Chevron Chemical Stresses Close Partnerships with Core Carriers >By Charles E Wilson

April 1, 1999
Qualifying as a core tank truck carrier for the Oronite Additives Division of Chevron Chemical Company LLC requires more than just a good rate. In fact,

Qualifying as a core tank truck carrier for the Oronite Additives Division of Chevron Chemical Company LLC requires more than just a good rate. In fact, rates fall far down on the list of basic selection criteria.

First and foremost, the carrier must be willing to join in a very close partnership. Communication is key and starts with frequent meetings with Chevron Chemical transportation managers. In essence, the carrier becomes an extension of Chevron Chemical.

"It's almost like we're joined at the hip, and that's the way we like it," says Richard W Mathews, transportation/-Responsible Care specialist for Chevron's Oronite Additives Division. "We see some of our core carriers on almost a weekly basis. At the least, they meet with us quarterly.

"Our core carriers participate with us in studies and seminars. Without them, we wouldn't have the necessary resources to do projects, such as long-term analyses of distribution activities. We want to involve them more because our transportation staff has been thinned significantly in recent years. And more corporate restructuring is likely."

A move is underway to create a centralized truck transportation management center that will function much like the rail and marine transportation centers that are already in place. Currently, the two primary Chevron Chemical divisions each have their own truck transportation departments. All of the corporate transportation managers are based in Houston, Texas.

Mathews is the truck transportation specialist for the Oronite Additives Division, which accounts for about 15% of the business done by Chevron Chemical. Principal products are custom-blended additives that are used in engine oils, transmission fluids, industrial oils, greases, and gasoline and diesel fuels.

Domestic manufacturing and blending facilities are in Belle Chasse, Louisiana, and Richmond, California. Oronite additives also are produced at a contract chemical plant in Indiana. Product is stored and distributed from terminals in the Midwest, South, and West Coast. Internationally, the Oronite division has plants in Brazil, Canada, France, and Singapore. Joint venture plants are in Mexico and India.

Mark Rudeseal (bulk trucking) and Bob Kaisand (vans) coordinate over-the-road movements for the US Chemicals Division. The larger of the two Chevron Chemical divisions, this unit produces and markets petrochemicals, including benzene, cumene, cyclohexane, paraxylene, ethylene, propylene, normal alpha olefins, polyethylene, styrene, and polystyrene. Primary US manufacturing plants are in Baytown, Orange and Port Arthur, Texas; St James, Louisiana; and Marietta, Ohio. Overseas production facilities are in Saudi Arabia.

The various transportation departments and centers are supported by the Hazardous Materials Transportation Center under the direction of Dennis J Ashworth. The center staff includes Summer Camp (emergency response drills), Bob Norwood (domestic Department of Transportation regulations), Tim Kelley (international regulations), and Keith Eagerton (Responsible Care risk reviews/distribution activity compliance reviews).

Among its many duties, the center writes and updates Chevron Chemical's emergency response manual and provides coordination for the transportation crisis management team. The center also maintains the training section of Chevron's intranet website.

The Hazardous Materials Transportation Center personnel spend considerable time ensuring that the Chevron Chemical divisions meet the worldwide distribution code requirements under the Chemical Manufacturers Association's Responsible Care program. "We have a responsibility to ensure that all of our products are transported as safely throughout the world as they are within the United States," Ashworth says.

Company procedures for international distribution are the same as for domestic. The procedures include distribution risk management, incident reporting, regulatory monitoring and communication, dangerous goods training, container selection, storage and handling, internal and external compliance reviews, emergency response, and TransCAER.

"On the international level, we find that population exposure data and other statistics are lacking in many areas," Ashworth says. "Europe has a relatively strong focus on hazardous materials transportation safety, which is promoted through CEFIC, the European chemical association. Responsible Care is just beginning to take hold in Asia."

Distribution risk management has become a crucial part of the transportation management process, both for international and domestic shipments. Ashworth and his staff perform risk reviews and route analysis for several routes every year using PC*HazRoute from ALK Associates. Chevron Chemical recently began testing RiskMAP from Abkowitz & Associates Inc.

"We look at all aspects of a route," Ashworth says. "We evaluate the route itself, as well as loading times, transportation mode, and population exposure. We want to see if any conditions have developed that would require changes in the way we move shipments.

"For the most part, we don't actually do routing with the software. We've found over the years that tank truck carriers usually know the best and safest routes already."

