Digital transformation in the chemical industry has been slowly evolving. Bringing about tools such as; digital portals, remote sensors, dashboards, and e-commerce sites, which should improve the efficiency of operations and the supply chain. The companies which are ahead of this curve are able to operate more effectively and efficiently. The benefits in terms of fleet management and distribution include more efficient route planning, optimized equipment utilization, and improved client relationships.
As a key contributor to the US economy, the chemical industry had seen substantial growth and was investing in new technologies. According to data published by the American Chemistry Council (ACC) as of August of 2019, the chemical industry in the United States supported approximately 25% of the US GDP and was valued at $553 billion. As manufacturing expanded, chemical distributors were required to update traditional models of doing business to stay relevant and continue to add value in the supply chain. Specifically, chemical distributors looked to leverage technological solutions to meet industry demands for increased capacity, efficiency, and transparency.
Business Models for Chemical Distributors
Business models for chemical distributors to add value were outlined in 2018, a Kearney article that described three (3) business strategies for chemical distributors to increase market share. Multiple strategies may be implemented and achieving these growth strategies quickly required the implementation of technology solutions:
- Functional or Regional Specialization- Here, the distributor focuses on an industry segment, such as commodities or specialty chemicals, in order to become the market leader. They may also look to establish a territory and dominate a particular geographic region for multiple products.
- The Solution Provider – Leveraging downstream expertise in the markets that use specific chemicals provides distributors with a tool to integrate themselves in the supply chain. Downstream knowledge of markets offers a competitive advantage and a chance to provide customers with added market and sales insights. Contact relationship management, market intelligence and the ability to interpret and communicate this information to customers requires a corresponding digital strategy.
- Partnerships with digital merchants- Partnerships with digital companies combine the distributors’ geographical market and industry expertise with tools such as e-commerce portals and load match websites for the rapid acquisition of orders and information requests. These tools may also provide rapid data analysis and data transparency across remote teams. Technology, by providing efficient interactions and meaningful information, builds relationships between drivers, dispatchers, manufactures and end-users.
The Effects of Digitization in Chemical Transportation
Deloitte, in their Oil, Gas, and Chemical Industry 2020 Outlook states “How can chemical companies respond to oversupply and the resulting margin pressure? Efforts should be directed toward driving higher process efficiencies and enhancing cost savings across the chemical value chain with the help of digital technologies.” Additional drivers behind the trend toward digitization include an aging workforce expected to retire within 5-yrs. and a tech-savvy younger generation coming in to fill this gap.
The chemical transportation sectors, including trucking, rail, and shipping, will evolve to support these demands from chemical companies to improve the efficiency of the supply chain and provide greater transparency. Trucking, a primary mode of transportation for the chemical industry supports 54% of all shipments, has already seen changes through the incorporation of digital technologies including mobile sensors, real-time position tracking and online recorders to monitor product status en route. These digital enhancements are all used for improved visibility, quality, and control.
In 2020, digitization was projected to become one of the biggest differentiators for companies willing to risk investing in the advantages of economies of scale and improved control over their operations, supply chain, and distribution channels. However, the forecasted slow growth rate for the chemical industry and the chemical transportation industry came to an abrupt end in the Winter/Spring of 2020 with the emergence of the COVID-19 pandemic. The temporary shutdown of countries across the globe for all but essential goods and services, and the glut of oil, gas and petroleum products, required a rapid shift from transportation to storage. It also required cuts in production, even as new mandates emerged for transitioning to a remote workforce and the implementation of social distancing requirements.
In the short term, companies have shifted to conserve cash, postponing projects that are in early stages, while wrapping up phases currently nearing completion. While it is still too soon to evaluate the longer-term impacts of the pandemic, it seems reasonable to assume that companies at the forefront of the digital transformation are in a better position to collaborate remotely while operating transparently and efficiently. One of the few more certain outcomes is the heightened awareness of the need for digitization in chemical manufacturing and distribution. Ultimately, it is likely these trends will resume when capital and cash flow allow.
Another way to conserve capital during difficult times is to work with a trusted and knowledgeable chassis and trailer leasing company, such as Matlack Leasing, LLC. Assisting manufacturers and distributors during times of industry change is how we contribute to the supply chain and add value. Matlack Leasing, LLC has tank trailers and chassis specially designed to store and transport chemicals. Contact Matlack today to discuss leasing options that are right for your business.
- Article – France
- Transporting Growth: Delivering a Chemical Manufacturing Renaissance
- The business of Chemistry Fact Sheet August 2019
- 2020 oil, gas, and chemical industry outlook
- 2019 Global chemical industry mergers and acquisitions outlook Navigating headwinds
- NACD Chemical Distributors Look to a Digital Future