The chemical industry is a major contributor to the U.S. economy, with sales of more than $800billion. It accounts for nearly 14 per cent of the total exports, and exports about 881 million tons of material per year.
Because of the abundant natural gas reserves, the chemical industry is in the exponential growth stage. Natural gas is often considered as a lower cost and more stable raw material for a variety of chemicals. Since 2010, a total of 264 new projects have been announced, involving nearly $161billion in capital expenditure, which has increased the production capacity of olefins, polyolefins and methanol.
The industry has a clear direction to obtain all benefits from existing natural resources. However, in order to achieve and maintain strong growth, the industry must take into account the current logistics infrastructure and consider improving the overall transport landscape.
Highway, railway and sea transportation account for about 99% of the total circulation of materials in the industry. Each model offers manufacturers specific benefits, but there are inherent challenges that can be translated into huge costs if not addressed.
Road: This is the main way to transport chemicals, accounting for 61% of the total transportation. Truck transportation is mainly used for final delivery to customers, to warehouse location and multimodal transport export terminal. Although this pattern provides the largest utility, it also has constraints.
Strict regulations on the weight of drivers, licenses and trucks carrying chemicals are obstacles. Drivers must pass mandatory TSA background verification tests, which may take 60 to 90 days. The time limit for chemical truck drivers to travel on the road, as well as the number of retirees, has also raised concerns. In addition, Texas limits the weight of chemicals that can be loaded, forcing resin manufacturers to ship partially filled containers.
These restrictions will increase spending in the form of increased inventory and faster delivery, taking into account the upcoming industry expansion plan.
Railway: 24% of the total share, mainly used for bulk materials and bulk commodity manufacturers in bulk transport. The main problems of railway are delay and congestion, especially at high traffic nodes. In the current situation, the delay lasts for an average of 4 days, which means that the site inventory increases, the transportation materials increase, the number of turns decreases, and more rail vehicles are added.
The use of sub optimal routes and models is another aspect of the problem – the additional use of 14million tons of truck goods per year as an alternative to the railway. If this is not resolved, it is expected that by 2025, the average delay time will double to 8 days, which will increase the cost of large inventories.
Shipping: Shipping accounts for 14% of the total sea transportation, mainly meeting the export market demand. The main problem of maritime transportation is the location of production facilities and infrastructure at nearby ports. Most chemical production units and new projects are located or expected to appear in the Gulf coast of the United States. Large carriers do not accept the docking of the Gulf port, as existing facilities and infrastructure are considered difficult to handle. Therefore, these materials must be transferred to larger and further ports on the West and east coast. Nearly 32 per cent of the transport material needs to be transferred to a larger port each year, adding about $10billion in additional costs to the industry.
The road ahead
The key question is whether the oil and gas industry has time to deal with this situation and avoid additional $75billion in inventory, operations and capital expenditures? The answer is yes, but it requires the collaboration of ideas and resources from all relevant stakeholders, including chemical producers, transport suppliers, local, state and federal governments.
Simplifying the procedures for veterans to get business licenses may be a good way to increase the number of truck drivers. Joint rail infrastructure development activities by chemical manufacturers and authorities will lead to investment in the target areas and help reduce congestion and delays. In addition, transparent flow of information between port authorities and chemical manufacturers on infrastructure investment and capacity-added could help to improve this situation.
