drive tighter regulations.


OUTLOOK

TALKE STRIVES FOR EXCELLENCE
Alfred Talke is optimistic about the year ahead. The group managing director of German transport and logistics company TALKE, says the company has had a good start to the year. The outlook from customers is cautiously positive, and it has a full pipeline of projects.

He reports a "robust" financial performance in 2012 with improved revenue, although results were impacted by margins that were, and still are, under pressure.

The company continues to invest in Europe. Talke says: "We have concrete plans to expand our network for dangerous goods, our warehouses and value-added services in continental Europe. We see demand growing for dangerous goods logistics and are investing in our fleet and equipment for dry bulk and liquids."

In the Middle East, Talke expects to handle 6m tonnes of polymer this year at various production sites. He also reveals that it has won two on-site logistics projects in the region this month - one for polypropylene (PP) and one for specialty chemicals.

Operational excellence is a key focus for TALKE, which is constantly trying to optimise its network and international supply chain.

Flows are changing as Europe draws in more imports from the Middle East and Asia, although overall market volumes remain the same.

Customer requirements too are constantly rising on safety, quality and sustainability standards and Talke sees this as an area where the company can differentiate itself. However, he believes there is only limited readiness in the industry to pay for sustainable solutions.

The company is trying to shift volumes off the road to intermodal, for economy as well as environmental reasons. But, he says: "While sustainability is often required for our customers, if inter-modal is less competitive than road, then competitive criteria win over green criteria."


STRATEGY

BERTSCHI PLANS FOR A WORLD OF OPPORTUNITY
Globalisation is a major opportunity for logistics companies Hans-Jorg Bertschi, CEO of Swiss bulk logistics company Bertschi, believes: "An increasing number of producers will have service providers with a global set-up to follow the fast changes on trade flows," he says.

Bertschi sees opportunities in Asia and the US, where the export position has gained advantage from the development of shale gas, as well as in eastern Europe, Russia and Turkey, where he expects volumes to continue growing in 2013.

He says volumes are dropping in western Europe because of the economic crisis, but he is concerned that, when demand eventually recovers, the region's infrastructure will face significant bottlenecks because of the ongoing lack of investment.

"Most of the changing trade patterns will have a major issue regarding available infrastructure in handling volumes," Bertschi says.

The company made significant investments last year in adding more than 2,000 containers to its fleet and in expanding its rail assets. New rail terminals and container hubs were built in Tarragona, Spain, and Helsinki, Finland. Next, says Bertschi, is expansion of its global business to build on the subsidiaries established last year in Shanghai, Houston, US, and Dubai.

This year, plans have started for the development of new intermodal links in Europe. Bertschi has opened a rail link between Barcelona, Spain, and Milan, Italy, with an intermodal train that runs twice a week.

He also reveals that the company will grow significantly its rail-related activities to Russia and Kazakhstan and other CIS countries. "Eastern markets are opening up new opportunities for rail because of the long distances," Bertschi says.

In the second half of this year, the company will open a subsidiary east of Moscow, as well as a second one in Singapore to consolidate its business in southeast Asia, where it is developing value-added logistics solutions for companies building new plants in the region.


REGIONS

DENTRESSANGLE TARGETS CENTRAL EUROPE
A key challenge for the industry is being able to recruit the necessary high-calibre resources needed to maintain and continue the growth of a business, says Malcolm Wilson, managing director of Norbert Dentressangle's logistics division.

"A company needs a bedrock of capable people to ensure that as it expands, it has the necessary talent in place," he comments.

Major investments are under way in central Europe where Wilson says the company sees good growth potential. "We are expanding rapidly and plan to invest strongly there," he says.

The France-headquartered firm has continued to grow its business outside the country: Annual revenue for 2012 rose by 8.5% to €3.88bn ($5.09bn) compared with 2011.

Wilson notes that continuing market consolidation in Europe are leading to a need for more streamlined logistics solutions and smarter ways of delivering cargo to customers.

Customers are seeking ways to serve a broader geographical spread with less stock, and this trend is leading to a number of small, regional warehouses and increasingly large, centralised distribution centres.

This, says Wilson, brings benefits of being close to manufacturing sectors and makes more efficient use of cross-docking.

The company is continuing to invest in its vehicle and warehousing assets. In 2012, it carried on its programme of introducing hybrid motors across most of its European markets, as well as spending on Euro V and VI emission-standard solutions for its trucks.

Some warehousing activities were also purchased from Belgium's Nova Natie last December, strengthening Norbert Dentressangle's presence in the port of Antwerp.

Wilson does not rule out the possibility of another business acquisition this year too.


By: Elaine Burridge
+44 20 8652 3214



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