Transportation mode receives frequent attention that goes far beyond the route reviews. This is one of the first factors considered when new customers are signed up. Chevron salespersons also discuss storage and handling procedures using materials provided by the

"We determine the appropriate mode for each shipment, and we make sure the customer understands the reasoning behind that determination," Ashworth says. "We have found that marine has the lowest rate of incidents statistically, followed by rail, then truck. However, marine incidents are much more costly to clean up."

Outside of North America, most international shipments are by parcel tanker, drums in box containers, or tank containers. In the Oronite Additives Division, tank containers handle about 6% of the shipments, and most of that activity is international.

"We believe tank containers could be used to a much greater extent for both international and domestic shipments," Ashworth says. "There is no question that tank containers are safer and more flexible. We are just beginning to figure out how to exploit the benefits.

"We prefer bulk shipments, and we want to move our customers away from drums, which may cause problems. Many of the customers that take drums are smaller operations, and it's tough to get them to change. We have to show substantial cost savings to convince customers to make the move to tank containers."

US railroads make it difficult to move customers to tank containers, according to Mathews. "Rail managers are rail tankcar oriented, and they push transloading over tank containers," he says. "We don't believe any big shift to domestic use of tank containers in the United States will occur until it is mandated by the federal government."

That is because the shipment cost per pound is almost identical when tank containers and tank trailers are compared. In addition, the tank container takes more handling when it is transferred between rail and drayage carrier, which increases the incident potential. However, this is offset by safer longhaul rail miles.

Intermediate bulk containers (IBCs) also have considerable unrealized potential. "Totes are another way to move customers out of drums, but we don't use them much right now," Mathews says. "Totes take more management, and they tend to fit better with larger customers. Still, this is a direction we want to go."

Container selection is one of many factors considered when route cost analyses are conducted on domestic shipments. Others include the safety history of each mode that is appropriate for a given route, shipment time by mode, freight linehaul costs, equipment cost, and working capital costs.

Components of equipment cost can include capital investment in railcars and related equipment, as well as operating and maintenance costs. For instance, a rail tankcar costs about $600 a month, and most don't even complete one turn a month. On the working capital side, Chevron Chemical calculates the inventory carrying cost of each product while it is in transit.

Transportation costs for the Oronite products range from a low of 5% to a high of 20%. It all depends on the value of the product, according to Mathews. The last thing the company wants is a slow shipment time for the higher value products.

Rail and truck are the primary modes used domestically. At the Oronite Additives Division, for example, tank trucks handle about 40% of the 15,000 to 17,000 shipments each year. Rail accounts for 18.5% of the shipments.

The average distance for Oronite Additives division shipments is 500 miles, and many loads are moved just short distances. Considering the shipment distances, it's not surprising that trucks handle the highest percentage of shipments, according to Mathews.

"At 300 to 400 miles, a truck is almost always going to be better," he says. "However, tank cleaning can be nearly half the transportation cost for short runs. Significant savings can be achieved in many cases with dedicated tank trailers.

"Trucks are faster, even for longhaul shipments. It's three days by truck from our plant in Louisiana to points in California. Rail shipments take seven to 10 days, and I'm cutting the railroads a lot of slack when I suggest a trip that quick. Transloading isn't justified unless a shipment goes at least 1,500 miles."

While Chevron Chemical works closely with customers in determining the most effective means of transportation, the chemical company has limited oversight when the truck mode is selected. A majority of truck shipments are arranged by the customer.

"Around 360 carriers picked up product at our facilities over the past year," Mathews says. "These are all types of carriers, not just tank truck fleets. Probably 30% of outbound shipments are prepaid. Perhaps 25% of our 200 customers use our approved carriers.

"We do monitor customer-selected carriers but not as closely as we do our own. This is something we wrestle with all the time. We realize that some customers do select carriers largely by price. However, we are going from customer to customer to convince them of the value of using our approved carriers."

Approximately 20 carriers are on the approved list. This includes five core carriers-Dupre Transport Inc, Enterprise Transportation Company, Miller Transporters Inc, Trimac Transportation Services Inc, and O&R Mobley Transport Inc. In addition, all tank container activity is contracted through Gulf States Intermodal.

"Using core carriers is just like having our own inhouse tank truck fleet without the headaches of managing a private fleet operation," Mathews says. "We have outsourced all highway transportation. We don't even own any over-the-road tank trailers. We do lease a few storage trailers from Dupre.

"We've tried to strike a good balance with our core carriers. We need the big carriers for geographic coverage, but we feel like we have built our strongest partnerships with some of the regional operations.

