12 June 2013 18:50 [Source: ICB]
Guidance and representation on regulatory matters is a key part of Fecc's offering to members; there appears to be no let up as the EU pushes ahead with a full agenda
Although the EU has had to devote much time and effort to grappling with economic and financial problems over recent years, the pipeline of regulatory activity coming out of Brussels has not diminished. Indeed, 2013 and beyond present plenty of challenges to industry in general and the chemicals supply chain in particular.
As Uta Jensen-Korte, director general of Fecc, notes: "When it comes to legislation we have no time to waste in 2013." She points to the next Reach deadline in May, the implementation of the Biocidal Product regulation in September and the Falsified Medicines Directive (FMD), which came into force at the beginning of the year.
Yet more EU regulations are set to cross distributors' desks
Copyright: Rex Features
Reach - the EU's chemical legislation for registration, evaluation, authorisation and restriction of chemicals - continues to be a prime concern. Last month saw chemical substances produced or imported in quantities over 100 tonnes/year registered for the first time; 2010 was the registration deadline for substances produced or imported above 1,000 tonne/year.
Jensen-Korte believes most distributors were well prepared for the change in terms of the new registrations that are necessary. "We are confident that our members have dedicated the necessary resources to meet this deadline, and we hope no major issue will arise at the last moment," she says.
To support its members during this phase, Fecc has developed a guidance document providing recommendations and support to 2013 registrants in a concise manner. Fecc has also conducted an internal survey to identify the registration intentions of its members for 2013.
The survey indicates that approximately 140 registration dossiers will be submitted; around 65 of them were registered in 2010. The majority of respondents indicated that their companies intend to buy letters of access to constitute their registration dossier.
Fecc is also now closely following developments regarding the 2018 deadline, which will involve even more small and medium-sized enterprises (SMEs), as the deadline requires the registration of substances produced or imported in lower volumes. This will mean that data generation and data access costs will become a major issue, which could lead to potential disruptions in the supply chain.
Fecc therefore welcomes the recommendations in the European Commission's Reach review to reduce the impact of Reach on SMEs. Not only does the administrative burden need to be reduced, but simplifications and the overall costs of registration for low volume substances need to be considered, says Jensen-Korte.
But, she adds, the real challenge distributors and other players in the supply chain are confronted with today is the huge amount of information that has to be exchnaged along the chain. This is especially so in the annex of the extended safety data sheets that has to be provided for some substances, the so-called exposure scenarios.
"To read and understand exposure scenarios is a challenge, but it is also crucial to apply the appropriate risk management measures," says Jensen-Korte. Distributors of commodities especially are faced here with additional challenges, she explains, as they receive diverse information from different suppliers of the same substance. They have to find ways to aggregate this to provide their customers with a unique and consistent set of information.
To tackle and find solutions to these challenges, Fecc has been playing an active role in the Exchange Network on Exposure Scenarios (ENES) set up by the European Chemicals Agency (ECHA) and involving a range of industry stakeholders.
"One of the issues we are currently tackling is to better structure the information in the exposure scenario and find ways to convey the exposure scenario information for substances and mixtures," she says. "One thing is clear: we need to gain experience, and much more work lies in front of us."
Another initiative that Fecc has been active in on its members' behalf is the Reach Cross Sector Group, set up to improve supply chain communication. This is an industry-driven initiative that brings together chemical manufacturers, distributors and article manufacturers. It includes representatives, for example, from the automotive and aerospace sectors.
The group strives to find ways to communicate information more effectively and determine the most appropriate approach when preparing for Reach applications for authorisation. "Avoiding any disruption of supply along the chain is the main objective for this group," explains Jensen-Korte.
September brings more deadlines for distributors, as this is when the EU's Biocidal Products Regulation comes into force. The regulation is technical in nature and the Commission and ECHA plan to publish guidelines to assist the industry with its proper implementation.
Fecc has set up a task force that is providing input to the development of these guidelines. The task force deals with specific questions on implementation. A successful workshop dealing with these issues took place in 2012, and another one is in the making for 2013.
Aside from these preparations, there is a high level of concern within the industry as many uncertainties remain. Not all guidance documents have been published, and not all Commission implementation regulations have been adopted yet.
Jensen-Korte says Fecc and other associations are especially concerned about the Fees Regulation for Biocidal Products and its potential negative impact on the competitiveness of the industry. Many distributors are involved in formulation of biocidal products and the concern is that the registration fees will be too onerous and make business uncompetitive, especially for products made in relatively small volumes.
FALSIFIED MEDICINES DIRECTIVE
A third piece of new regulation is already in force and has the potential to increase the workload of chemical distributors. This is the FMD, introduced to protect public health in Europe by ensuring that medicines are safe and that the trade in medicines is rigorously controlled.
