Outlook and Opportunities in Chemical Logistics
Today: getting goods to and from the warehouse; tomorrow: where to put the warehouse?
From the outside, the chemical logistics business looks like undiscovered country, ripe with opportunity for service providers. Chemical producers agree that those opportunities exist, but they are not the low-hanging fruit they appear to be.
"A lot of service providers are trying to enter the chemical logistics market," says Henry Ward, global director of transportation safety and security for Dow Chemical, based in Midland, Mich.
"Generally, we negotiate our own contracts, and look to third-party logistics providers (3PLs) to execute. Increased visibility is the real need in the market, and service providers can help pull that data together. That is the direction we are headed."
The story is similar at another of North America's largest producers.
"Third-party logistics has certainly grown in the chemical industry, but with mixed results," says Peter Masterman, vice president of logistics and customer service at Nova Chemicals in Calgary, Canada. "We look at distribution as a core competency—transit costs and service are critical to our business. Look at the margin on one pound of polymer, for example. We drive inventory pretty hard."
Nova does, however, use specialized outside logistics expertise in some cases. "We use 3PLs for freight forwarding, brokerage, and customs. We are particularly interested in 3PLs that can help in areas such as international shipments to places where we do not already have depth."
The pace of new entrants into the chemical 3PL market has slowed lately, says Kelly Elizardo, director of transportation and logistics assets at Philadelphia-based Sunoco. "We still get a steady drumbeat of 3PLs interested in our business, but it has declined a little since the initial rush," she explains.
"3PLs now understand that unlike other sectors, the chemical industry does a lot of best-practices sharing. Logistics is a core competency in this business, and there is a constant internal challenge in the industry to improve."
Sunoco has not used 3PLs to the extent other shippers have, Elizardo says. Mostly the opportunities for outsourcing have been in truck tendering and dispatching, and railcar tracking and tracing.
"Shipment visibility is important," she says. "We know where every car is inside the fence, and we understand that the national transportation infrastructure is a challenge for all carriers and service providers. That is why we want to be close partners with our vendors. Having safe, reliable, and environmentally sound operations inside and outside the plant is key."
Nova operates along the same lines. "'Responsible Care' is a long-standing ethic in this industry," says Masterman. "Now that we are looking at the entire supply chain as a value chain, Responsible Care makes our thinking outside the fence line more holistic.
"Responsible Care provides a risk-based approach, and we use those selection criteria when we have the ability to choose a carrier, terminal, or other logistics provider."
Masterman sees better service opportunities in areas such as tracking and tracing, invoice and payment service, and scheduling. "We occasionally bring contractors to our sites, but it is more common to have an onsite 3PL that physically operates packaging and shipping in Europe than in North America," he says.
Becoming an onsite 3PL for chemical producers is the goal for supply chain solutions provider Exel, Columbus, Ohio.
"Seventy-five to 80 percent of our chemical customers are Tier 1 producers—the big household names," says Gary Williams, president of the chemical and industrial sectors for Exel. "But we do not manage the whole supply chain—end to end—for any one company yet. We have the capacity to do so, but we have not yet been asked to provide that service. We are, however, in discussion with several customers to do it."
Until such time, there are plenty of incremental openings in chemical logistics, Williams says.
"Opportunities exist if you understand what services to offer," he notes. "Producers are cleaning up their portfolios. In some cases, we have taken over 100 percent of processing for a customer—that means grinding, additives, and packaging or bulk shipping. We may need to use dedicated lines for this service; other times we can spread the cost of assets over several customers."
For service providers, the essential fact to remember is that the chemicals industry is "a mature business with the same competencies," says Mark Rourke, vice president and general manager of transportation management at Schneider Logistics, Green Bay, Wisc.
"3PLs must consider the opportunities. Are we helping chemical companies think about the next five years rather than the next five days? We always think of end-to-end total costs, not just the dollar costs of transportation."
Some technology and techniques—such as vendor-managed inventory and RFID—popular in discrete-goods logistics are making their way into chemical logistics.
"But companies have to think long-term," says Rourke. "While you are concerned today with getting goods to or from the warehouse, you also have to be thinking about the best place to locate the warehouse."