"We also don't own any tank containers, and we don't keep any on lease. Gulf States Intermodal is a good company that has met our tank container needs for many years."

Mathews adds that the flurry of merger and acquisition activity over the past three years has done little or nothing to reduce the pool of good-quality tank truck carriers. In fact, he sees a positive side to the consolidations.

"While we have some concerns about pricing, we are hopeful that better carriers will come out of all this," he says. "We think a reduction of the total carrier base is good. Plenty of competition will remain. A net reduction should bring a safer carrier base.

"We think the alliances that have been announced will be a good idea as long as they are made up of good quality carriers and will ensure that prices remain competitive. We think the Trimac alliance will be very beneficial for us. Several of our core carriers are in that group, and we will accredit the others as core carriers."

Selection of approved carriers is a methodical process. Carriers must have a satisfactory safety rating from the Department of Transportation just to be considered. The operating ratio should be in the low 90s, and the carrier must submit to a Chemical Manufacturers

Chevron Chemical requires reaudits at five-year intervals for fleets hauling nonhazardous loads and three-year intervals for those handling hazardous materials. Audits are performed by a third-party firm at a cost of $3,000 to $5,000 each that is paid by Chevron Chemical. About 10 audits a year are done.

Beyond the CMA audits, the bulk of each carrier evaluation is handled by Trism Logistics. It evaluates every carrier that hauls Chevron Chemical cargo, including customer-selected carriers.

"At this point, we don't reject customer carriers based on the outcome of these evaluations," Mathews says. "That will come later. However, we do alert customers to problems we find."

All tank fleets are expected to provide properly maintained and certificated MC307/DOT407 trailers. Compartmented trailers are a welcome plus. The Oronite Additives Division needs compartmented trailers for about 10% of shipments. Milk runs account for another 20% of deliveries.

Satellite tracking and communication are strongly encouraged, though not required, for approved and core carriers. "We know these systems are costly, but they are extremely useful for monitoring, control, and emergency response," Mathews says. "All of our core carriers will have satellite tracking by the end of this year."

Computer systems used to communicate with Chevron Chemical must be Year 2000 (Y2K) compliant. "Our most critical carriers have fixes in place," Mathews says. "I think we've taken the right steps to get ready. We've worked with our carriers to develop contingency plans. However, the carriers are not as much of an issue as the plants. We can always sidestep the computers to keep shipments moving."

He adds that the Oronite Additives Division probably will build inventory toward the end of 1999 to counter any possible computer glitches in the plants. Short-term shortages of trucks may result. This could be followed by a business slowdown in early 2000.

The basic requirements are just the beginning for the core carriers. Frequent meetings follow during which managers for Chevron Chemical and the carrier determine what each needs to build a strong partnership.

"We try to give carriers as much information on our business as we can," Mathews says. "It's important to share information. We spend a lot of time with the carriers, and we expect their managers to spend time with us. They participate in our studies and seminars.

"Our core carriers discuss issues with plant personnel on a regular basis. They participate in risk reviews and attend hazardous materials training sessions. Fleet safety and sales managers are the main participants, but we'd like to see more involvement from drivers, terminal managers, and dispatchers."

The fleets help in gathering statistics for incident analysis. "These studies are important because we see trends," Ashworth says. "Leaking valves and hoses are the main problems. Usually, it's not the tank truck carrier's fault. It's our failure to secure all fittings before a vehicle leaves our loading rack."

Fleet assistance in gathering statistics is becoming more crucial as Chevron Chemical consolidates and shrinks its transportation departments. "We rely more and more on our carriers," Mathews says. "We would like to outsource even more of the transportation management to them."

That doesn't mean Chevron Chemical wants to contract out all transportation responsibilities, though. The company is leery of bringing in third-party logistics providers. "Third parties do have advantages because they are experts at what they do," Mathews says. "They can do the analyses that we lack the resources for. They bring a different perspective. However, we are concerned about the ability of third parties to adequately control and monitor carriers. They don't have our level of hazmat expertise."

Ashworth adds that Chevron Chemical has seen very mixed results from the third-party freight forwarders used to coordinate international shipments. "Overall, we see opportunities to improve the level of safety and regulatory compliance," he says. "For instance, we found during one audit in Europe that key freight forwarder staff had not received hazmat training. And this was a very reputable forwarder."

As Ashworth points out, the primary distribution objective at Chevron Chemical is to ensure that shipments are transported in the safest possible manner and that they arrive on time at a customer location.