Since its entry into force in January 2013, this has become an important topic, says Jensen-Korte. "Distributors have to be aware of the tougher rules on controls and inspections of active pharmaceutical ingredients and strengthened record-keeping requirements for distributors. One of the main concerns for distributors importing active ingredients to the EU is the availability of the required written confirmation by the exporting country that the standards of good manufacturing practice and control of the plant are equivalent to those in the EU."
Members sourcing from non-EU countries, she adds, must ensure that they meet the above mentioned requirements; Fecc's Good Trade and Distribution Practices (GTDP) committee regularly updates Fecc members on the status per country.
And there are even more regulatory initiatives coming down the line. Besides the three key issues mentioned above, the GTDP committee has also been monitoring the Cosmetics Regulation since 2009, as most of the provisions of this new regulation will be applicable starting this July.
Says Jensen-Korte: "We are now undertaking steps to ensure that our members are aware and ready to comply with the regulation. Distributors should be particularly aware of the new obligations specific to distributors, new supply chain identification requirements, different labelling requirements and the recently introduced full ban on animal testing."
To support its members through this process, Fecc's GTDP committee has prepared a document that lists the specific provisions distributors need to take into account.
The Commission has also just released for consultation new draft guidelines on Good Distribution Practices of active pharmaceutical ingredients and risk assessment for ascertaining the appropriate Good Manufacturing Practices of Excipients.
The GTDP committee has replied to the Commission, reflecting the concerns of Fecc members on the guidelines. Fecc will continue to liaise with the Commission on the outcome of the consultations. It is also consulting with its members on the possibility to comment on Chapter Five (production) of the Good Manufacturing Practice for Medicinal Products guidelines.
Other implementation deadlines are coming up, warns Jensen-Korte. For example, the new Explosives Precursors Regulation applies from September 2014, mixtures need to be classified based on classification, labelling and packaging (CLP) from June 2015, the Seveso Directive will apply from this date as well.
Further ahead, the drug precursors regulations and the workers safety legislation is under revision. Further activities are steaming out of Article 45 (4) of CLP, the requirement for the Commission to access the possibility of harmonising the information about mixtures to poison centres. The discussion of the Commission with stakeholders has started and the scope of application might get much broader compared to current practice in most member states today, says Jensen-Korte.
Although regulatory activity on behalf of members is essential, it is not the sole focus for Fecc. Fecc is pushing ahead with the chemical industry's voluntary Responsible Care initiative. "Responsible Care is our contribution to sustainability and helps continuously to improve the industry's health, safety and environmental performance and security aspects," explains Jensen-Korte.
"As our 2012 Responsible Care report shows, applications to the programme have been at record-breaking levels in the past two years. We are also very glad to report that AECQ [the Spanish national association] and Groquifar [the Portuguese association] have adopted the Fecc European Responsible Care Programme for their members, with third-party verification."
Fecc supported both national associations in their first steps towards the implementation and has participated as well in the information sessions organised for their members.
One of its goals for this and coming years is to further emphasise the link between sustainability and high performance by encouraging chemical distributors to include the Responsible Care programme in their business strategy. The next - and crucial step, she says - will be the active communication of these actions.
"We believe that an open conversation increases public knowledge and improves the image of the industry. We want to encourage the communication of the wide benefits that being part of the Responsible Care programme brings to companies. We trust that these actions will increase even more the application of the programme."
Another key area for Fecc is international trade and investment. The current economic worries in Europe present both challenges and opportunities for the chemical distribution industry, says Jensen-Korte.
"As an important player in the global chemicals chain, distributors have been and continue to position themselves to exploit new trade opportunities. At Fecc we have an expert committee (International Trade) dedicated not only to monitoring the ever-changing trade environment for our members but also to research and identify the market challenges and opportunities in the emerging regions."
Understanding what these challenges mean, and more importantly, identifying the right strategic options is the key to thrive in this new competitive environment, she believes. The committee regularly produces fact sheets containing macroeconomic and chemical-related data in the focus regions, provides regulatory information and invites experts to give presentations for the members on how to facilitate business in these areas.
"Innovation will play an important role that will allow the industry to consolidate its position in uncertain market conditions. This not only means expanding to new territories, but also providing additional services such as mixing, blending and filling, logistics and warehousing. These services provide added value as well as new business opportunities.
"Chemical distributors have shown great capacity for adaptation as they increasingly offer tailor-made solutions for a wide variety of customers. Being able to use this strength when entering new markets, is an advantage for chemical distributors," she concludes.
DISTRIBUTORS CHASE BETTER PERFORMANCE ALL ROUND
After two reasonably good years in 2010 and 2011, business in the chemical distribution sector has experienced a slowdown since September last year, continuing into the first few months of 2013.
