INSIGHT: ‘Tsunami’ of legislation will harm European competitiveness

LONDON (ICIS)–European chemical producers are entering the new year facing a “tsunami” of new regulations, according to the head of the European Association of Chemicals Distributors (FECC) Dorothee Arns.

Further increasing bureaucracy is adding pressure at a time when the industry is already trying to cope with the effects of inflation, the threat to energy security and ensuing higher prices, and persistent supply chain disruptions in the wake of the pandemic.

All of this is weighing on European competitiveness for industrial players, compared to other regions. It will have the biggest impact on small and medium enterprises (SMEs), which Arns calls “the backbone of European industry” employing vast numbers of people.

“I think too many people in Europe take the industry for granted, overlooking that chemical investments are meanwhile going to the US rather than to Europe, due to more certain framework conditions for investments, cheaper and reliable raw materials supplies and energy, or to growing markets in Asia,” said Arns.

Arns warns that while the general assumption is that SMEs will always be around, many cannot manage the high energy costs which threatening their longevity.

“There is always this last drop which makes the barrel overflow. Now there is tsunami of regulations from Brussels when actually we need a bit of time to breathe to manage and navigate the energy crisis which for us an existential one.”

The chemicals sector has a symbiotic relationship with the transition towards sustainable materials – on the one hand being an energy-intensive industry, while on the other a necessary player to drive innovative solutions for greener alternatives.

This compounds the need to consider the consequences for the sector, and Arns acknowledges the burden legislators must bear, but questions the feasibility for SMEs to properly understand and comply with significant and hefty new regulations.

The war in Ukraine has demonstrated that Europe is not the biggest player in the world anymore. Any tensions will leave their mark on global supply chains and should encourage everyone to look closer to home.

“The pandemic showed that Europe needs to be more self-sufficient and that we cannot rely on third parties to be there for us when we have an issue. What we are seeing right now, however, is actually exactly the opposite of what the EU wanted to achieve,” said Arns.

Arns cited European ammonia production, which is still left disrupted due to high energy costs, which in turn can harm European agriculture.

The crisis appears to be structural rather than situational and the path to emerge from it remains unclear, particularly if Europe is increasing its dependencies for raw materials on other regions.

Persistent high inflation, driven by sustained high energy costs may not be resolved in 2023, according to Arns, and while the chemical industry has always dealt with challenges, she states that she has “never seen such a flurry of crises reinforcing themselves”.

DISTRIBUTOR PERSPECTIVE
For distributors, so far, members of the FECC have been able to meet all their commitments, with the challenges presenting opportunities for those involved in this part of the value chain.

But regardless of your position in the supply chain, this is not guaranteed to last if European competitiveness in inhibited.

Costs for container freight have gone down but are still yet to return to pre-pandemic levels. And with the prospect of bottlenecks building at limited terminal facilities, or due to staff shortages hampering the loading and unloading of vessels, pressure has not eased on the sector.

With the introduction of mega-ships carrying 500,000 containers, the infrastructure and channels in place are now not large enough, leaving the system even more vulnerable to disruptions, as evidenced when the Ever Given blocked the Suez Canal.

Trucking has also come under pressure due to staff shortages, exacerbated by strike action across Europe, slowing down the delivery of goods and materials, as inflation impacts workers’ pockets.

“This hits everyone in the value chain. We at FECC are working with our colleagues from the European transport associations to find and support sustainable solutions, because truck drivers are essential for well-functioning value-chains,” said Arns.

Aside from the existing problems, distributors also have to prepare for all kinds of scenarios which could disrupt supply chains, forcing them to stay agile, and shifting delivery patterns.

“Business models of the past, such as just-in-time supplies, will no longer work in the future. Instead, diversification of supply chains is the order of the day for sourcing, selling and effective supply chain management in general. For us as distributors there is also an opportunity to showcase our value-added to all our supply-chain partners,” Arns added.

Insight by Morgan Condon