Ellen Rossiter of Water Industry Journal met with Richard Ward, Commercial Vice President of Brenntag UK & Ireland, to discuss how the industry – and the world’s largest chemical distributor – are rising to meet the challenges of the water industry.
Richard, you have been working in the chemical distribution industry for a number of years. Do you feel the industry’s profile changed in any way?
There are many aspects to the UK Chemical industry that would recommend it as a prosperous economy generator. Industry sources report on sales of £40 billion and it is responsible for around half a million direct and indirect jobs. Furthermore, it is one of the country’s largest manufacturing exporters.
The industry spends significantly on investment and in research and development to ensure it has a future and can continue to compete globally.
It is important that the UK industry continues to develop and innovate, as over recent decades there has been a signifcant change in the ownership and geographical manufacturing location of the leading chemical companies. The “baby boomer” generation of chemical workers in the UK will have joined the industry when the Global Top 10 companies were predominantly European or US owned, whilst the “Generation X” members will have seen the first Asian companies enter the Top 10. “Millennials” joining the industry will see the most change and emerge into a career that could, by 2030, have over two thirds of all product produced in Asia. This provides both an opportunity and a threat for the chemical distributor and a challenge for the chemical user, not least to secure products of quality with a supply that is both efficient and sustainable for the long term.
What impact are these opportunities and challenges likely have on the market dynamics?
The European chemical distribution market is fragmented with over 2,000 chemical distributors generating revenue of €47.5 billion in 2015 and supplying over one million customers. This represents 25 % of the overall chemical market. A figure that continues to grow as customers see the benefits a distributor brings through the simplification of the supply chain and reduction in suppliers combined with the chemical manufacturers who increasingly focus on their production capability and use distributors to reach customers more effectively.
However, not all distributors are equal as the top ten European chemical distributors have total sales in Europe in the order of €13 billion Euros, representing some 27 per cent of the total sector, with Brenntag being by far the largest. In the next segment, there are 90 mid-sized distributors with revenues of around €40million, which account for almost a third of the chemical distribution market. The final segment shows that more than 1,900 of the remaining 2,000 European distributors, approximately 95 % of the total, serve the remaining 40 % of the market. These companies are smaller with average revenues of €10 million and consequently more financially constrained than the leading players. They are more vulnerable to economic shocks, downturns, extreme currency fluctuations and an increasing regulatory burden. Brenntag has the resource and capability to work with regulators to understand the implications on the market and pass our knowledge to our customers. The agility of our reach and strength of our relationships with suppliers allow us to quickly react to current challenges and assist our customers
How does Brenntag address such challenging market dynamics?
Brenntag’s strategy for meeting the challenges presented by the steady migration of manufacturing to Asia has been to invest in our people, infrastructure and acquisitions. Firstly, in the creation of Brenntag Global Sourcing Organisation. Based in Asia and staffed by local experts, Brenntag GSO is challenged with the task of seeking new suppliers and validating them to ensure the needs of customers in Europe are met. Secondly, there have been significant investments in inbound logistics with sea fed tank facilities in the Netherlands and in the UK with tanks on the East coast of England and in Belfast capable of accepting ship loads of caustic soda, sulphuric and hydrochloric acid that are products used either directly or indirectly by the UK water industry. These investments represent long term commitments to the market to ensure continuity of supply of critical products. Brenntag sees the demand for chemicals in the regulated water sector growing, primarily to meet rising standards for environmental protection with a high demand anticipated in coagulants for phosphate removal and sodium hypochlorite to meet the needs of water disinfection as customers migrate away from chlorine to safer, and easier to handle alternatives .
What steps could water industry undertake to mitigate these challenges?
Brenntag has been a major supplier of chemicals to the regulated water and power companies in the UK and Ireland for many years. Whilst we have seen real improvements we feel the water industry players need to fully understand their chemical supply chain, its strength, resilience and ability to supply product during the planning periods of AMP7 and onwards. Can the purchasing organisations plot the supply routes, understand the manufacturing capacities and constraints as well as storage and vehicle capacity? This applies not only to the product used but also the raw material or feedstock needed to make it. It could also be beneficial to understand the contractual commitment between the various parties such as manufacturer and distributor that could offer protection to supply in the event of shortages.
Are buying professionals in regulated water companies aware of recent events such as low water levels in the Rhine reducing barge carrying capacities to 25% thus creating supply difficulties in raw materials needed in the production of finished products used by the industry? Or the closure of 80,000 chemical plants in China on environmental grounds? Many will know of the shortage of HGV drivers in the UK but may not be aware of the disruption in the supply of some chemicals from USA due to a shortage of drivers qualified to get products to the docks for loading onto European bound ships. The distributor’s ability to cope with these increasingly fast changes in the market is imperative and this often requires financial depth and commercial agility.
Should the emphasis in the decision making process designed to purchase chemicals be more balanced between so called ‘Commercial’ factors which is mainly price and supply chain security?
The anticipated UK demand by regulated water companies for ferric and ferrous salts needed for phosphate removal in waste water is expected to grow significantly in the next five to ten years and could exceed the current levels of UK production. Such an increase in demand would test European supply of equivalent product types, not withstanding the pressure this puts on already stretched plants and raw materials. There is a strong case for a more strategic approach between customer and supplier as neither producer or distributor is minded to invest in additional capacity to meet demand without some contractual assurance.
It would seem advisable for water companies to consider reviewing their purchasing practice for chemicals. Whilst those used may be described as commodities, the reduction in sources, low investment and challenging supply chain conditions that could be further exasperated by Brexit present a challenge to ensure supply. Decisions based primarily on price and leverage are in the long term unlikely to deliver the required outcomes.