Logistics
From “just in time” to “just in case” supply chains
The invisible string of logistics and shipping companies, distributors, traders, shipbrokers and other intermediary players linking production markets with consumption markets became painfully visible in the last 24 months. When everything goes well, the functioning of this intricate chain goes unnoticed, but when issues appear, the supply chain becomes the biggest challenge for the chemical industry and its dependent downstream sectors. Pandemic aside, global supply chains have been cornered by multiple disruptions since 2020, including the blockage in the SUEZ canal, the Texas winter freeze, the isolation of Russia under sanctions, and the prolonged Chinese lockdowns. Massive imbalances resulting from these shocks have raised big concerns, not only over the costs of transporting chemicals, but also over the availability of shipping lines, ISO tanks and containers, as well as storage facilities. Besides confounding the chemical industry for the present, these day-to-day challenges are also gradually producing longer-term alterations in the structure of the value chain.
Asked whether the imbalances in the supply chain will persist for the rest of the year, Boon Joon Chua, general manager at NewPort Tank Containers Southeast Asia, nods: “From where we stand today, I expect the next six months will be characterized by similar instability. The war in Ukraine has created further turbulence, and fluctuations in the oil markets are impacting buying and storing habits that run deep down into the whole supply chain.”
This instability makes planning and forecasting almost impossible, said Chua, because the moment the tank container operator prepares for higher demand from one country by increasing inventory, it confronts limited shipping capacity or a sudden drop in demand caused by regulatory changes. Disruptions in vessel schedules are severely impacting the operational efficiencies of logistics companies, while demand has become “lumpy,” with periods of slow demand followed by demand spikes, as Don Tang Fook Yuen, general manager of LTH Logistics, a subsidiary under the Singaporean group Vibrant, shared. Fook Yuen gave an example of how these disruptions play out on the ground: “In the last six to nine months, Singapore has seen more vessels carrying increasingly larger container quantities for handling compared to before. These high-capacity vessels calling at the port create a huge strain on resources and significantly increase the workload related to transporting the containers and unloading them at the warehouse. It is not surprising to find that activities that took place three times per week before the pandemic are now squeezed to twice a week, leading to intermittent periods of quiet followed by chaos.”
“Last year’s winter disruptions in the US probably had an even bigger impact on the petrochemical industry than Covid. Such events dramatically evidence the interdependencies in the market and further support the ‘Made In’ approach. Besides localizing the manufacturing process, we are also increasing local inventory levels and our raw material sources.”
Sean Spencer, VP and Managing Director at Afton Chemical Asia Pacific
The difficulty to plan inventories, deliveries and internal resources, but also the shortages in ISO tanks, vessels, and special carriers, have created a shift away from a “just in time” stock control system, whereby goods are delivered late enough as to minimize storage costs and early enough to make it on time, to a “just in case” supply chain management, which relies on creating large stocks to be prepared for any missed deliveries or delays. Alexander Donau, regional head for Leschaco APAC, reflects on this transition: “Over the past 12 to 18 months, both forwarders and our customers have become more aware of the sensitivity of supply chains. Though a major change in the design and organization of global supply chains does not happen overnight, we see a lot more caution in the medium-to-long-term planning.”
Within this trend, logistics companies are investing heavily in warehouse facilities. Leschaco, for example, has opened a new 120,000 ft2 chemical and dangerous goods warehouse in Malaysia, already running at 70% capacity. SG Integrated, a logistics provider with Singaporean origins and specialized in dangerous and hazardous goods, has also begun the bidding process to acquire an additional site to serve as a container transit in Singapore: “The acquisition of the site will double our existing operational space, better equipping us to convey products in higher volumes and to navigate continuous disruptions like shipping delays or storage pressures driven by volatile market demand and supply shifts,” said Gary Lua, director of business development at SG Integrated.
The “just in case” trend goes beyond redesigning storage practices by forwarders and chemical companies, as it is complemented by a trend towards near-shoring and on-shoring; manufacturers are looking for options to produce more locally. Chemical Specialties Limited (CSL), a contract chemical manufacturer located in Singapore, finds itself in the sweet spot of this trend to localize production, as its MNC clients are increasingly adopting “in the region, for the region” production strategies: “As a toll manufacturer, we can offer a speed-to-market solution in our current facility to producers, many of which wish the localization to be done yesterday,” commented Johnson Lai, VP at CSL.
While Lai has observed this trend carried over from 2020 to 2021, he noted a slower pace of adoption in the last year because the localization of manufacturing entails the localization of supplies – which is difficult, either because raw materials or other specialized materials may not be available locally, or because the process of approving a new supplier is long. Nevertheless, the attractiveness of APAC as both the biggest consumption and the biggest production market for chemicals is poised to incentivize more investments in regional manufacturing capacity. Many Singaporean chemical players are already producing in Singapore for the region (either southeast Asia or the extended region, APAC). More than 80% of the products sold by petroleum additives company Afton Chemical in Asia are also made in Asia, and the company plans to continue to increase this figure. Afton recently completed the phase 3 expansion of its chemical additive plant to add GPA blending facilities. This is Afton’s first GPA blending unit in APAC: “All our new products are now designed with the possibility to be ‘Made In’ our region, which minimizes the exposure to supply chain disruptions and translates to a higher value for our customers in the form of security of supply and shorter lead times,” said Sean Spencer, VP and managing director at Afton Chemical Asia Pacific.
More than simply mitigating supply chain risks and reducing dependency on single countries, British specialty chemicals company Croda has adhered to an “in the region, for the region” philosophy to reduce GHG associated with long-haul travel and to build a more decentralized know-how network. Other chemical companies have signaled similar motivations to not only localize their manufacturing footprint, but also their R&D. Evonik, for instance, has made Singapore into a regional innovation hub and has invested recently in new photopolymer and biolab expansions to increase innovation capabilities. Shirley Qi, the company’s SEAANZ president, told GBR that Evonik wants to empower Asia to be the home of more local innovation.
The spotlight thrown over global supply chains in the past few years has openly exposed their structural weaknesses, which include a lack of supplier diversity and very long chains with multiple intermediaries, but it also made visible the backwardness in terms of digitalization. Rupesh Jain, managing director at Maersk Singapore, Thailand and Malaysia, thinks the lack of technology application across the value chain has implications across three dimensions: digitalization, integration, and decarbonization: “The movement of goods leaves behind a very long paper trail, but if this was turned into data, it would amount to huge volumes of information available at the click of a button. Secondly, the number of interacting nodes within the supply chain for a particular good is too high, from factory to customs clearance, to port, shipping/trucking, and then in reverse order to reach the store and final customer. Integrating these nodes would create simpler, streamlined supply chains, which is why we invested in warehousing, land distribution, and fulfilment centers to give customers a fully integrated offer. And finally, more customers pay attention not just to how goods are made, but also to how they are transported.”
Image courtesy of Leschaco
“Planning and forecasting have proven almost impossible in the past two years, and the moment we put anything on paper, something else seems to emerge, leading to constant change and a constant need for re-adaptation.”
Boon Joon Chua, General Manager, NewPort Tank Containers Southeast Asia
If the digitalization of supply chains does not catch speed, the logistics and shipping industries may not be able to keep up with further disruptions, this time expected not so much from the pandemic but from consistently more assertive sustainability regulations. The International Maritime Organization (IMO)’s rule to cap the sulfur level in the fuel oil used on board ships came right before the pandemic in 2020 and had already pushed shipping rates up. Moving ahead, industry leaders believe new carbon reduction initiatives are unpredictable, much like the technologies around the new fuels (ammonia, hydrogen) supposed to replace traditional fossil fuels. Mark Mirosevic-Sorgo, the managing director of shipbroker Quincannon Asia, told GBR that the uncertainty has everyone in the industry, from shipowners to engine manufacturers and fuel storage companies, gambling, as they invest across the roulette board in different technologies to get there first. The risks are high because some of the technologies used today may become obsolete in 20 to 30 years – the typical lifespan of a ship.
Vopak is pushing ahead with investments in LNG, ammonia, and hydrogen, but also battery storage, preparing for what the next decades and centuries could herald. In Singapore, Vopak is the only independent ammonia ISO tank trucking operator in the region, and and its Banyan terminal in Singapore is one of six Vopak operates globally. Also in Singapore, Vopak is piloting vanadium redox flow battery technology to store green energy. Advario, the Oiltanking carve-out with 13 terminals around the world, is also strategically positioning in the energy transition and is studying the potential development of the first e-methanol plant in the country, which would also be the first such plant in Asia; moreover, Advario is also considering to develop an LNG storage facility in Singapore: “For the last 25 years, Singapore has been the world’s biggest bunkering hub, accounting today for about 50 million tons out of the 300 million tons global capacity. It is a natural progression for Singapore to move into LNG bunkering, followed by methanol, and even ammonia in the near future,” said Snehashish Chatterjee (SC), VP Southeast Asia, at Advario.
Other logistics players are also carefully studying the progress of regulations, technology, and industry adoption, not necessarily in that order, before they make the jump to invest in fuel alternatives. What they can do for now is to minimize their environmental footprint within their existent, fossil fuel-dependent operations. For instance, NewPort Tank Containers is making sure its ISO tanks are washed at depots with good water management systems in place, while Bertschi has installed 300,000 ft2 of solar panels to power their warehouses and equipment while keeping a close eye on the evolution of electrification technology for trucking and transportation heavy vehicles: “At this stage, the technology is not yet ready to be deployed at a large-scale, but electric vehicles (EV) are progressing so fast that I would not be surprised to see a viable solution in the next few years. At the moment, we are running studies with Chinese companies that can offer us electric prime movers, but the range and payload are not yet high enough to put it into use,” explained Edwin Wan, managing director at Bertschi Singapore.
Rhenus Logistics, a German company with an annual group turnover of €7 billion (2021), has been running for three years the world's first CO2 reduction program for airfreight: RHEGREEN allows cutomers the opportunity to choose the most efficient aircraft, therefore improving their emissions performance. Tobias Bartz, the Group's CEO and Chairman, told GBR that Rhenus is also striving to achieve carbon neutrality for its LCL product by 2030: "As the first step towards the goal, we aim to have all cargo exported from our Consolidation Gateway Hilden, Germany, to all destination ports carbon neutral in 2022. The carbon neutral mechanism will start from offsetting the transportation emissions with carbon credits being generated by emission avoidance projects, certified by internationally-accepted standards."
The implementation of sustainability and digitalization measures are required to cement into permanence what have so far been only temporary pandemic aftershocks for the logistics sector – like the acute need for a leaner, smarter, and more locally-savvy yet unquestionably globalized supply chain. While manufacturing, shipping, and innovation are being rerouted for the sake of greater reliability, Singapore is believed to altogether benefit from these transformations in the supply chain as a heartland for trade within APAC and beyond. We explore how in the next article.
Image courtesy of Leschaco
CONCLUDING THOUGHT
“I have seen many trends and different hypes around being either more global or more local. In reality, what we need to look at are the needs that emerge from each market. While the global support follows the mega-trends and is prepared to answer to the demand and its different idiosyncrasies, the execution side is anchored in a robust local structure with deeply entrenched local ties.”
Henri Nejade, COO, Brenntag Specialities