21 May 2014 10:44 [Source: ICB]
The chemical distribution business is continually evolving as companies strive to meet the dual needs of customers and suppliers, as well as the quickening pace of market demands. While its fundamental role in the industry will not alter, what is changing is the depth and breadth of its services, its market reach and its technical expertise and segment/application knowledge.
Erik Fyrwald, president and CEO of Univar, says: “An intense customer-focus will continue to be the hallmark of successful chemical distribution in Europe and around the world. We are seeing a greater focus on providing customers’ product needs with on-time delivery, but complemented with technical capability and deep industry knowledge. Customers are also increasingly looking for a one-stop-shop for both specialty and commodity chemicals as well as packaging and blending.”
The share of the market serviced through distribution will increase, driven by the customer and the suppliers, says Biesterfeld CEO Birger Kuck. “Customers are looking for more service which the industry is not prepared to provide,” he says.
“Suppliers are interested in optimising their production and reducing the cost of supply chain services,” explains Kuck, who adds that the growing importance of overseas markets such as Asia – and now the US as a result of shale gas developments there – will require local distribution know-how that will influence the whole sector.
“Suppliers are interested in optimising their production and reducing the cost of supply chain services”
One example Fyrwald gives is methanol, which the US typically imports in large volumes. Now, he says, domestic capacity is growing rapidly and the region is becoming a significant net exporter, which is shifting the supply dynamics of a number of chemicals. “As a result, producers are adjusting their strategies and we in distribution must respond,” he says.
Fyrwald feels change will come through differentiation. “We are differentiating ourselves by offering not only logistics, but deep industry knowledge and technical insight. For example, we have teams dedicated to develop new formulations that make products better. From oil refining to snack food ingredients, our chemical engineers and technical development specialists are consultants to the industry spurring innovation,” he says.
Innovation is important in the longer term for both distributors and manufacturers, believes Brenntag CEO Steve Holland. He says innovation can increase process efficiency levels and enhance application technologies. “Innovation can be a competitive advantage and a key factor within the manufacturing sector in providing future growth and will be a major differentiator for suppliers and distributors,” he says.
For Kuck, the rising number and diversity of national regulatory requirements will strengthen the position of European distributors because of their local knowledge. Their know-how in handling, supplying and transporting goods will increase in importance too as manufacturing continues to move overseas.
“We also see a growing awareness of environmental issues in many markets”
“We also see a growing awareness of environmental issues in many Asian markets which will impact on the availability and cost of affected chemicals,” says Sul, who adds that at the same time the market is seeing the first implications from the uneven competition between industrialised regions.
“While especially European producers have been facing challenges in areas like energy costs, regulatory compliance and environmental requirements for several years, we see that in Asia, namely in China, new global players are emerging that do not have to deal with these issues to the same extent yet, providing them with a competitive advantage.”
Sul says Asian managers, who have often been educated and worked for “blue chip” producers in the West, are now quickly building up the capacities of key intermediates which were, until recently, imported from western countries. “In a second step, these new and competitive players then expand into specialties and focus on exporting these products to Europe, the US, and elsewhere,” he comments.
Is there a dilemma between overseas expansion and specialisation? Kuck says overseas expansion does not always correlate with specialisation but much depends on the specific market. Nevertheless, he says, there are enough markets where the industry is sophisticated enough to look for highly specialised products and application know-how.
He is referring not to markets in the US, Canada or Australia, but more the BRIC countries (Brazil, Russia, India and China) or the Asian tiger states of Hong Kong, Singapore, South Korea and Taiwan.
He says: “Customers here are keen to benefit from the know-how and expertise a specialty chemical distributor can offer. This is a good base to grow overseas business without losing the focus on specialties.”
“Producers are adjusting their strategies and we in distribution must respond”
Geographic expansion remains a strategic trend. Biesterfeld’s growth is being driven by countries in northern Africa and the CIS region. Kuck is also looking at Latin America or South Africa, and is watching emerging markets, especially the BRIC states, closely.
Kuck says: “They have different strengths and weaknesses. Biesterfeld is present in all of them, as well as in some other overseas markets, in order to follow developments and decide when the time is right to expand.” He says the company is less interested to expand to the US and most Asian markets as they are already too far advanced to open opportunities.
Although growth in emerging markets has slowed somewhat in recent years, Fyrwald sees great opportunities. He says: “China is a huge market for the chemical sector, but the distribution industry there still needs to be more developed for the benefit of both suppliers and customers. Other emerging markets that are also sizeable, but have slower growth than China, are Brazil, Southeast Asia, the Middle East, and now Africa is becoming significant.”
Commenting on market segments, Fyrwald sees the following offering good growth opportunities: oil and gas in North America; personal care, food ingredients, coatings, cleaning and sanitisation products in North America and Europe, and agriculture in North America and Brazil, where mining is also growing.
“Innovation... will be a major differentiator for suppliers and distributors”
Steve Holland CEO
Biesterfeld’s Kuck is in no doubt that the trend towards sustainability and environmentally friendly products will make specialty chemicals the main driver of future business growth, further reducing demand for commodities. Only in emerging markets does he see demand for commodity chemicals increasing. “We believe that this is, however, only short term. Soon specialties will be more interesting for them, too,” he states.
While Sul agrees it will be specialties that provide the growth, DKSH also sees the need for a balanced portfolio comprising both specialty chemicals and semi-commodities. He says: “Portfolio management for a com- pany’s focus industries is key in order to have an attractive basket of products to serve the customer. This again attracts suppliers.”
Change is the one constant feature to be faced by chemical distributors in the future. Whether that is changing market demand, changing growth opportunities, or changing regulations, those companies that can embrace the challenges to better serve their customers will see their businesses thrive.
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