CHEMICAL shipments — both domestic and international — probably will increase modestly in 2010 for US producers. Longer term the outlook is much brighter, especially for export-bound chemical shipments.
This was the consensus of participants on a chemical shipper panel at the Intermodal Bulk Liquid Symposium that was held in October in Seabrook, Texas. In addition to the 2010 outlook, panelists also discussed market trends relating to bulk intermodal shipments and carrier evaluations and audits.
Shipments in 2010 will be up slightly for the Dow Chemical Company plant in Deer Park, Texas, according to Lee Barron, Dow Chemical site logistics manager. After that, it's a guessing game.
“We are all waiting to see what the world economy does in the following years,” he said. “If housing starts increase so will our shipments. At the Deer Park plant, we produce methyl methacrylate and acrylate, products that are heavily tied to the home improvement industry. We have felt the downturn, but we are anticipating the upturn.
“China has great potential for the future. It will be the big market of tomorrow. We are opening new operations in China. In the near term, we will see more shipments to China by tanker ship and ISO tank containers.
“We're also watching India very closely. It hasn't been declared an emerging market yet, but it is becoming much more active. We expect our shipments to India to grow by 4% to 5% next year. South America probably will remain flat, and shipments to Europe may decline.”
Ron Beeson, Lubrizol Corporation global transportation & logistics manager, said his company anticipates that container freight for chemical exports will increase, probably in the 5% to 10% range.
“We have projected 30% growth in our business over the next 10 years, and tank containers will support much of that growth,” he said. “Our tank container activity is impacted by marine bulk ship availability. We substitute a lot of tank containers to move just-in-time export shipments to meet customer needs. From a specialty chemical perspective, our tank container business is improving every month.”
Beeson went on to say that drums also will be part of Lubrizol's packaging mix for quite some time. “We use tank containers, totes, drums, and flexitainers to move our products,” he said. “The green movement away from drums and toward totes really hasn't impacted us yet. We have seen growth in our drum business over the past 10 years, with the exception of this past year. The global economic downturn did impact us. We expect drum volumes to steadily increase at a single-digit rate over the next 10 years. We have seen very little impact from the green movement in Europe with regard to moving away from drum shipments. There seems to be enough drum recycling worldwide to meet the needs of companies receiving drummed shipments.”
Tony Solinas, lead business consultant, logistics compliance, transportation Safety & Security for Lyondellbassell Chemicals, agreed that business has improved, and chemical shipments should continue to increase next year.
Turning to the issue of drums over bulk packaging, Solinas said that Lyondellbassell is doing its best to move customers away from drums. “We're a big bulk shipper,” he said. “However, China is an important market for us, and we send a lot drummed shipments to our customers in that country. Labor is cheap, and they still like to handle drums. Still, we've been able to convince some of them to switch to bulk. We've offered some of our customers ISO tanks for storage, and we deliver product to those ISO tanks by truck. We're getting a good response from customers once they see that they can save money with bulk shipments.
“On the flexitank side, it's not a big part of our business, but it is expanding. Our flexitank activity tripled from 2008 to 2009. Flexitanks have enabled us to get into markets where we would not be competitive ordinarily.”
What other international markets are showing good potential for the coming years? Panelists listed the Orient in general, South America, Middle East, Canada, and Russia.
Asked what intermodal transport trends are occurring in the chemical industry, Beeson said Lubrizol has implemented a drop-and-pull ISO tank container program for its Deer Park facility. Live loads had been standard procedure for many years, but bulk loading and unloading facilities are no longer able to handle the shipment volume during the busiest times.
“We've gotten behind the curve and because of the cost of infrastructure improvements, and we probably will remain behind the curve,” he said. “Detention charges for tank trucks and ISO tank containers had climbed to well over a million bucks a year. That prompted us to set up the pilot program for specific ISO container shipments we set up a place where the containers could be dropped and arranged for truck drivers to move them around the plant as needed. With shipment levels down, this program is idle for now. However, we expect to crank it up again as business comes back in 2010 and beyond.”
What are the driving factors that determine whether a chemical shipper will use tank containers? Key factors are product consumption rate of the customer and transport mode availability, according to Beeson.
“Asset utilization is another factor,” he said. “Lubrizol primarily uses common carriers. In some cases, though, we might lease tank containers for dedicated activity.”
Barron said Dow Deer Park leases tank containers if they will be needed for a long time. The plant currently is leasing five tank containers for local deliveries to warehouses.
Transloading is another intermodal activity that can't be ignored, according to Steve Nichols, North American Logistics manager for Baker Petrolite. “We started shipments of a product from the Monterrey (Nuevo Leon), Mexico area to Fort McMurray, Alberta, Canada, last year,” he said. “It's a lengthy supply chain — close to 3,000 miles, and initially we were shipping four to five tank trailer loads a week. As the economy slowed down, we began to examine rail opportunities. Found we could significantly lower our transport costs. One railcar could replace the four tank truck loads per week. Transit time is longer with rail, but we cut our transport costs by $5 million per year. Our sales department expects shipment volumes in that lane to increase by 22% to 25%.
“Our Mexico supplier is not rail served, which meant we had to find a transport provider in Mexico with transload capability. Product is trucked about 10 miles from Mexico plant to transload location. We were also transloading at the other end of the supply chain in Canada, but we just opened new plant with rail access in Leduc, Alberta. We are now sending the railcars to that location.”
