Sustainable supply: Industry strengthens, simplifies supply chains to manage volatility

15:40 PM | September 28, 2020 | Mark Thomas

Global chemical supply chains have come into sharp relief as 2020 has unfolded, with the COVID-19 pandemic magnifying and stress testing any weak links in overstretched value chains, often resulting in undesirable logistical disruptions.

The pandemic’s impact on supply chains, together with the effect of trade wars, has been recognized at the highest level. There are growing calls in political and business circles for the restructuring of sources and establishment of freight corridors for raw materials and products seen as vitally important to a country’s prosperity or security, so they are less exposed to international upheaval. Companies have been encouraged to identify and use more local or diversified sources of supply to avoid being overly reliant on a single source or supplier in a post-pandemic era, and governments are facilitating the potential construction of new facilities for the production of critical materials.

The ramping up of efforts in the US to establish domestic supply of essential elements such as rare earths, which gained prominence after the US–China trade war fueled worries that China might use its dominance of the rare earths market to restrict supply, is an example. The impact of the pandemic “has strengthened the appetite for alternatives to China’s rare earths supply chains,” according to Lynas (Kuala Lumpur, Malaysia), which was contracted in July by the US Department of Defense to carry out initial design work for a heavy rare earths separation facility in the US. The European Commission is thinking along similar lines, recently adding lithium to its list of critical raw materials for strategic technologies and sectors, and presenting an action plan looking at current challenges such as how to reduce Europe’s dependency on third countries and diversify supply sources.

Protectionist trade policies, tariff wars, and industry consolidation are pushing some chemical manufacturers to secure greater market share and find new ways to stand out, according to Maersk (Copenhagen, Denmark), an integrated shipping and supply-chain specialist.

At the core of this transformation is the need to build resilience and focus increasingly on sustainability, Maersk says. “Chemical companies see their supply chains playing a crucial role in their business transformation. Whether they need to support continuous production lines with effective storage solutions; increase margins with supply chain cost efficiencies; improve safety and compliance; or gain customer loyalty with greater visibility and on-time deliveries, they are making high demands of their supply-chain partners to add value at every stage of their supply chain,” it says.

Additional measures to secure supply

Evaluating supply chains and production sites is a continuous process “regardless of the [COVID-19] pandemic,” BASF says. Asked by CW if the company is reconsidering where it sources any of its raw chemicals in light of COVID-19’s supply-chain impacts and whether it plans to optimize or localize sources to avoid issues that may have arisen in lockdown, BASF says at present it “does not see any necessity to change the existing supply chains in principle. In many of our value chains, we already produce where our customers are located.”

Wherever possible, however, BASF is strengthening its supply chains with additional measures to secure supplies of important raw materials, it says. “As far as possible, we avoid buying raw materials from a single supplier. If this is not possible, we try to create competition or deliberately enter into this relationship and evaluate the impact of possible failures,” it adds.

BASF is “very well positioned with [its] supply chains” and able to react flexibly to requirements, it says. “We operate 6 integrated Verbund production sites worldwide and a further 361 production sites. This means that we are already producing in many value chains where our customers are located. Due to the current situation, we are in close contact with our customers, suppliers, and logistics service providers to find practicable solutions depending on the situation and to maintain supplies to our customers as far as possible, even in the event of potential difficulties in the supply chain,” it notes.

Supply to BASF’s customers has been reliable throughout the pandemic “despite all the adversities,” it says. At its logistics hub at Ludwigshafen, Germany, BASF implemented strict hygiene measures, rented additional mobile sanitary facilities, and was able to “considerably expand” the space available for truck drivers and other service providers, which increased its handling capacity. “After all, reduced risk of infection translates into increased supply security,” it says.

RESILIENT: Supply chains have needed to be robust and flexible to deliver chemical
products to critical industries.

According to Borealis, working closely with customers, suppliers, and value chain partners throughout the pandemic to proactively manage supply-chain risks and prevent bottlenecks has been a prerequisite.

“As a global company with a strong local presence, we have prioritized a series of mitigating actions to reduce the risk of potential supply-chain disruptions. We are also encouraging our value-chain partners to reach out to us proactively via their direct contacts at Borealis to enable us to refine these mitigating actions,” it says.

“Polyolefins supplied by Borealis are essential raw materials used in the healthcare, hygiene, and packaging industries. Our fertilizers and some of our technical nitrogen products are vital components of the food and medical supply chains, and the demand for these products remains robust. Also, our melamine business could continue operations despite a challenging market situation. At this point in time, all our production locations and warehouses are maintaining operations,” it says.

Real-world business continuity

Business continuity has been key throughout the unprecedented conditions so far this year, according to chemicals shipping and storage company Stolt-Nielsen.

“While we already had business continuity plans in place prior to the pandemic, the impact of COVID-19 on economies and the global supply chain brought something written on paper into the real world of work,” says Guy Bessant, president of the company’s Stolthaven terminals business.

“Our terminals are critical elements of the world’s transportation and storage infrastructure, so we were given permission by authorities to continue to operate even during periods of lockdown. We immediately put in place risk-mitigation protocols such as testing, limiting nonessential visitors, and social distancing to protect our employees and our customers’ service providers, be it truck drivers or crew on board the ships,” he says.

The close relationships that Stolt has with its customers “really made a difference” when putting processes in place, Bessant says. “Many of our customers are responsible for providing vital chemical products to critical industries including healthcare, so it was essential that we were able to continue providing an uninterrupted service to them,” he adds.

Need for reliability, flexibility

Stolt, with its multiple divisions, was also able to offer customers the choice of using tankers, tank containers, and terminals for their supply-chain needs, Bessant notes.

“Going forward I believe reliability and flexibility of supply chains will be needed to ensure storage and transportation of critical chemical products can be done when one or more markets face problems,” he says.

Stolt is seeing increasing volumes in some areas, but they are not back to pre-pandemic levels, says Mike Kramer, president of the company’s tank containers business. “We expect to see some improvement when more areas open and economies restart. Concern obviously lies in the depth of slowdowns and how long they will continue, given reduced consumer spending and supply-chain impact,” he says.

Stolt’s goal is to remain flexible and agile by offering services such as short- and long-term storage in its depots and terminals, as well as working with its chemical tankers business, “should shipments warrant a change in transport mode,” Kramer says.

“Before COVID-19 struck, the main questions on everyone’s lips were to do with Brexit and China–US trade discussions. As a global company, challenges such as these and oil price fluctuations were part of everyday business life. We are used to figuring out solutions, so even though these challenges remain on the table, we’re confident we’ll overcome them,” he adds. ¦