True Shipper-Logistics Provider Inegration Inches Closer to Reality
Service providers are moving inside the fence line and working with shippers' customers.
After more than a decade of trying to become the shipping desk for chemical producers, logistics providers can point to many successes, but not quite the ubiquity they hoped for.
And now new challenges are arising. Not even gasoline at $3-per-gallon can keep U.S. drivers off the highways. Congestion is also an issue for most of the North American rail network, although the regional meltdowns of previous years are now just bad memories.
"Today's rail network movement is pretty good," says Peter Masterman, vice president of logistics and customer service at Nova Chemicals, based in Calgary, Canada.
"We are able to run more cars across limited infrastructure. The problems we encounter are in the first mile and the last mile, especially getting a specific car to a specific customer," he says. "We are addressing these problems by educating customers about how railroads work. It's not glamorous, and it requires hard work, but it is in everyone's best interest."
Dan Bingeman, assistant vice president of supply chain logistics for the Canadian National Railway, Montreal, disagrees. His parent railroad does not have a congestion problem, he says, adding that thanks to a new routing protocol among roads in the West, cycle times have improved for chemical shippers' tank cars and hoppers.
For the past few years, Bingeman has been operating a stand-alone 3PL focused on unlocking value in the North American rail infrastructure for chemical producers and logistics managers.
"We offer granular services, starting way back in the supply chain with chemical companies' suppliers, all the way through rail and truck transport procurement. We also handle in-plant logistics for some customers," he says.
Most recently, Bingeman worked with Spanish producer Interquisa, which began base-loading the North American market by shipping purified terephthalic acid, a precursor for PET resin, in advance of building a plant in Montreal.
"We handled imports and logistics for Interquisa in North America," says Bingeman. "We were also on site for the plant construction, consulting on logistics. As the plant became operational, we shifted from imports to domestic production."
Bingeman's group now also handles logistics for one of Interquisa's customers, PTT Poly Canada.
"We have 47 active clients. Our role with those clients spans from one person acting as an on-site rail expert, to offering a full range of service as we do for Interquesa and PTT," he explains.
"The old rules of thumb on rail and truck transport are being turned on their heads," he adds. "Once you start shining daylight on common practices, shippers find they not only improve performance and cut costs, but actually gain market share because they have more product available and can get it to the right markets."
On the truck side, operators and 3PLs alike will be cheered to hear Nova's Masterman talk about utilization.
"We are definitely trying to be more carrier friendly. It used to be okay for a truck to sit and wait at our front gate for 20 minutes, then wait at the loading rack for 20 minutes, then wait at the scale for 20 minutes," he says. "But that's one hour lost. If we as shippers don't respect carriers' utilization, well, they have choices, too. It is the same situation at the ports."
Truck utilization has been thrown into stark relief by the growing driver shortage and restrictions on hours of service.
"For 20 years we received reduced rates from carriers, but now we are on the other side," says George Grossardt, vice president and general manger of bulk transport at Schneider National, based in Green Bay, Wisc. "We have to make hard decisions on driver demographics. We still use predominantly inexperienced drivers and train them."
The additional variable in the chemical logistics equation is the presence of distribution companies. Some, such as Ashland of Dublin, Ohio, are producers and distributors. Others, such as ChemCentral of Bedford Park, Ill., are pure distributors.
"There is some convergence between the services 3PLs perform and what we do," says Mark Rost, director of purchasing, ChemCentral. His post was created this year to coordinate the company's four regional purchasing managers.
"Producers have made us look at every facility and examine whether we are operating at full capacity. Often we have found unused or underused assets," Rost says. "We are also looking at facilities together with producers, answering questions such as, should we both have a tank of the same product within 100 miles of each other?
"Sometimes we are approached by suppliers, but we have also approached them," he adds. "In some cases, we buy from them in drums. But we are good at drumming. This leads us to think, can we buy in bulk and drum for our customers? Maybe we can drum for their other customers, too?"
Ashland also sees convergence between chemical 3PLs and distributors.
"We consider ourselves a 3PL," says Michael J. Shannon, executive vice president, global supply chain for Ashland, which is not only a chemical producer, but also a large fleet operator, with 450 tractors and almost 1,000 trailers.
"We use 3PLs in areas where we cannot add value, such as small quantity packaged goods," says Shannon. "And some of our suppliers use us as a third-party logistics provider. Right now, producers and distributors are thinking about being in the right markets, and the number of operations in those markets."
The Final Test
"The final test for 3PLs of any size is: what do they offer for shippers, and what do they offer for carriers?" says Schneider's Grossardt. "Some 3PLs have been successful creating new models for other industry sectors.
"But it will be more difficult in bulk chemicals," he notes. "You can't just run chemical products through crossdocks."