The tank container industry grew in 2022, supported by healthy demand to deliver liquid bulk cargoes for the chemical sector. However, we are still facing challenging times dominated by fragile economic activity, sky-high energy costs, and growing global competition. So, what can we expect next?
This article is written by Rudi Stalmans and featured in the 2023 Tank Container Supplement of Tank News International.
Chemicals are everywhere and part of everyone’s life
Chemicals are everywhere in everyone’s life and can be found in more than 90% of all produced goods. Sales include petrochemicals, specialty chemicals, consumer chemicals, basic inorganics, and polymers. The industry uses these chemicals in rubber and plastics, construction materials, refined petroleum, textiles, paper, food products, motor vehicles, metals, electronics, machinery, and agriculture.
To highlight the importance of chemicals, they are present in the disinfectants used in large quantities during the COVID-19 pandemic. The medical, healthcare, and pharmaceutical industries are users of chemicals such as acetone, hydrochloric acid, acetic anhydride, and benzyl chloride. The chemical industry is also crucial in our drive toward sustainability and a circular economy. They help to save and conserve resources and create a better environment. In doing so, the sector has the power to transform sectors such as pharmaceuticals, agriculture, food, and energy.
According to the 2023 Facts and Figures of The European Chemical Industry, China is the largest chemicals producer in the world, with EUR 1,729 billion in sales, or 43% of total world chemicals sales, which stands at EUR 4,026 billion. Europe (EU27) is the second-largest chemicals producer in the world with EUR 594 billion in sales, followed by the USA with EUR 437 billion in sales. Japan and South Korea complete the top 5 in terms of chemical sales, with EUR 190 billion and EUR 133 billion in sales, respectively. During the last decade, China’s market share has increased dramatically, while the market share of the USA and Europe (EU27) has dropped significantly.
Key emerging economies saw their average chemicals production grow faster than Europe (EU27) and the USA, with the USA even shrinking. Regarding feedstock, it is also important to note that Europe (EU27) is at a competitive disadvantage compared to the USA and the Middle East. Between 2011 and 2021, China saw average annual production growth of 7.3%.
This trend is confirmed if we look at global investment in chemicals, where China is leading in capital spending. The report shows that China’s 2021 chemicals capital spending stood at EUR 109 billion, almost double its 2011 chemicals capital spending. Research and innovation spending also increased in China, which is today, the largest R&I spender in the world with a market share of 30%. Europe (EU27) is still the second largest R&I investor in the world, with a 21% market share, followed by the USA (16%), Japan (16%), and South Korea (6%).
As living standards improve in many parts of the world, consumers start buying their first vehicle, refrigerator, or computer, all made with chemicals. That indicates that the demand for chemicals is still healthy and that the industry needs to continue working to meet increasing customer demand. Global supply and demand imbalances for all these chemicals continue to drive demand for transportation, including tank containers.
The tank container fleet keeps expanding on the back of global chemical demand
Therefore, the tank container industry has been in a sweet spot and has grown significantly in recent years. The ITCO 2023 Global Tank Container Fleet Survey highlights that the global Tank Container Fleet reached 801,800 units by 1 January 2023, a growth of 8.65% in 2022.
During the last few years, various supply chain disruptions led to a shortage of tank containers and a record need for equipment. While the industry constructed new tank containers, older units have often been repaired and brought back into service by leasing companies and operators.
The survey also shows that the industry continues to be dominated by a smaller number of larger tank container operators and leasing companies. The top 10 operators manage over 281,160 tanks, or 49% of the global tank container operators’ fleet. The top 10 leasing companies are responsible for 299,300 tanks, covering 83% of the total leasing fleet.
Navigating a challenging market landscape
Supply chain constraints, rising inflation, and changing trade flows have created a challenging market landscape. The role of tank container operators is to navigate these difficult conditions to guarantee continuous product flows for their clients. Some have been more successful than others.
In 2022 Stolt Tank Containers, the largest tank container operator, saw their transportation and demurrage revenue increase by 30.8% and 63.6%, respectively. The increase in demurrage revenue resulted from shippers using units as backup storage to cope with supply chain disruptions. Their higher operating revenue, however, was offset by a 68.6% increase in ocean freight costs.
These freight rates have been very volatile and have since come down. For reference, Drewry’s composite World Container Index on 23 March 2023 decreased to USD 1,756.83 per 40ft container, an incredible 79% drop compared to the same week last year. The freight index is now 83% below the peak of $10,377 in September 2021. The average composite index for the year-to-date is now USD 733 lower than the 10-year average of USD 2,690, indicating that we are closer to more normal freight levels.
These volatile freight conditions and the current market uncertainty have resulted in Germany’s VTG terminating its tank container transport and logistics business. VTG will discontinue all relevant activities by the end of the second quarter of 2023. That will involve closing its international subsidiaries, except the joint venture Shanghai COSCO VTG Tanktainer Co. Ltd. VTG will continue and expand its tank container leasing business.
With easing supply chain constraints, shippers are returning tank containers used as temporary storage units to the tank container operators. That and the tank container fleet growth of recent years could result in an oversupply, especially if the market turns sour. Want to know more? To learn everything about the liquid bulk supply chain, including tank containers, join our Petrochemical Supply Chain Bootcamp.
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