The first part of 2013 looked more or less normal, explains Fecc president Edgar Nordmann - chairman of Germany's Nordmann, Rassmann - and it now appears that business in April and May is recovering.
He is expecting further improvement in the third and fourth quarters, continuing into 2014.
The slowdown, he points out, has to be compared with the rather high level of business in previous years, which has left chemical distributors in a good financial position. Many firms have cash either to invest or spend on acquisitions, and he expects merger and acquisition (M&A) activity to continue in coming years, driven by a number of factors.
The dip in the distribution market reflects the overall performance of the European chemical sector. Latest figures from the European Chemical Industry Council (Cefic) show that EU chemicals output dropped by 2.1% in the first three months of 2013, and its chemicals industry confidence indicator deteriorated in April for the third month in a row, due mainly to lower order-book assessments.
Fecc's optimism for improvements in the distribution market going forward rest on the gradual stabilisation of the economic crisis in Europe, even in countries such as Italy and Spain and Portugal, explains Nordmann. On Greece, he says, it's still more a question of wait and see.
Recent talk of France sliding into the same difficulties as its southern neighbours is not a real danger, he believes. But in Germany, he points out, the situation is currently poor, with automotive and construction markets slowing down.
On a brighter note, areas like food, feed, cosmetics and pharmaceuticals are proving to be relatively strong.
Nordmann accepts that the EU austerity measures are needed, but points out that low interest rates and the mild recession are preventing investment, which is holding back demand in areas like construction.
However, the European central bank has had a steadying influence, bringing some confidence back into the market, and swings in the euro have stabilised recently, so the currency is not now so much of an issue, he says.
But on the whole, says Nordmann, chemical distributors have not felt the full effects of the downturn. They do not suffer so much from the lows in the market as generally they have a wide customer base and a wide range of products.
The move into speciality chemical distribution has also shielded distributors that have made this shift, as demand into specific end-use sectors has held up better than in commodity sectors.
Nordmann also believes increases in productivity and efficiency in the distribution sector have helped offset adverse economic impacts to some extent.
LONGER TERM EFFECTS
But there is no doubt the current situation is having some longer term impacts on the distribution sector.
Sluggish economic growth at home has prompted companies to look further afield for business, and many are establishing offices and activities in regions with more attractive opportunities, such as Russia, eastern Europe, Turkey, North Africa, the Middle East and Asia.
It has also prompted an upturn in M&A activity, partly as companies are seeking to buy in geographic spread, but also because many companies are looking to strengthen their market position, taking advantage of their low-debt status built up after a good couple of years.
"It's not just the big companies that are active," says Nordmann, "even medium-sized players are becoming active in the market. Large principals are looking to use as few distributors as possible but are becoming more careful, as they do not want to just depend on the big ones. They are thus looking to the medium-sized players." This is, he says, causing them to look to add reach in product, services and geography to meet principals' expectations.
Other factors driving the increased M&A activity is the increasing burden of rules and regulations and the heightened requirements of corporate governance, especially as distributors look to do more business outside the developed European market.
"For small and medium-sized companies it is difficult to follow all the regulatory changes and to employ the required personnel - the financial burden is sometimes too high." As a result, smaller family owned companies are looking for buyers to give their businesses a better home.
There is also the problem of succession at many medium-sized, family-owned businesses in Germany, France and Italy, which is having a similar effect.
Nordmann stresses the importance to companies of ensuring good corporate governance and addressing corporate and social responsibility (CSR).
These, he says, are taking a much higher profile in businesses these days and the downside of not getting to grips with ethical business practices and risk management is becoming more serious.
Auditors are becoming much more interested in such things and are asking companies to set out their risk management policies, for example, and how they go about implementing and revising them.
When going abroad for business it is also essential to have sound corporate governance principals, he adds. Communication and exchange of data are key items to ensure the parent company in Europe knows what is going on in the regions it operates overseas.
In some countries bribery and corruption are more prevalent than in Western Europe and distributors need to find a way to overcome these practices. It may mean not doing business in a specific country if the issues are insuperable, he advises.
Looking to the future, Nordmann points to several key trends. As discussed above, consolidation in the distribution sector will continue through M&A activity.
Also, he expects companies will increase their efforts to reduce their carbon footprint, through effective management of warehousing and transport, for example, and will continue to manage the financial side of the business closely.
He advises companies to keep cash within the business, and take a careful approach to dividend policies in future.
Expanding on the environmental aspects of distribution, he believes there is plenty to be done in terms of consolidating shipments; car and truck fleet management; and energy efficiency in buildings. "It should be possible to cut carbon footprint by 10-15% over the next five to 10 years", he notes.
"There's a competitive advantage to be gained here," he states, "and a lower carbon footprint not only cuts costs, but can bring benefits win dealings with principals and customers.
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