Transloading also has worked shipments of a product used in asphalt that are transported in bulk from the manufacturer's plant in Boston, Massachusetts, to Baker Petrolite's customer in Minnesota. Here too, the product is transloaded at both ends of the supply chain because neither the shipper nor the receiver is rail-served. “Transload enables us to save more than a nickel a pound over using tank trucks for the full haul,” Nichols said.
While transloading is a cost-effective option in many cases, Solinas said he is concerned that many of the larger railroads are becoming more restrictive about the sort of cargoes they want to transport. Railroads also have abandoned many locations over the past several decades.
“I see increased opportunities for trucking companies and tank container operators in many of the lanes where we ship our products,” he said. “In the past, many shippers talked about rail as being the safest, most efficient transport option. However, our company has been very successful shipping our products by tank truck and ISO tank containers with very low incident rates.
“Our trucking and tank container operations don't just meet the DOT requirements. They exceed those requirements in most cases. The same goes for the United Nations requirements. Recently, we put in a new propylene oxide ISO tank container fleet with T15 tank containers, instead of the T11 minimum allowed by the regulations. We take the same approach with tank trailers.
“We truck a lot of product from our plants to the terminals. On a lot of short runs, it's a lot more economical to use truck over rail. We may see an increase in truck shipments from our plants to the terminals in the coming months.”
Panelists were asked if their companies had reduced product inventories over the past year and what impact that might be having on intermodal transportation operations. Barron said Dow's Deer Park plant has no plans to decrease inventory. “Our customers have been rebuilding inventory in recent months, and we are trying to build back up along with them,” he said.
Beeson said that Lubrizol's corporate strategy right now is to reduce working capital, and inventory is part of that. This includes raw material and finished product inventories. “We have been doing this for the past two to three years,” he said.
Lisa Maples, purchasing & logistics supervisor for Ashland Water Technologies, division of Ashland Inc, added that inventory-reduction efforts at her company have included a shift from bulk to smaller packaging, such as drums and totes. “Along with this, we're seeing more LTL (less-than-truckload) shipments to warehouses,” she said.
Inventory reduction has been part of the Chapter 11 bankruptcy process now underway at Lyondellbassell Chemicals, according to Solinas. “We expect to emerge from Chapter 11 at the end of this year. As part of our inventory reduction, we had a major (storage) terminal consolidation in the Midwest and Northeast. We have a terminal consolidation underway right now in Houston (Texas).”
The chemical shippers were queried about their expectations for transportation providers. They were also asked how they verify that expectations are being met.
Solinas pointed out that Lyondellbassell performs an extensive audit before contracting with any new vendor. “We go beyond the basics, such as whether they have adequate insurance coverage,” he said. “In this day and age, we have to look at security factors and such. I must say that most of the carriers we are using had already taken the steps needed to address heightened security awareness and such.
“We keep detailed stats on our carriers, and we do quarterly reviews in which we discuss performance and any incidents. We believe we have a robust process for continuously evaluating carriers. We have to make sure that the carriers are doing what they say they are doing in terms of safety and security. That's important for a company that ships hazardous materials.”
Ashland keeps a close watch on the safety records of its carriers, according to Maples. “The carrier's safety record is critical,” she said. “Can the carrier get our freight to its destination in the correct packaging without incident and without involving any of our environmental people? We also look at the carrier's hiring practices. Are they doing good security background checks on the people who transport our cargo?
Baker Petrolite implemented a new carrier review process this year that is based on the Department of Transportation SafeStat scores — especially vehicle-out-of-service and driver-out-of-service data. “We recently found out about the Carrier411 program, a web-based alert system,” Nichols said. “It is helping us verify information such as whether a carrier's insurance certificate or hazmat registration has expired. We just plug in the motor carrier registration number. We are going to make that a part of our new carrier evaluation system.
The chemical company's evaluation process also examines the level of technological expertise at the carrier. “We want carriers that can provide technology as part of their service,” Nichols said. “Can they receive EDI tenders? Can they submit billing through EDI? In the third quarter, we finished our first carrier evaluation using the new criteria. It surprised us to find that many of the carriers we work with are very technology challenged. As we move forward enhancing our supply chain, we will be having conversations with those carriers to determine what we can do to help them meet our expectations.
“We rely on our carriers to be able to tell us where their drivers and vehicles are and the status of our shipments. It's important for our carriers to understand that as we move forward. We currently have 17 carriers out of 26 that communicate with us through EDI.”
Asked how his company handles loading and off-loading delays and detention issues, Nichols said Baker Petrolite tracks those factors through its shipping software. “We know when drivers arrive and leave our plants and whether they were on time or were late,” he said. “We use that to validate or dispute demurrage.”
Beeson added that Lubrizol does all it can to minimize delays, especially when it is shipping blended products. “We want those shipments to go out like clockwork,” he said. “It's not just a transportation issue; it's a quality issue.”
What sort of emphasis do chemical shippers place on transportation safety? “Safety is one of my favorite topics,” Solinas said. “We ship some of the most difficult chemicals out there. We conduct training programs for our carriers to ensure that their drivers know how to handle our products safely. It's all part of product stewardship.”
Nichols added that safety is a key factor in the transportation process at Lubrizol. “We want error-free deliveries,” he said. “That means we have to make sure we have the right driver on every load. We also need GPS for tracking shipments.”