According to the latest report from Transport Intelligence, Global Chemical Logistics 2013, the chemical industry is undergoing huge change. The report, which was released in December in London, United Kingdom, suggests that this is creating significant opportunities for logistics companies that specialize in chemical shipments.
Some of the opportunity is driven by well-established trends such as the growth of the Chinese economy or other emerging markets. Other aspects are more recent, such as the effects of shale-gas production in the United States. Both are remaking the structure of the chemical sector and the logistics capabilities that support it.
20 years ago, the wave of globalization gradually shifted chemical production away from locations within single economies, towards very large continental clusters such as Antwerp or Singapore. Now these clusters no-longer just serve their hinterland but compete with one another, selling not into a single region but on a global scale.
The largest example of this is the Middle-East, where both Saudi Arabia and the Gulf Emirates are selling their expanding production into all of the major markets: Europe, North America, and Asia. Yet a region which appeared ready to lead the world has been challenged from an unexpected source. The bonanza of shale oil in the US and Canada has transformed the prospects for the American chemical sector. What was previously an industry in gentle decline now has the prospect of becoming a major exporter to global markets, such as China, whilst the powerful export machine along the Rhine River is threatened by higher energy costs.
The implications for the chemical logistics sector are fundamental. It has increased its profile as chemical producers rely on it to access global rather than local markets.
The big beneficiaries of this change over the past couple of years have been those logistics providers capable of adapting to such shifts in global trade. In the vanguard of this are the marine bulk storage providers led by Vopak, alongside the tank container operators capable of flexing their business model to an intercontinental reach. The chemical tanker sector has exhibited more discipline than most shipping markets but it can hardly be described as booming. Chemical terminal and businesses are more prone to fast changes in chemical trade flows but the long-term trends offer opportunities for those in the right location.
For those in the wrong location the threats can be serious. The comparative cost of energy as well as economies of scale in logistics threaten the existence of many smaller and medium-sized production locations, particularly if they are linked to older oil and gas fields.
Logistics for downstream product is possibly changing at a slower rate simply because the nature of customer demand is changing more slowly. The huge expansion in demand in China is the most salient trend. However, other regions, such as India, parts of South America, South East Asia, Eastern Europe, and Turkey, have a large appetite for downstream chemical logistics development. In addition the downstream ambitions of the Middle-Eastern producers require considerable support.
Even in developed markets, changing patterns of chemical trade are affecting how downstream logistics operates, with globalized flow of product enhancing the desirability of globalized logistics solutions.
The market for chemical logistics worldwide is likely to grow in-line with the expansion of the chemical sector generally, that is in low single digit percentages in the region of 3%. That said, within that range different sectors will see wide variation with European providers threatened in the short-term, while logistics service providers in North America may experience something like boom conditions.
However extrapolating from short-term trends is difficult and dangerous. The chemical sector offers real opportunities to logistics providers but success will only come to those that not only identify new opportunities but also put themselves in a position to exploit them.