The chemical industry is projected to see increased costs due to excess inventories, larger capital expenditures, and higher operating costs, according to a study performed for the American Chemistry Council by PricewaterhouseCoopers.
A study performed for the American Chemistry Council (ACC) by PricewaterhouseCoopers (PwC) said chemical manufacturing is on the verge of a renaissance, but that a resulting increase in transportation demand underscores the need to address existing transportation infrastructure issues.
“New logistical challenges could slow down the movement of new chemicals and prevent the industry from realizing the full benefits of increased production,” the PwC report said.
The ACC said, “Announced new U.S. chemical and plastics projects are expected to increase production by 53 million metric tons of new chemical output per year by 2020.”
That will create a need to move an additional 270,000 rail cars, 723,000 full truck loads, and 808,000 TEUs by 2020.
PwC surveyed 68 leading chemical companies for their views on transportation and logistics challenges faced by the industry.
Mark Lustig, a principal at PwC said, “Many of the issues they raised are systemic, and will require careful planning and partnerships across both the chemical and transportation sectors in order to successfully manage this new volume.”
The report found the truck driver shortage is likely to become more acute, and longer lead times are likely to cause additional problems over the next 10 years.
In addition, the report noted that as Gulf ports become more attractive for exports, the maritime infrastructure around those ports may not be ready to support added volume, leading manufacturers to pursue suboptimal shipping routes.
“Gulf ports have generally been viewed as less than ideal facilities, primarily because the largest vessels do not call at these locations,” the report said. “About 32 percent of chemical export volume is moved long distance to ports such as Los Angeles and Charleston.
“Although producers will incur a cost premium for going overland to these locations, they report receiving better and more frequent service from steamship lines,” the report explained. In addition, the report estimated that “the total extra costs associated with using suboptimal routes (e.g., shipping from the West Coast instead of the Gulf) could amount to $10 billion over the next ten years.”
Rail service delays are expected to double by 2025 should conditions not improve, leading to a greater demand for more rail cars to hold in-transit products.
The chemical industry is projected to see increased costs of $74 billion between 2016 and 2025 with:
• Additional inventory being held due to transportation delays, translating into a cost of $22 billion in working capital;
• Capital Expenditures expected to increase by $23 billion for equipment and infrastructure required to handle increased congestion and delays;
• And operating costs likely to increase by an additional $29 billion over a ten-year period due to logistical inefficiencies.
