When it comes to creating and driving value in your petrochemical supply chain, it’s often not easy to understand all the different building blocks. This is because we are often only focused on one part of the supply chain.
But, the process to start designing or optimizing your supply chain becomes much easier if you have the right guidance. A better understanding will lead to internal and external synergies, better negotiations, and new opportunities.
Few of us make the connection between the petrochemical industry, and their laptop, fridge and food packaging, for example. We are all benefiting daily from products that have been made from petrochemicals.
Once you have some knowledge about how petrochemicals are made, and where they end up, you will be in a better position to look at the supply chain and trade flows. A better understanding will allow you to identify new opportunities.
There are pros and cons of spot and term contracts, and each company will need to find a balance between these contracts depending on their own risk profile. Before entering a new market to start a production facility, for example, trading could be the best way to get to know the players and understand the trade flows.
Buyers and sellers need to define the responsibilities and obligations for the transport of the goods covered in the commercial agreement. Incoterms are all the possible ways of distributing these responsibilities and obligations between the seller and the buyer.
Prices are negotiated between the buyer and the seller, relying on benchmark spot assessments from companies such as Argus, Platts, and ICIS. Prices could be offered based on a 25pc Argus, 50pc Platts, and 25pc ICIS weighting, for example. The pricing methodology uses various principles and parameters for each product, including the assessment window, assessment timing, basis and location, credit terms, quality specifications, and standard sop.
The operational part and agreed nomination process in the commercial agreement is another very important topic and requires a lot of consideration to reduce risk. Coordination with logistics, shipping and chartering colleagues is important.
Now that you have sold your products, you need to start setting up your supply chain. It is important to think about the supply chain as early as possible, to make sure you have the capabilities to deliver.
One of the most important transport modes for larger liquid bulk shipments is a chemical parcel tanker. As defined in MARPOL Annex II, a chemical tanker means a ship constructed or adapted for carrying in bulk any liquid product listed in chapter 17 of the International Bulk Chemical Code.
Parcel tankers often discharge at tank terminals, which can have different functions in the supply chain. A storage operator may offer various value-added services such as drumming, warehousing, heating, cooling, and blending. In many countries, various of these value-added services such as drumming and warehousing, for example, are often provided by logistics solutions providers instead.
The logistics services sector has been evolving from 1 PL to 5 PL service providers. All these players could be involved in building your supply chain. Secondary distribution covers the delivery of products in smaller lots, which could be in IBCs, drums, tank containers, flexitanks, and barges, for example.
Setting up a sustainable supply chain
Supply chains can be very complex. Deciding which transport mode to use, and between shipping directly or via a storage hub, is often not an easy task.
While you could use a storage hub for various reasons, selecting one is more challenging. We need to consider the overall cost to supply goods from origin to end-users via a distribution hub, the accessibility of the hub, lead times, as well as the availability of transport options for both domestic and international deliveries. The quality of the infrastructure, environment, and weather conditions are other important factors to review. Regulations and ease of formalities, such as customs clearance and bonded storage transactions, are also important considerations.
The service you need to offer to your clients, to both external and internal customers, is a key focus point when setting up your supply chain. You need to be able to calculate the overall supply chain cost and take into account what-if scenarios. You also need to be aware of hidden costs, such as potential detention, demurrage, and product losses.
Another priority is to understand your risk and do proper risk assessments, including ship vetting, tank storage audits, and transport risk assessments, for example.
Finally, In our new world of digitalization, innovation, and technology, finding and using the right tools that allow you to save cost and increase efficiency will give you a head start over your peers.
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You may also like our article – Understanding The Petrochemical Supply Chain.
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