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Chemical Firms Struggle With Logistics

Supply chain inefficiencies will result in $79 billion added to chemical manufacturers’ costs over the next decade, according to a survey conducted by PricewaterhouseCoopers.

Reading between the lines, this creates an enormous opportunity for third-party logistics providers to offer chemical companies the solutions they need to help them gain better control over these costs.

Sponsored by the American Chemistry Council, the study found that addressing ongoing challenges across the nation’s transportation infrastructure is critical to fully capitalizing on the economic benefits of growing chemical and plastics production in the U.S.

“In our recent report, we surveyed 68 leading chemical companies and captured their views on transportation and logistics challenges faced by the industry,” said Mark Lustig, a principal at PwC.

“Many of the issues they raised are systemic, and will require careful planning and partnerships across both the chemical and transportation sectors in order to successfully manage this new volume,” Lustig asserted.

The $170 billion in planned new U.S. chemical and plastics projects is expected to increase production by 53 million metric tons of new chemical output per year, requiring an additional 1.8 million shipments per year by 2020, the council noted.

“Given the current challenges already present in the transportation network, chemical manufacturers will likely face additional transportation-related costs that threaten to throttle future growth,” ACC said.

The survey found that chemical producers believe the truck driver shortage is likely to become more acute and longer lead times are likely to cause additional problems over the next 10 years.

Another area of concern foreseen by the chemical producers is that as the Gulf ports become more attractive for exports, the maritime infrastructure around these ports may not be ready to support the additional volume, leading manufacturers to pursue suboptimal shipping routes.

PwC also expects rail service delays to double by 2025 should conditions not improve, leading to a greater demand for more rail cars to hold in-transit products.

Unless these challenges are addressed, PwC estimates chemical manufacturers will likely face billions of dollars in increased costs over the next decade.

These include excess inventories held due to transportation delays likely to create a cost of $22 billion in working capital.

Capital expenditures are expected to increase by $23 billion for equipment and infrastructure required to handle increased congestion and delays. Also, operating costs are predicted to rise an additional $29 billion over a 10-year period due to logistics inefficiencies

ACC believes the chemical industry will likely incur an additional $7 billion in transportation costs annually related to congestion and delays by 2025. ACC estimates this will put nearly 17,000 jobs at potential risk if the transportation network is not upgraded and expanded to meet the volumes expected over the next decade.

“Public policies must keep pace with the rapid growth in the business of chemistry,” declared ACC President Cal Dooley. “We need lawmakers in Washington to adopt federal policies that will improve the efficiency of the freight rail network through market based solutions and enhance the capacity of our ports and highways.”

Rep. Garret Graves (R-LA.) observed that PwC’s study quantifies what has been said for years. “We have to acknowledge and address the severity of this crisis if the United States wants to continue leading the chemical manufacturing renaissance, or keep pace with the global marketplace at all.”

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