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Sun 22 Nov 2009 04:00 AM

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Chemical reaction

Exploring the hidden potential of petrochemical logistics in the Middle East region.

Chemical reaction
The petrochemical sector has proved attractive for the likes of Damco, Momentum Logistics and Swift Freight.
Chemical reaction
Justyna Janik, project manager at Damco.

Exploring the hidden potential of petrochemical logistics in the Middle East region.

With growing saturation in the Middle East logistics industry, a number of service providers have experienced success by venturing into niche segments of the market. Whether its Kuehne + Nagel with hospitality logistics, Freights Systems with artwork logistics or GAC with event logistics - each player has reported a favourable response to their specialist solutions.

Following this trend, the petrochemical sector has been highlighted by Booz and Company as a future ‘cash cow' for logistics companies in the region, especially with a recovery from the global recession in sight. According to the research firm - which published its ‘Not Too Late Finding Opportunities in Middle East Logistics' report in June 2009 - a number of recent indicators have supported the growth forecast for petrochemical logistics, including a multi-billion dollar spend on downstream developments in Saudi Arabia, Qatar and the United Arab Emirates.

"The aspiration of oil-rich countries to develop their downstream industries will drive a huge amount of investment into refinery capacity and petrochemical plants in the Middle East," states Fadi Majdalani, partner at Booz and Company. "Additionally, the products must be transported to major consumption markets around the world, such as Asia, Europe and the United States, which means that logistics companies with global distribution networks and expertise in the handling of petrochemical products will be best-served for this attractive market."

It seems the global recession has fuelled a migration process towards outsourced supply chains for the petrochemical sector, with companies under pressure to increase their efficiencies while reducing their operating costs. Oman-based Octal Petrochemicals, which is investing US$50 million to develop a liquid chemicals terminal in the port of Salalah, is amongst the industry leaders that have championed the concept of third party logistics (3PL). However, its logistics manager George Freiji believes that the long-term benefits will only be realised when 3PL firms are better-integrated with their petrochemical clients.

"Petrochemical producers are very concerned about their logistics operations as the losses in terms of failed product delivery are potentially huge," he stresses. "We are competing with local companies in the US or Europe and must provide a consistent service. To achieve this, it's important to have a strong relationship with our logistics partners and integrate the various business processes with them, covering everything from storage and transportation to final delivery."

According to Freiji, communication is essential in developing an efficient partnership between the petrochemical and logistics industries. This point has already been taken into consideration by the Gulf Petrochemical & Chemicals Association (GPCA), which has established a supply chain committee with 13 members from both sides of the table, including Al Majdouie de Rijke Logistics, SABIC, Vopak, Reliance Industries and United Arab Shipping Company (UASC). The group hosted its first annual forum in Bahrain last month, under the theme "Current Trends and Preparing for Future Growth", with issues such as transportation safety, logistics outsourcing and infrastructure restrictions being placed under the spotlight by over 200 delegates."This committee has been established to fuel the improvement of supply chain operations for chemical and petrochemical companies in the GCC," explains Dr Abdulaziz S. Al-Bati, chairman of GPCA supply chain committee. "Compiling, sharing and exchanging resources, knowledge, opinions and experience is on top of a development plan that the committee has prepared for 2010 onwards.

We welcome membership from different elements of the supply chain to serve members with a variety of data, technical assistance and resources in support of the regional petrochemical and chemical supply chain."

Another member of the GPCA supply chain committee is Damco (formerly Maersk Logistics), which emerged as one of the first players to concentrate on petrochemical logistics in the Middle East. The company hit a milestone earlier this year after concluding a research study with Abu Dhabi Basic Industries Corporation (ADBIC) to explore the feasibility of providing tenants at Abu Dhabi Polymers Park with supply chain services to reduce their inventory levels, lead-times, visibility and operating costs.

"The logistics industry is currently suffering from an overall slowdown, which is prevalent in the Middle East and throughout the world. However, in the long-term, there is a great deal of potential in the petrochemical sector," states Justyna Janik, project manager at Damco.

"We understand that petrochemical producers have traditionally insourced their logistics in the Middle East, which means the operational processes tend to be customised to the requirements of plants and factories. As a result, the process of outsourcing requires tailored solutions and adequate change management. Damco is providing this through our consultancy capabilities, which includes concept studies, feasibilities studies and project management consultancy (PMC) to ensure the transition fulfils the operational requirements."

Of course, Damco is not alone with its plans to conquer the market for petrochemical logistics. In the past year alone, TALKE Logistics has commissioned a petrochemical logistics centre in Saudi Arabia, Swift Freight has launched 3PL services for petrochemical firms in partnership with Hexomatrixx, and Agility has secured a five-year contract to handle the regional land distribution operations for Equate Petrochemical Company.

A relative newcomer to the list, Momentum Logistics is also planning a major push into the market over the coming years. "One of the key issues for petrochemical companies is the importance of observing and maintaining the highest health and safety standards, as the majority of petrochemical products are flammable and represent big risks for personnel," says Matthew Derrick, general manager of Momentum Logistics, whose parent company Gulftainer recently secured a contract to provide on-site logistics services at Borouge's polyolefin plant in Abu Dhabi.

"However, on the whole, petrochemical logistics is much the same as the logistics of companies in other industries, with a focus on supply chain management, storage and transportation of products and freight forwarding. The main aim, as always, is to provide the best possible service at the best possible price, and our logistics solutions can make a big difference in a company's operational expenditure."

Case study

Justyna Janik, project manager at Damco, explains why the company partnered with Abu Dhabi Basic Industries Corporation (ADBIC) to research opportunities in the petrochemical logistics sector.

Can you provide details on the recent study conducted by Damco and ADBIC?

The research explored the feasibility to opening a logistics centre at Abu Dhabi Polymers Park, which would offer services that are tailored to the requirements of tenants, such as polymer storage and handling, finished goods storage, distribution and freight forwarding.

What benefits are expected for tenants?

The tenants would benefit from lower overall logistics costs, as well as lean and sophisticated supply chains, resulting in higher service levels. Our study showed this would translate into a competitive advantage, enabling the tenants to service international markets and compete with longer-established global players.

What is the cost saving to customers?

The end-cost to tenants will depend on the service, volume and scope, but a net saving of 12% is expected on total logistics spend, as compared to current market levels.

What are the main challenges that you faced whilst evaluating the study?

The key challenge was forecasting the future volume and product mix of the polymer park. Early mover tenants established the basis for the study. However, there are still unconfirmed tenants for which volume and product forecasts were used.

What specialist services or skills will the petrochemical sector demand?

Apart from bulk handling requirements, not much. Petrochemical producers in this region have traditionally in-sourced logistics, which means the operational processes tend to be customised to the requirements of the plants and factories. The process of outsourcing will therefore requires tailored solutions and adequate change management.