Managing the supply-chain

Commodities and products are transferred between locations that are, in many cases, continents apart. The long distance between supply chain partners and slow modes of transportation induce not only high transportation costs and in-transit inventory, but also high inventory carrying costs in terms of safety stocks at the final customer location.

The transportation process is carried out either by ships, trucks, pipelines, or railroads. In many instances, a shipment has to exploit multiple transportation modes before reaching the final customer’s location, so the distances between supply chain partners present a variability of transportation times that can, in turn, affect the suppliers.

In terms of finished goods, a typical process would mean having the petrochemical manufacturer, who will then go to the industries that are called converters, taking the raw material and converting it to a semi-finished or finished good ready for export to a market. This ideally will be deemed finished goods, or part finished goods in the supply-chain.

Maersk Logistics, a provider of supply chain management solutions, is broken down in to a number of different sectors – an aviation business, an oil and gas division, and a sector devoted to businesses involved with parcel tankers, retail, and a number of plastic converter industries from around the world.

A transactional business

Anthony Elwine, the global head for the petrochemicals industry for Maersk Logistics sees great potential in petrochemical transportation. Working across the Middle East and for a number of European and US based petrochemical manufacturers, cargo is exported across the globe from the countries of origin.

“Clearly just by shipping the product, it is a very transactional business,” says Elwine.

“The Middle East industry is growing at a significant rate at the moment, and looking at future projections that’s going to continue to happen until around about 2040-2050.

Based on significant growth, and access to local feed stocks in the Middle East, it is very important that rather than being a business that’s transactional based – these clients need to differentiate themselves from the competition which, is where Maersk Logistics comes in, adding value to their supply chain,” he adds.

Globally, the petrochemical industry is a very important base cargo because of its extensive volumes, and constant need for supply-chain management. Logistics management in the petroleum industry contains various challenges, which are not present in most other industries, such as retail (clothing), for example.

Maersk’s business is container related and most petrochemical product is shipped in a choice of flexible 20ft containers, or in 40ft containers in which there appears to be a significant growth in demand for.
 

However, higher costs and of course, the near-approaching shortages of a skilled workforce are beginning to effect the logistics of the petrochemical industry.

In terms of growth, this is in direct relation to China and Europe in particular, so when you’re talking overland logistics you need to factor, and take in to account a number of different criteria,” says Elwine.

“Clearly, to add value there has to be some form of road transportation involved in the supply chain in end-to-end operations. At the same time when operating intra-Gulf, the current issues of resource scarcity, including drivers and truck availability, plus the cost associated with that, is a challenge.

We have to be very flexible to cover services around container movements by water from different locations through the Middle East via the main transit in Jebel Ali,” he continues.

The challenge

In addition to the troubles logistics companies face with the costs and resources, Elwine says the main challenge at the moment is infrastructure limitations. The capability of terminals to handle existing and upcoming capacity, and container availability is nearing capacity.

“Clearly, we’re constantly reviewing the market conditions and we are reacting to the demands of the local market in the GCC. So we are positioning ourselves to maintain our leading market share by investing in ships and services, and we’re looking to develop our terminal operations across the Middle East,” says Elwine.

“From a logistics point of view we are actively engaged in the petrochemical industry. We have a specialist team with a regional base in Dubai, and consultants who are solely focused on the Middle East.

Location vs weight

With oil prices soaring, the transportation of goods via vessels is also posing an immense strain on the industry. The heavier the vessel is, the more fuel it consumes, so shipping companies today tend to give preference to lighter cargo.

“Commodity based products are fighting in the same market as retailers, as they need their products in shops. So, from a shipping perspective, when approached by a company with a light cargo, offering to pay a good price to ship their products, in opposition to petrochemicals that are heavy and transaction based – it is clear which cargo the owner is going to choose – the ones with most profitability,” says Elwine.

Most of the petrochemical industries generate, by their very nature, products that are dense and heavy, and therefore have to compete with much lighter cargo.

Being based in the Middle East, there is a lot of cargo coming through from China, India and Vietnam bound for Europe – so the petrochemical industry is competing for limited space on those vessels.
 

“However, the Middle East is in a prime position to be able to compete against manufacturers, mainly because of location. In the event that the market does experience a downturn, the areas that will suffer are those that cannot compete on price.

The Middle East will continue to prosper whilst North America and Europe struggle to place their product in to markets, due to higher production costs. Personally, I think the strong economic cycle for the Middle East will continue for the next 5 to 7 years at least,” Says Elwine.

The future

Bearing in mind the challenges and opportunities the petrochemical industry is presented with, Maersk Logistics is both confident and buoyant that its petrochemical business is in rude health in the Middle East.

Currently, it can take somewhere in the region of 35 to 40 days to supply a product to the end user, so Maersk Logistics is looking to reduce the time from point of order, to delivery.

“If the market is changing so quickly, it is a difficult time for specific trade groups. So although we’re constantly investing as an organisation, we still have to be adaptable and flexible in terms of the market changing,” says Elwine.

“We constantly go back and review market intelligence, container availability, feeder services, terminal handling, to make sure that we can always supply the market,” he concludes.