For companies that make or ship chemicals, this is a dynamic era. The ongoing shale gas boom in the United States provides a steady, low-cost supply of raw materials used to manufacture a variety of chemicals. That has made this country a hot spot for chemical production, with demand from markets across the globe.
“The big story is low-cost natural gas liquids creating competitiveness here,” says Glenn Riggs, senior vice president, corporate logistics operations strategy at Odyssey Logistics in Danbury, Connecticut.
In late 2016, chemical production in the United States, not including pharmaceuticals, was expected to grow by 1.6 percent in 2016, by 3.6 percent in 2017, and by 4.8 percent in 2018, according to a report released by the American Chemistry Council (ACC).
As of March 2017, thanks to inexpensive shale gas, companies from around the world had announced plans to construct 294 new production units for chemicals in the United States, says the ACC. Those projects represent $179 billion in new capital investment.
As production grows, so does logistics activity related to chemicals. Chemical shipments will increase by 34 percent in the next five years, reaching $1 trillion by 2020, the ACC estimates.
Cost Affects Capacity
Chemical manufacturers and distributors, along with their logistics partners, keep a careful eye on the price of natural gas and crude oil from U.S. shale fields.
“Those prices tell us the anticipated cost advantage of manufacturing in the United States,” says Nathan Buelt, general manager and coordinator of the Responsible Care program at ChemSolutions, the chemical logistics business of C.H. Robinson in Eden Prairie, Minnesota. As that cost advantage grows or shrinks, so does demand for equipment to move chemical products.
Competing for Equipment and Drivers
While low-cost fossil fuels create conditions that squeeze the transportation infrastructure for chemicals, the industry lives with a strange paradox: higher prices for natural gas and crude oil could make capacity even tighter. When prices for gas and crude rise, production increases in the shale fields. Then, energy companies and chemical companies compete for the same bulk liquid tanks.
“If crude spikes and creates an opportunity, does that capacity move back to oil and gas?” asks Buelt. “If it does, what type of gap will that leave for the chemical industry, what are the alternative transportation modes, and what should chemical manufacturers do?”
Besides competing for equipment, the chemical and energy industries compete for qualified drivers. “There’s a structural shortage of drivers in the country, and oil and gas activity increases put pressure on chemical distributors like us, because we scramble to find good drivers to do the job,” says Tim Nicholson, president of PVS Distribution Group, part of Detroit-based PVS Chemicals, Inc.
PVS Distribution uses a private fleet and common carriers—both over-the-road and rail—in its chemical distribution business. Its PVS Nolwood subsidiary is a full-line chemical distributor that provides custom services and makes many next-day deliveries. Its PVS Minibulk subsidiary installs 500- to 2,000-gallon tanks on customer sites and makes periodic deliveries to keep them filled.
Companies working in the shale fields need trucks to haul not just oil and gas, but also water and chemicals used in hydraulic fracturing. These energy companies and chemical shippers all require drivers with special qualifications. “We need experienced truck drivers with hazmat credentials who know what they’re doing,” Nicholson says.
Companies that ship temperature-sensitive chemicals in less-than-truckload (LTL) quantities face a special capacity challenge these days. “Right now, the chemical industry does not have a temperature-controlled LTL solution,” says Riggs.
The only companies that provided that service, Jevic Transportation and New Century Transportation, have gone out of business. For safety reasons, chemical shippers can’t share the temperature-controlled equipment used to transport food.
To fill the gap left by the defunct LTL carriers, Odyssey arranges shipments that rely on pool points and crossdocks. “We’ll move a larger volume in a full, temperature-controlled truck, and then go to a regional breakout hub and do fast LTL local delivery,” Riggs says.
For chemical loads of all types, ChemSolutions sometimes helps its customers overcome the capacity crunch by modifying their supply chains. “We talk to our customers about where their distribution points are,” says Buelt. “We discuss whether they have the option to co-manufacture with another facility, or to arrange their network to take better advantage of areas where we believe capacity might not necessarily be as tight.”
Third-party logistics provider Transplace provides capacity for its numerous chemical shippers through a chemical-dedicated fleet, operating exclusively in the Transplace network, that delivers hazmat, tanker-endorsement, TWIC card, and reefer capabilities for temperature control and/or protect from freeze services for water-based chemicals.
In addition, Transplace’s TransMATCH capacity solution, a collaborative loadings program, optimizes LTL and partial truckload shipments. TransMATCH consolidates loads based on hazmat compatibility logic checks with dangerous goods tables and temperature-controlled shipments that can be consolidated into compliant and safe, fully utilized truckload shipments.
Safe and Sound
While capacity concerns wax and wane, another challenge for chemical shippers remains constant. “Safety is the most important aspect of our business,” says Wright. “Without safety as a core principle, we’re not able to be in business.”
Safety is always top-of-mind for chemical shippers and their logistics partners, but the subject has gained even greater worldwide attention since a series of explosions ripped through a storage facility in Tianjin, China, in August 2015.
“That incident further raised awareness of controls and safety in China, as a developing industrial country,” Riggs says.
Shortly after the Tianjin disaster, Rinchem hosted a delegation from China that came to the United States to benchmark regulations and best practices. Conversations with the visitors made clear that while safety regulations in China and the United States are similar, compliance is a problem in China.
“You can have all the regulations in the world, but without strict compliance, people are going to be in danger,” Wright says.
To encourage compliance at its own facilities, Rinchem has created a safety team at each site. “They meet regularly to talk about things they’re seeing and how they can improve safety,” Wright says. “We’ve also instituted a zero tolerance policy for unsafe behavior.”
The Tianjin explosions and other incidents have prompted the U.S. government to tighten both the design and the application of safety and security rules that govern the transportation and storage of chemicals. “Working with regulatory bodies to stay permitted and navigate the changing regulations becomes a lot of work,” Wright says.