Downstream deliveries

Maintaining the feedstock advantage which has thrust the Middle East petrochemical production scene to where it is today, downstream products must be able to get to market efficiently, and cheaply. The vast majority of petrochemical consumption comes from the US, Asia and European converters. This means local products have to be shipped thousands of miles to get to customers. Keeping local producers ahead of the game is a raft of regional and international companies keen to get a slice of the massive export market in the Middle East.

“Logistics is the most important aspect of the business and represents the second largest cost after feedstock,” says George Freiji, head of logistics at Oman based Octal Petrochemicals. The Salalah-based company is investing US$50 million in the first liquid chemicals terminal in Salalah, which will be used to hold MEG deliveries before it is transported 1.6 kilometres through an underground pipeline to OCTAL’s main processing plant to produce PET.

Logistics services provided to the petrochemical industry are the same as those offered to other sectors.

“The logistics business of petrochemical companies is much the same as the logistics business of companies in other industries as it involves supply chain management, storage and transportation of products and freight forwarding,” explains Matthew Derrick Momentum Logistics general manager, whose company will provide on-site logistics services at Borouge’s polyolefins plant in Ruwais.

“Going beyond this, I would say that one of the key issues characterising logistics operations for petrochemical companies is the importance of observing and maintaining the highest health and safety standards as the majority of petrochemical products are flammable and represent big risks for personnel, especially with the piracy issue,” he adds.

As the majority of customers are located in Asia, Europe and America, the cost advantage could be lost if the transport cost is very high. “We are a 100% export oriented company, therefore the cost and the service quality are the most important aspect of logistics,” he adds.

Equally, logistics is a major differentiator for producers in Saudi Arabia. “Many companies are shipping their products from the Islamic Port of Jeddah instead of using the port of Yanbu, as there is not enough shipping happening there,” says Jamal Malaikah, president and COO of National Petrochemical Industries (Natpet) which produces polypropylene. “This issue has increased the product cost when it arrives to the end users,” he adds.

As producers in the region target customers in different parts of the world, logistics providers should be able to afford the necessary visibility, transparency, reliability and consistency in their operations. “We are competing with local companies in the US or in Europe and for this we need to be very consistent in our deliveries,” says Freiji. “Importers and particularly downstream converters are very worried about importing raw materials for processing, mainly because of the lack of consistency from exporters,” he adds.

Petrochemical producers are very concerned about their logistics services as it may cause them huge losses if they fail to deliver their product. To reduce this risk, many Middle Eastern mono ethylene glycol (MEG) producers have started leasing storage tanks near end users in order to reduce the delay in deliveries, like SABIC which leased MEG storage tanks in China to be able to avoid any logistics problems.

A combination of quality and price in logistics services is the ultimate request of petrochemical producers, as a high shipping cost would increase the price of the product when arriving to the end users.

“Our main aim is, and always has been, to provide the best possible service at the best possible prices, and our efficient, cost-effective logistics solutions can make a big difference in a company’s operational expenditure,” says Derrick.

Market

The economic downturn has affected the logistics business after being expanding for several years. “The market has tended to be a buyers market, it has been expanding in the last 15 years in the Middle East, and the downturn affected the market, from import to deliveries, but we see an improvement,” says Freiji.

“Currently the logistics industry in the region is suffering from an overall slowdown which is prevalent throughout the world. However, longer term there is a great deal of potential particularly in the petrochemical sector,” says Justyna Janik, project manager at Damco Logistics (Maersk previously).

Tailored solutions

Integration of the different parts of the business from storing, to shipping to delivering the product between logistics services providers and petrochemical companies is the aim of both parties, especially for petrochemical companies who don’t posses their own logistics.

“Integrating our systems with that of the logistics providers is the innovation we are looking for,” says Freiji. “It will help us to achieve full visibility not only for us but also for our customers as well. We are looking to integrate all of the various data of the logistics and the shipping companies to map up the whole cycle for us and for our customers,” says Freiji.

Any innovation and development should take into consideration the cost. “The pace of development in the logistics industry will be in line with an increased focus on service as opposed to the high price sensitivity which affect the product cost,” says Janik.

The fortunes and future success of Middle East petrochemical producers lies in the hands of logistics providers, getting well made products to consumer markets efficiently, safely and cheaply, will be what makes or breaks the local market.

Contract win

Gulftainer will provide on-site logistics services at Borouge’s polyolefins plant in Ruwais, Abu Dhabi, over the next five years. Gulftainer will be responsible for bringing in over 280 personnel to take over the running of the Borouge polyethylene packaging operations of 600 000 tonnes per year.

GPCA Logistics Forum

The The Gulf Petrochemical & Chemicals Association (GPCA) Supply Chain is being held in Bahrain from 12th to 14th October 2009. The theme, aptly enough, is Current Trends, Preparing for Future Growth.

The forum will discuss the current challenges affecting land transportation as well as explore opportunities that could enhance the current land transportation system in the GCC Region.

The workshop will be followed by conference sessions that will feature logistics specialists from all around the globe addressing key issues pertaining to the downstream supply chain.