Growth of China leads to more complex supply chains By Peter A. Buxbaum, AJOT Recent changes in the logistics of the chemicals market and the changes that are likely to come in the next few years can be summed up with one word: China. China arrived on the chemicals production map within the last decade and since then has experienced a ten-fold growth. At the same time, China’s burgeoning economy has become a massive consumer of chemicals. These facts have implications for chemicals logistics. They make chemicals supply chains longer and more complex. These facts challenge large chemicals producers like BASF and Dow Chemical which have successfully controlled logistics costs by operating highly integrated and centrally controlled organizations. It may also represent opportunities for logistics services providers with expertise in moving chemicals to and from China. Elsewhere, growth in chemical logistics in places like North American and Europe has slowed down, leading one analyst to predict a depressed global chemical logistics market for 2012, despite the growth in the Asia-Pacific region. The recent report from Transport Intelligence predicts continued slow market growth for North America and Europe through 2015 but with continued healthy growth in Asia-Pacific. “Global Chemical Supply Chains are becoming more complex, spanning greater geographic distances with longer lead times, greater uncertainty and increased risk,” noted a report released by the consultancy BearingPoint. “Next to manufacturing, transportation costs are one of the biggest component of operational expenses. Logistics costs, on average, consume approximately seven percent of revenue.” The world’s two largest chemical companies, BASF and Dow, do better than that, according to Transport Intelligence, with BASF spending five percent of sales on logistics and Dow 5.6 percent. Using five percent as a benchmark, Transport Intelligence estimated that BASF’s logistics spend in 2011 was around $3.2 billion and that Dow spent around $3 billion. This illustrates the enormity of the chemical logistics market worldwide, around $157 billion in 2010, according to Transport Intelligence. The top ten chemical companies spent around $20 billion on logistics in 2010. According to the Transport Intelligence report, “Global Chemical Logistics 2012,” the global chemical logistics market grew by 11.6 percent in 2011, with Asia Pacific leading the way with 21 percent growth. The market in South America grew at a healthy 8.6 percent while North America and Europe trailed with growth rates of 3.8 percent and 2 percent, respectively. Transport Intelligence predicts much of the same for chemical logistics growth trends through 2015. The report estimates that from 2011 to 2015, Asia Pacific will experience the highest levels of growth, expanding by an average of nine percent per year between 2011 and 2015. Europe and North America’s market share will be gradually lost to Asia, as growth in these regions will remain just below three percent. The growth rate in South America will also slow to an average of under four percent per year. With longer and more complex supply chains, one key to optimizing the process could be the application of information technology. “Manufacturers are under ever increasing pressure to reduce these costs without impacting service levels,” noted the BearingPoint report. “Chemical suppliers are escalating service level expectations, transparency and visibility requirements.” Yet even in this day and age, the BearingPoint report went on to say, “a majority of the interactions with third party logistics providers in the chemical industry ecosystem is manual, consisting of phone, fax, and email.” Perhaps this is because, as an October 2011 report from the research firm Gartner found, “the transportation software solution space has been slow to develop holistic solutions for the chemical and process manufacturing industries.” In discussing the software as a service (SaaS) business model, in which programs