Searching for solutions to ongoing chemical logistics issues

Searching for solutions to ongoing chemical logistics issues

Searching for solutions to ongoing chemical logistics issuesEnterprise transportation spending has skyrocketed. U.S. businesses invested almost $1.5 trillion in logistics services in 2017, an all-time high, according to researchers from the Council of Supply Chain Management Professionals. Chemicals manufacturers were, of course, among the numerous organizations that contributed to this spend; as such firms heavily depend upon commercial freight companies. Why are the enterprises that populate this unique and ever-expanding niche setting aside so much for shipping? A number of significant challenges plague logistics services providers, especially those operating in the continental U.S. Together, these issues, which require expensive intervention, are expected to cost American chemical companies an additional $79 billion between 2017 and 2027, according to analysis from the American Chemistry Council and PricewaterhouseCoopers.

With this disturbing projection in play, stateside chemical companies should gain an in-depth understanding of the logistics issues affecting the industry.

Competition and staffing in the trucking space

An estimated 61 percent of chemical shipments travel via truck, making the semi the dominant mode of transportation within the space, the ACC and PwC discovered. Unfortunately, the upward momentum of the economy has created a traffic jam of sorts, as businesses across all industries race to reserve the relatively limited number of shipping slots and push trucking companies to capacity. This heightened competition has allowed logistics organizations to raise prices with impunity, The Wall Street Journal reported. However, demand is not the only variable fueling this price increase. Logistics companies with mature trucking fleets have been struggling to achieve optimal staffing levels for some time. The nationwide trucker shortage presently sits at 50,000 and could increase to as much as 174,000 by 2026. Firms in this logistics niche are attempting to address this issue by luring new drivers with high salaries and robust training programs, the cost of which they are lying in the laps of customers. Sadly, there are no solutions on the horizon, meaning chemical companies will be forced to pay increased trucking costs for some time or risk severing their supply chains.

Congestion on the railroads

As the second-most utilized shipping method in chemicals manufacturing behind trucking, rail plays an essential role in the space, especially for bulk shippers. While most businesses in the industry continue to see logistical success with this particular mode of transportation, it is not without its issues – namely, congestion. Back in February 2018, for instance, organizations in several sectors saw significant delays stemming from congestion at Canadian National Railway and Union Pacific Railroad terminals in Illinois due to a variety of variables, including weather, locomotive operator shortages and electric logging device issues, the Journal of Commerce reported. With turn-around times stretching as long as four hours, shippers voiced considerable displeasure. Depleted infrastructure is often cited as a contributing factor, as private and government entities responsible for American railroads lag behind on mission-critical repairs to tracks, cables and other key fixtures, the ACC and PwC found.

The Association of American Railroads and other industry groups have long advocated for increased institutional investment. But without a massive infusion of cash, little is likely to change, an unfortunate scenario for chemicals manufacturers.

Crumbling marine infrastructure

American ports have long bolstered logistics operations in the chemicals arena. Today, approximately 14 percent of all chemical products move through these aquatic gateways by way of marine container vessels, according to the ACC and PwC. However, this logistics strategy has been less reliable as of late. The causes? Crumbling infrastructure is one, analysts for the American Society of Civil Engineers found. A good number of the more than 920 ports that dot the country have not been retrofitted to accept modern container ships, which boast carrying capacities as high as 22,000 twenty-foot equivalent units. For comparison, in 2005, the average shipping vessel could hold no more than 10,000 TEU. Without the physical structures needed to support the streamline flow of the behemoth ships of today, congestion regularly occurs.

In addition to suffering from serious infrastructural deficiencies, U.S. ports are often at the center of maritime administrative disputes that inhibit operations. West Coast ports in particular are known for experiencing delays due to such disputes, the ACC and PwC found. For example, a contractual conflict between the International Longshore and Warehouse Union and the Pacific Maritime Association back in 2015 derailed productivity at ports across the Pacific Coast. Unfortunately, the solutions for these maritime shipping problems are few and far between, which will require businesses in the chemicals manufacturing space to come up with internal fixes to mitigate the impact.

Finding a solution

These multi-modal logistics challenges might seem insurmountable, especially since there are, at the moment, virtually zero overarching solutions capable of ameliorating these issues in one foul swoop. However, chemical companies are not doomed to ratchet up their logistics budgets into perpetuity to cover the cost of logistical dysfunction. Adding flexibility to the supply chain is the best solution here. Chemical companies that do this by growing their supply bases, streamlining procurement methods and facilitating optimal collaboration can find their way in today’s less-than-ideal enterprise transportation arena without losing steam or emptying the coffers.

