Volume stifling chemical sector
The U.S. chemical industry has generated 264 new projects and about $161 billion in capital investment in the past seven years, according to the American Chemistry Council. About 426,000 new jobs and $301 billion in new economic output are expected as a result.
However, logistics shortcomings affecting truck, rail and marine transport are poised to negatively impact the industry via $22 billion in excess inventory due to transportation delays; capital expenditures of $23 billion for equipment and infrastructure; and an increase of operating costs of $29 billion, according to the council.
The roots of the shortcomings — such as a driver shortage, over-regulation or a lack of investment — are often systemic in nature and require active participation from manufacturers, logistics providers and government officials alike, industry experts say.
When it comes to freight and manufacturing, an old tenet often holds true: Volume leads growth. But what happens when volumes rise so much that congestion becomes the norm and customer service suffers?
According to the chemistry council’s report, the chemical industry fears the hypothetical issue may become a reality by 2020. The industry is expected to produce 18 percent more in capacity, or 53 million metric tons per year by that year, with most new projects launching within the next two years. Yet, road and port projects have been slow to keep up, and more than 50 percent of industry respondents fear congestion will increase on all coasts.
The chemical industry is unduly affected by logistics, given the tight temperature controls and complexity of hazardous materials (hazmat) transfers. In particular, the industry has voiced concerns over regulations on truckers’ hours of service and hazmat training stifling the trucking industry’s capacity.
About 60 percent of chemical shipments travel by truck. In addition, the industry seemingly remembers the 2015 West Coast port strike delaying shipments for days, noting delays drive down profits all around.
The industry’s growth, then, may depend especially on the importance placed on infrastructure upgrades under the Trump administration. What this Congress and president will be able to pass is anyone’s guess. Trump originally pledged to enact a $1 trillion infrastructure program financed by public funds and tax credits awarded to private contractors and developers. Initially, the list of projects to be undertaken encompassed all modes of transportation.
However, a stacked congressional agenda may delay the approval of such a bill until 2018, and leave countless industries to continue struggling in the meantime. Only time will tell, but the chemical industry is not alone in its concerns that volume will continue to increase without the infrastructure needed to guarantee economic growth.Follow & Contact Tank Transport Trader: