Chemical logistics on the move
By Professor Dr. Christian Kille and Dr. Andreas Backhaus I 8 minute read
06/12/2024
One of the world’s largest economic sectors, the chemical industry has high export rates—and very high energy requirements. A scientific study has now examined the impact of the current extensive transformation, and the switch to renewables in particular, on chemical logistics in Germany, a major chemical industry location. Below, we present the initial insights and outlook from the study authors Prof. Christian Kille and Dr. Andreas Backhaus.
We live in transformative times. This applies in particular to key German industries such as the chemical industry. The sweeping dynamics of change associated with this also have an impact on logistics and its processes. A study entitled “Chemical logistics on the move: Scenarios and outlook for Germany” describes the status quo in chemical logistics regarding the global flow of goods, using the country as a specific example. It develops concrete scenarios for the various developments and outlines the expected effects on the future organization of supply chains. Based on these findings, the study team drew up six recommendations for actions chemical logistics can take. Action along these lines can help ensure Germany’s continued success in international competition as a chemical industry location and simultaneously produce positive long-term effects for the global target markets.
The work was carried out in several steps in order to develop the results in as nuanced and analytical a way as necessary, while at the same time keeping them as practical and plausible as possible.
Analysis of the chemical industry using Germany as an example
First, the authors describe the status quo in the chemical industry. With knowledge of the sector’s production and logistics locations as well as of the flow of goods, it’s possible to show the expected changes in concrete terms.
Revenue of around EUR 200 billion, almost 4,000 companies, over 350,000 employees, and logistics costs of some EUR 10 billion: the chemical industry is a key sector of the German economy. It operates production sites throughout the country and is an important supplier for every industry. Its logistics locations are concentrated in the west of Germany (in the state of North Rhine-Westphalia) and the “chemical triangle” of Baden-Württemberg, Rhineland-Palatinate, and Hesse. The most important transport corridor for bulk products and bulk cargo stretches from the southeast to the northwest and the multipurpose seaports in Antwerp (Belgium), Rotterdam (Netherlands), and Amsterdam (Netherlands). Packaged goods, in contrast, are distributed more broadly and don’t have a similarly clear-cut corridor.
Next, the study looked at overarching trends and drivers that are relevant for the economy in general and the chemical industry in particular. These offer the opportunity to assess the different directions of development. Because the chemical industry accounts for such a large share of imports and exports, global changes—especially the current geopolitical upheavals—are of particular importance. These have led not only to high energy costs, but also to increasing protectionism in major partner countries. Upcoming political decisions (in the form of elections) in many relevant countries present another challenge, as these could significantly change the situation. This uncertainty on the macroeconomic side, especially the resulting high energy costs and the current weakness of the German economy as a whole, doesn’t make it easy to reach decisions about necessary investments in digitalization, new logistics solutions, and climate action.
200
billion euros is the turnover of the German chemical industry. The logistics costs amount to 10 billion euros.
Development of a realistic scenario
Against this complex backdrop, the study sets out theses on the impact of trends and drivers on the chemical industry and chemical logistics. These theses also served as input for a survey of the specialist public, which was conducted in collaboration with the German trade journal CHEManager. In this way, they helped to keep the complexity manageable and make further interpretations more practical. Steps were taken to distinguish the effects of social, technological, economic, ecological, and political changes.
In the next step, the study team developed a realistic scenario from these findings that they then analyzed to see how it will tend to change the chemical industry and chemical logistics in particular. Here are their results:
Social: Despite intensive efforts to improve their reputation in society, companies in the chemical industry and chemical logistics are not managing to position themselves sufficiently as attractive employers. As a result, they will not only feel the effects of the general lack of qualified personnel, but will also face greater challenges in their transformation.
Technological: Infrastructure challenges are becoming bigger and more urgent. However, public institutions as well as companies in the chemical industry and chemical logistics can increase their efficiency, and thus their competitiveness, thanks to increased investment and sophisticated digitalization and automation solutions.
Economic: Numerous chemical companies will continue to report falling revenue and closures of production sites, while others will experience growth. The expected developments will be challenging for chemical logistics companies that focus on bulk products and bulk cargo. In contrast, volumes of packaged goods and related additional services will grow.
Ecological: The climate-related influences on the chemical industry in general are manageable, even if they are accompanied by cost increases. Nevertheless, the chemical industry and chemical logistics will undergo a reorganization in the long term, as not all companies will succeed in the transformation.
Political: On the path toward resolving the (trade) conflicts, reducing today’s high energy costs, and achieving climate neutrality, there are many challenges on the political front. While this burden will be manageable for some companies, for others it will lead to unacceptable cost increases.
The study “Chemical logistics on the move: Scenarios and outlook for Germany” was produced with the support of DACHSER Chem Logistics and the trade journal CHEManager in collaboration with logistics experts Christian Kille, Professor of Retail Logistics and Operations Management at the Technical University of Applied Sciences Würzburg-Schweinfurt, and Dr. Andreas Backhaus, former Senior Vice President Supply Chain Strategy & Performance at BASF.
Analysis and recommendations for action
Overall, this scenario means that some logistics locations, particularly in the south and west of Germany, should expect negative developments. Locations in the east and north will tend to have better access to renewable energy and therefore face fewer challenges. The locations with specialty chemicals will probably find it somewhat easier to handle the changes. This not only shifts the focus of logistics locations to the east, but also alters the flow of goods.
Based on all this, the study identifies recommendations for ways chemical companies can organize their logistics so that they can continue to compete successfully on the international stage despite the challenges.
1. Logistics can (still) be successful only through people: Investing in the recruitment and retention of personnel secures the existing business and promises long-term competitive advantages.
2. Innovations mean advantages for locations: In addition to participating in research into logistics innovations, measures to modernize logistics are needed to ensure a good position in international competition.
3. Germany as a location for the chemical industry can succeed only with high-quality, diversified portfolios: Investments in automation and digitalization are crucial in logistics in order to increase the resilience and thus the performance of the chemical industry.
4. A transformation will take place in the chemical business: The changes in the chemicals market require the reassessment and adaptation of logistics networks and services.
5. The effects of climate change and the energy transition are leading to changes of strategic direction in the chemical industry: Logistics must prepare for restrictive measures in the course of the energy transition and implement processes that are resistant to the effects of climate change.
6. Chemical companies have to find their way in a multilateral world with increasing tensions: The trend toward regionalization is driving a reduction in overseas exports due to growing competition. The remaining global supply chains must be operated more robustly with comprehensive cooperation, new approaches, and modern technologies.
In sum, chemical logistics is and will remain a central pillar for a successful chemical industry—in Germany and around the world.
Profile
Prof. Christian Kille works at the Institute of Applied Logistics Solutions (IAL) at the Technical University of Applied Sciences Würzburg-Schweinfurt.
Dr. Andreas Backhaus was Head of Logistics for BASF’s European sites until 2019 and was responsible for the BASF Group’s supply chain strategy. Since his retirement, he has worked as a freelance lecturer and consultant.