Rhine River Levels Rise The Chemical Company

Rhine River Water Levels Return to Normal; Transportation Eases

Rhine River levels are returning to normal, meaning higher barge capacity resulting in lower barge rates into and out of Germany.

The Central Commission for the Navigation of the Rhine (CCNR) explains that water levels are currently rising due to significant surface discharge from recent rain events, but has warned this trend may not sustain. For significantly better Rhine levels in spring of 2019, CCNR administrator Kai Kempmann warns, “We will need a precipitation of 1,000 millimeters in December, which is about 120% of the average monthly rainfall.” Even still, Kempmann does not expect levels to fall to the extremes observed through these previous summer and autumn months.

According to data collected by Bundesanstalt für Gewässerkunde (the German Federal Institute of Hydrology), current levels are within mean range, though stations in Maxau (upper Rhine), Kaub (mid Rhine), and Emmerich (lower Rhine), all report levels are currently dropping as of Dec. 28, 2018.

The CCNR quarterly freight rate index fluctuates around the 100 mark during periods where the load capacity of 2.5 and 3-meter draught vessels can operate at 60% or greater capacity. 2018 has seen freight indices topping the 500 mark from May through the present, as 3-meter draught vessels are just able to make 40% capacity, while smaller vessels are breaking 50%.

The CCNR freight index is expected to decline over the first quarter of 2019, with reports that rates have already significantly shifted.


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Freight rates on the Rhine subside as water levels finally rise

Shale Oil & Gas

All eyes are on falling oil prices and related markets—mainly, the price of gas at the pump. However, industry insiders are concerned with how, why and the near future of the oil and gas market. Apparently, the price of oil by the barrel and gas by the gallon are the only two things falling. The economy is up, the stock market is up, and the price of oil-based chemicals is holding its own.

OPEC can afford to lower its prices because they don’t have the high costs of fracking. Consequently, OPEC will keep producing as will the US and consumers will enjoy the benefits, at least for a little while until the playing field levels. The complicated confluence of the value of the American dollar, the price of drilling vs. fracking, and the world demand for oil-based energy are the necessary elements for everything from sensationalizing the daily news to plots for political action movies.

Read on and see what the alleged pundits have to say.

Falling Oil Prices Doesn’t Bother Opec—Why?

Trish Regan, anchor and editor-at-large for Bloomberg TV answered this question in a special report for USA Today. After explaining the high cost of harvesting US oil through fracking and the relatively low cost of securing Mideast oil, Regan asserts that the cost of drilling difference is the primary reason OPEC will not budge on production. Read the full story and see if you agree.


Dollar Reaches 7-Year High as Energy Stocks, Oil Fall

A Bloomberg article by Joseph Ciolli and Stephen Kirkland claims that the strength of the US dollar against the yen despite falling oil prices is proof positive that assertions of a strong US economy are justified.


U.S. Oil Stockpiles Rise as Saudi Prices Fall

Heesu Lee addresses oil futures, Saudi prices, and oil stockpiles in a comprehensive Bloomberg article explaining the state of the seemingly volatile market.


Halliburton CEO Expects Shale to Reverse Falling Oil Prices

According to David Wethe in a recent Business Week article, Halliburton CEO David Lesar is joining other oil executives who claim to not be concerned about falling oil prices that they expect to climb next year. As the world’s biggest supplier of fracking services, Halliburton has perhaps the best perspective on what’s driving the U.S. shale boom.

The article goes on to say that Lesar believes the country needs only three elements to make shale drilling a worthwhile pursuit: good rock soaked in oil and natural gas, ample infrastructure such as pipelines to carry the petroleum to market and a profitable price.


The Economy

Everyone seems to cautiously agree that the economy is in better condition than it has been for nearly a decade, but the question of sustainability has as many answers as it has opinions. And the reasons for the modest growth are as disparate as the people giving them.

Isn’t it ironic that one of the driving forces of the economic upturn is the U.S. oil boom—the harvesting of the one resource that environmentalists fear the most? Nonetheless, it is difficult to argue against an industry that is injecting billions in revenues and annual job growth that exceeds 200,000 jobs a month into an economic system that was all but doomed less than ten years ago. But has this blooming economy improved the lives of the middle class and narrowed the gap between the oligarchy and the proletariat? Read on and see if you concur with the alleged experts.

The Price at the Pump May Do Little for the U.S. Economy

A Quartz article by Brian Browdie says that the decrease in gas prices doesn’t amount to bigger profits because Americans are driving less. However, the money that isn’t pumped into gas tanks can now be spent elsewhere. Then comes the question of whether the money saved at the pump is enough to compensate for the escalating cost of living.


