Although some economic analysts say we are overdue for another – hopefully milder – recession, all of the indicators for the chemical industry show it is strong and will only grow stronger in the future.
However, research shows that the industry needs help from third-party logistics providers to get the most out of this continuing growth.
American chemistry is the world’s second largest producer, providing a big proportion of the world’s chemicals and representing 14% of all U.S. goods exported, according to the American Chemical Council.
It is also one of America’s largest manufacturing industries, a $768 billion enterprise providing 811,000 high-paying jobs, ACC brags.
“American chemistry continues to be the second largest producer, accounting for nearly 15% of the world’s chemical shipments, and is poised for growth over the next decade,” says the report’s lead author, ACC Chief Economist Kevin Swift.
Surging supplies of natural gas and natural gas liquids from shale have vastly improved the competitiveness of U.S. chemical producers.
“Looking ahead, this competitive advantage will translate into large production gains as new capacity comes online in the next few years,” Swift predicts.
He also points out that production grew in every major chemical producing region in the U.S. during 2016. Over the next five years, the most dynamic growth will occur in the Gulf Coast region, followed by the Ohio Valley and Southeast regions.
In the long-term, the U.S. chemical industry will grow faster than the overall economy, the council contends, and by 2020 it expects that the U.S. chemical industry’s sales will exceed $1 trillion.
The ACC’s most recent Chemical Activity Barometer for August, considered a leading economic indicator, remained unchanged from July, a continuation of a modest deceleration of growth. Compared to a year earlier, the CAB ws up 3.2% year-over-year, an easing from recent year-over-year gains.
3PL Opportunity
The industry can do better when it comes to logistics, according to a study by the consulting firm Supply Chain Insights.
“Overall, supply chain improvement in the chemical industry is stalled with companies unable to drive improvement while outperforming peers,” says CEO Lora Cecere.
Optimal supply chain performance hasn’t been achieved because of strong vertical organizational silos that are focused on efficiency but which lack strategic alignment, she argues.
“While traditional economies of scale came from large-scale manufacturing with large volume batches and bulk shipping, the world has changed, Cecere observes.
“The shift to differentiated products requires rethinking batch sizes, shipping modalities and supply chain processes. Traditional process standardization drives improvement in a single area, not a portfolio of metrics.”
With the increase in business complexity and globalization, companies are struggling with inventories, including in-transit inventories, which few in the industry understand, she contends.
Port congestion, larger vessels and slow steaming increase in-transit inventories and adversely impact safety stocks and the reliability of supply.
“Since few chemical companies are good at supply chain planning – with many going backwards instead of forward in capabilities and planning – inventory management remains an opportunity,” Cecere says. “Few understand how to blend the form and function of inventory.”