Fecc: Sustainability is a key priority

Fecc’s new president, Neville Prior, paints a positive picture for the European chemical distribution sector but urges companies to place greater emphasis on sustainability

Despite continuing sluggish growth in GDP and chemical output in Europe and the current developments in currency markets, the chemical distribution market is remarkably steady, reports Fecc’s new president, Neville Prior.

Fecc president Neville Prior – focus on sustainability and membership Copyright: Fecc

Even when times are difficult, he says “distributors generally seem to survive and can go through currency-type crises relatively well”.

Prior, who is CEO and chairman of UK-based Cornelius Group, notes that volumes in the European markets are not dropping off, though there are some supply/demand challenges in certain segments.

He points to titanium dioxide as one area where oversupply is causing some issues, and to the fact that Europe is seeing more Chinese producers supplying into the market, working through distributors.

As a general point, says Prior, we have to accept that “the distribution sector is becoming more and more global”. This, he believes, opens up plenty of opportunity for European distributors to expand into new markets and fresh products, as well as presenting competitive challenges.

OIL AND CURRENCY IMPACTS
In macro terms, distributors are facing two main issues at present: the sharp drop in the oil price, and the significant weakening of the euro. On the latter, Prior comments that the devaluation of the euro against the dollar, as a result of the EU’s quantitative easing programme and the strength of the US economy, is clearly having an effect and is making the EU less attractive to dollar-based purchasers.

“But distributors usually have exposure to many currencies and can make up on some and lose on others. They can be flexible on pricing too, and take less margin if required to maintain the volumes expected by their principals. Distribution business is a partnership and either side will look for support in difficult times.”

He expects the dollar to stay strong for quite a long time, but that the euro will see some recovery as the eurozone begins to do a little better. But it’s not just these two currencies that are causing problems: the fall of the rouble in Russia is also affecting distributors doing business in that country.

On the oil price, Prior says he does not see this as a major influence in the distribution business on its own. “Oil, currencies, supply and demand – all have an influence on where your pricing is going to be in the market place. Only in the commodity end of the business is the oil price going to have a significant effect.”

But despite these issues, Prior believes distributors have a pretty good idea where pricing is in the market today. “It’s not just about cost of goods sold, but supply and demand and the fact that distributors have to be competitive on pricing. They will try to protect margin if they can, but equally know they have to accept a drop in price if necessary.”

POSITIVE TRENDS IN THE SECTOR
The positive performance of the distribution sector is being sustained by the trend for increased volumes of chemicals to be sold through distribution channels. Although the overall market is only growing by 1-2% a year, says Prior, the growth for distributors is significantly higher.

“Manufacturers are putting more volume through distributors, looking for the good ones whose strategies are aligned with their own. They are getting a lot more selective in the distributors they use – it’s a definite trend.”

Producers are looking for distribution partners that can operate across Europe and add value through the services and technical support they offer, he notes. “We are definitely seeing distributors offering more value-added, through provision of warehousing, supply chain management, formulation and expertise in areas such as safety, health and environment and legal.”

They can also benefit customers, he points out, through offerings such as blending, bulk breaking and specialised labelling.

“This will be one of the defining aspects of the industry… good distribution businesses will do well. They are already fairly entrepreneurial and can move quickly and flexibly. If you run a good business, you will have a good future,” he maintains.

Another key factor in business development is the expansion of Europe’s chemical distributors into overseas markets. Given the mature market and sluggish conditions in Europe, anyone with any money to invest will be looking for better returns in faster-growing economies, says Prior.

Companies are looking at Asia, north Africa, the Middle East and Latin America, especially those which are already well positioned with good European coverage. And it’s not just for sourcing-driven (although this is to some extent the case in India and China); it is much more the case that distributors are looking to set up or acquire businesses to serve local customers in emerging markets.

If companies are looking to bring material into Europe from these markets, though, they need to have high levels of auditing and quality management and the right products. “They will have to instil confidence into customers,” says Prior. “There are still nightmare stories out there about product quality and security and companies will have to put a lot of effort and investment on the ground to build confidence in their supply operations.”

PRIORITIES FOR THE SECTOR
Two issues will increasingly exercise companies in the distribution sector, believes Prior: the environment and sustainability. There will be constant pressure on environmental matters, he says, arising from moves to the circular economy and calls for zero waste, for instance, to the use of water and energy, and emissions from transport, “as the distribution sector moves lots of stuff around”.

Key factors for distributors will be transparency of information flow and the environmental impact of their operations, with transport a key factor. The industry needs to develop better logistics, reduce part loads, and make fewer journeys, he says.

On sustainability, he says it will become more and more important to consider how companies do business. He believes the sector should build on Responsible Care, the cornerstone of sustainability and a very important part of the way it operates. “At Fecc we want to continue to encourage the uptake of Responsible Care and move towards third-party verification of performance in this area. I’d also like to see its reach extended across Europe. Fecc will work with national associations to achieve this.”

But sustainability is a much wider issue than just Responsible Care, extending to the supply chain and corporate social responsibility (CSR). Prior points to the chemical manufacturers’ Together for Sustainability (TfS) initiative as a good example of what can be done.

TfS, with members such as BASF, DSM, AkzoNobel and Arkema, is aiming to develop and implement a global supplier engagement programme that assesses and improves sustainability sourcing practices, including ecological and social aspects. As such, TfS will have an impact on distributors as they represent and sell to companies in the TfS initiative, says Prior.

But consumers’ search for more sustainable products and sustainably-sourced ingredients will also have a huge impact on how distributors do business. “The end-user is getting more and more concerned about the environment and the world and there will be more pressure put on distributors from customers and suppliers.”

Fecc aims to make its voice heard on these issues and is working closely with Cefic, the chemical producers’ trade association in Europe, to make sure views are aligned, says Prior. The topic of sustainability will be on the agenda at the Fecc Annual Congress in Athens. The overall aim, says Prior, is to bring up standards across the sector and disseminate best practice, and in the long run to improve the reputation of the distribution industry.

An emphasis on sustainability will be a key feature of Prior’s tenure as president of Fecc. At the same time he hopes to ensure the success and sustainability of Fecc as a trade body and to see its membership grow in Europe and its influence reach more widely, through greater dialogue and outreach to NACD in the US and ICCTA, the global federation for chemical distribution, of which Fecc is chair.