Are iPhones and Oil Prices Championing Our Improving Economy?

Forbes reporter Mark Rogowsky appears to think so. According to the article, the average citizen is taking the money saved at the pump and racing to buy an Apple iPhone.

Rogowsky admits that the article is not the result of a scientific study, but falling gasoline prices have put upwards of $10 billion into the hands of consumers. Chief economist for the U.S. at JPMorgan Chase was recently quoted in another article as saying the iPhone sales have added as much as 1/3 of a point to the GDP. And it stands to reason that $10 billion can buy a lot of iPhones.


U.S. Economy—Best Growth in Nine Years

Market Watch reporter Jeffry Bartash joined the ranks of the economically optimistic when he said “the U.S. economy continues to chug along and it could soon register its longest and strongest period of expansion in nine years.”

Although most Americans remain pessimistic five years after the end of the Great Recession, it’s difficult to argue against statistics. The U.S. economy is indeed successfully chugging along despite the economic woes of the rest of the world.

Although the economy is enjoying a long awaited upturn, that does not mean the profits are falling into the hands of consumers.


Income Redistribution—Are Economists Ready?

Mark Thomas was brave enough to address this provocative question in an article recently published by the Fiscal Times. Apparently, the economists assessing the complex damages to the economy during the Great Recession were negligent to include macroeconomic research on fiscal policy. This means that the growing problem of inequality was not addressed, leaving the policymakers inadequate information to make informed fiscal policy decisions. According to Thomas, “The question of redistribution is coming, and we need to be ready when it does.”

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Shale Oil & Gas: October 2014

From an oil glut causing a possible bear market threatening to pop the U.S. oil bubble to Canadians circumventing Keystone XL, and China sitting on the world’s largest oil and gas reserve but helpless to extract so much as a profitable drop—shale oil & gas owns the forefront of every news outlet in the industrial world. According to the experts, big changes could be in the very near future.

Is Saudi Arabia Forcing a Bear Market for Oil?

Wall Street Daily writer Karim Rahemtulla thinks so. In an Oct. 8 article, he said that Saudi Arabia proved that actions speak louder than words.

With no explanation, the Saudis dramatically cut the price of oil they sell to the world market forcing oil prices below $90 a barrel. The Kingdom’s only source of revenue is oil, and the Saudi’s will do anything to protect their grip on the world market. They have no choice. It’s their only source of revenue. They could send the market into a tailspin.

According to Rahemtulla, there are three saving graces in this situation.

Sub–$90 Oil: Big Threat to U.S. Oil Drillers

Although demand is weakening, U.S. oil drillers keep producing record amounts of new oil, driving the price down, writer Isaac Arnsdorf reported in a Bloomberg article.

Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, which advised 38 percent of U.S. energy mergers and acquisitions this year, said in an Oct. 1 interview: “If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity.” He went on to say, “It will be uncharted territory.”

Although consumers at the pump are enjoying the early price cuts, the U.S. oil producing industry is watching production, demand, and price per barrel very closely.

Canadians Don’t Need Keystone—They Have Their Own Route

Sending Canadian oil from Alberta to the U.S. Gulf Coast via the Keystone XL pipeline was a great idea when America desperately wanted Canadian oil. Nonetheless, when it came time to build the pipeline, politics got sticky and the political battle pitting Nebraska farmers and environmentalists against the oil industry delayed the project for more than a decade.

The Canadians found a solution. Build a pipeline to the Pacific and ship their crude to oil thirsty Asia. Bloomberg writers Rebecca Penty, Hugo Miller, Andrew Mayeda and Edward Greenspon wrote a full report.

Windy Cove Energy to Develop CO2 Enhanced Oil Recovery Assets

A Penn Energy article on Windy Cove Energy, LLC announced that the company made a commitment to invest up to $700 million of equity to acquire and develop CO2 Enhanced Oil Recovery (EOR) assets in the U.S.

Chuck Fox, President and CEO of Windy Cove said, “I am delighted that Blackstone has chosen to partner with Windy Cove. More than 20 billion barrels of oil are estimated to be recoverable from CO2 flooding in the U. S. . . .”

Extracting Chinese Shale Gas Presents Major Difficulties

State oil and gas giants and foreign investors are less than enthusiastic about being involved in Chinese Shale Gas extraction according to a South China Morning Post report. Geography, abundant and readily available water close to the reserves are just a small part of the obstacles that stand in the way of a possible thriving oil industry. Although China has 50 percent more oil than U.S. resources, extracting it is close to impossible.