With Exports on the Rise, U.S. Chemical Companies Must Break Through Supply

U.S. chemical companies are at a critical point today. With abundant feedstocks (oil- and gas-based chemical raw materials) and huge anticipated growth of chemical and plastics exports that will stress existing chemical transportation infrastructure, producers must overcome supply chain challenges they haven't previously faced—or, in some cases, aren't sufficiently prepared for. Their success navigating these difficulties hinges on producers adopting new, innovative supply chain strategies to drive greater efficiency and capitalize on growing export opportunities—and do so while staying nimble in the face of change and disruption.

Changing market creates multiple challenges

Almost a decade ago, it was assumed that the United States would be a net oil and gas importer for years to come, and that new chemical capacity would only be constructed overseas. But in the years since, the shale-drilling revolution has saturated the U.S. with inexpensive gas and its related chemical feedstocks, attracting about $164 billion in chemical industry investment.1

While the shale boom has made the United States an attractive proposition for both domestic and foreign capital investment, the U.S. chemical market most likely could not absorb the resulting capacity increase. The U.S. is the lowest-cost region in the world, after the Middle East, for producing gas-based chemicals. Therefore, it can sell those chemicals competitively in the growing export market, which is primarily centered in Asia. However, it also means chemical companies will need to not only secure long-term overseas customers, but also fundamentally redesign their supply chains to accommodate the growth in global trade.

There is a lot at stake. We project that the United States could improve its international net trade position in major chemicals and plastics by up to 18 million metric tons by 2020. A highly integrated approach to supply chain operations could be the crucial differentiator for successfully managing the transport of those escalating product volumes.

Chemical companies will encounter some challenges, however. One issue is that, while many chemical companies are international in outlook, they too often operate in silos, which may be geographic, product, market, or functional, rather than as integrated global operators. To manage today's growth in exports and ensure that all relevant parties are privy to a full suite of timely information, streamlined communications from the local level through to the global level are essential—as is strongly aligned integration of the functions involved. Metrics must also be aligned, so that one team's successful performance optimizes the performance of other teams and, ultimately, the entire company.

If regional and functional units maintain a siloed structure they will be impaired by regional boundaries and misaligned metrics, and therefore stand to miss out on much of the chemical export boom. And, without the visibility or capability to effectively manage issues such as the regional availability of shipping containers, weather conditions, port congestion, and other external factors throughout the supply chain, of course, the success of the entire operation will be compromised.

Another challenge revolves around logistics. Developments and upgrades to infrastructure in the United States have lagged behind the growth of its manufacturing base, which is likely to create transportation bottlenecks. Over the past 10 years, U.S. monthly construction spending on transportation grew only 25 percent versus 45 percent for manufacturing. 2 And many U.S. chemical producers' supply chains aren't nimble or dynamic enough to deal with those bottlenecks. This will impact their ability to serve the global customers they're seeking to reach.

Improving logistics capabilities to successfully deliver the right product at the right time to the right place for export customers will enable leading companies to achieve higher netbacks (profits after distribution costs) than their competitors. Those that fail in this area are likely to see increased costs and delays, and ultimately the loss of customers due to unreliable service.