energy & petrochemicals leadership through world class ... · industry, liveris said: “given...

The European Petrochemical Associat ion

Energy & Petrochemicals

Leadership through World Class

Demand/Supply Chain Management

Report of 40th Annual MeetingFairmont Monte CarloPrincipality of Monaco23-27 September 2006

140th Annual Meeting Report 2006 - Agenda

Monday 25 September 2006

Theme :Energy & Petrochemicals : a Global Perspective

Moderator Michael Buerk, BBC, London

Introduction Boy LitjensCEO & Chairman of the Managing Board, Sabic Europe, Sittard,EPCA President

The Impact of Energy on the Petrochemical Business WorldwideAndrew N. LiverisChairman & CEO of The Dow Chemical Company, Midland, USA

The Impact of Energy on Global ShippingDr. Martin StopfordManaging Director, Clarkson Research Services, London, United Kingdom

The Impact of Energy on Geo-Politicals and Geo-EconomicsPaul KrugmanAuthor & New York Times Op-Ed Columnist, New York, USA

Panel discussion

Tuesday 26 September 2006

Theme : Leadership through World Class Demand/Supply Chain Management

ModeratorMichael Buerk, BBC, London

World Class Supply Chain : the Competitive EdgeDr. Patrick DixonChairman, Global Change Ltd., London, United Kingdom

Panel discussion with leading personalities in global chemical supply chainJohn Paul Broeders, Chairman of the Executive Board, VopakDr. Patrick Dixon, Chairman, Global ChangePasquale Formisano, Director, Mediterranean Shipping Company (MSC)Dr. Cees A. Linse, Executive Vice President Contracting & Procurement, Royal Dutch ShellDr. Ralf Sonnberger, Senior Vice President Global Supply Chain, Management,BASF

2 Day 1- Energy & Petrochemicals

Boy LitjensCEO & Chairman of the Managing Board, Sabic Europe, Sittard, EPCA President

INTRODUCTIONEPCA 2006 - Two key themes :

• Energy & Petrochemicals• Leadership through world class

demand/supply chain management

Welcoming delegates at the opening of business sessions, EPCA President Boy Litjenssaid: “This year’s meeting is special for two reasons: first of all, it’s our fortieth anniversaryand it’s also the first joint meeting of the general business and supply chain.” With over 2000delegates, he noted that attendance was “an all time record”!

EPCA may be 40 years old, butit is determined to remainyoung in outlook, said Litjens,who is also Chief OperatingOfficer of Sabic Europe. Thisintent is being implementedwith the creation of “a youngthink tank, which generatesnew ideas and approaches”and is enabling EPCA – whichis much more than just ameeting - to generate reportsand develop best practices.

“The main reason for holding ajoint meeting,” he explained, “isthat logistics and supply chainmanagement are becoming anincreasingly integral part of thepetrochemical business and wealso think it is important thatservice providers and chemicalbusiness people can meet anddiscuss common topics.”

Wishing all delegates a“successful and inspiringmeeting,” the EPCA President

also thanked the sponsors ofthis year’s meeting: BASF, ICIS,Port of Rotterdam and SABIC.

Michael Buerk of the BBC,said: “It’s a great privilege forme to moderate the EPCAbusiness sessions.” Hedescribed petrochemicals as “abusiness that touches so muchof our lives yet is so littleunderstood by its ultimatecustomers. An industry thatworries so much, about gettingthe cycle wrong, aboutproductivity, about supply chaininefficiencies, about the hugegap between performance, sooften first class, and publicreputation, sometimes thirdclass.”

Europe’s petrochemical industry“might worry about beingcaught between emergingpetrochemical industries, wherefeedstock is cheap, andemerging economies like

China, which are developing sofast they make Europe lookstagnant, old, yesterday,” hesaid. But Buerk remindedeveryone: “We invented thisindustry. We are still the biggestproducers, the biggest market,and often still the brightest andthe best.”

Andrew N. LiverisChairman & CEO of The Dow Chemical Company,Midland, USA

THE IMPACT OF ENERGY ON THE PETROCHEMICALBUSINESS WORLDWIDEChemical sector can help solve conflict between energy,growth and environment, Dow Chairman tells EPCA

Industry’s capacity to innovate can help deliver greater, more equitable global prosperity alongwith environmental stewardship, says Dow Chemical’s Chairman and CEO Andrew N. Liveris.

“Energy is the indispensableelement of modern civilization,”Liveris told his audience. “At atime when whole new regions ofthe world are taking advantage ofunprecedented opportunities foreconomic growth with thepromise of greater prosperitymore equitably distributed thanever in human history to hundredsof millions of people across theglobe, we need to remindourselves that this prosperitydepends on energy, most of it inthe form of fossil fuels.”

By 2030, global energy use islikely to have grown by 50%-60%,and the proportion of fossil fuel isexpected to be the same level astoday - 80% - with the restcoming from nuclear, hydro-electric, wind, solar, geothermaland combustible renewables.

Rising fuel costs are a worry forindustry, but the fact that theyhave been driven by economicgrowth in the emergingeconomies, means higherdemand and more markets forchemical products, the Dowchairman said. However, he noted

“a growing tension between risingliving standards… and thedaunting prospect of generatingand using 60% more energy,mostly fossil fuels, including themuch greater use of coal…theleast clean-burning fuel.” Knownreserves of fossil fuels areestimated to be 165 years for coal,70 years for natural gas and 45 years for oil, he noted.

Increased fossil fuel use gives usreason to be even moreconcerned about the future healthof the planet, particularly in thearea of global warming, thekeynote speaker continued.“Essentially, the question is, do weachieve greater and moreequitable prosperity at the risk ofthe planet’s health - and our own –or do we deny economicprosperity to hundreds of millionsof people in order to safeguard theenvironment?”

There is “zero chance of denyingeconomic prosperity to the world”,Liveris continued. “But I think wehave a fair chance of getting thebest of both worlds: prosperityand environmental stewardship.”

The challenge ahead is toestablish a global consensus onthe use of energy, which requiresenergy efficiency, including energysaved by lowering use andwastage, and more efficient powergeneration and usage at home, atwork and by industry.

It is also essential that allgovernments support energyconservation and efficiencythrough education and consumermotivation, by funding public andprivate sector R&D, implementingand enforcing standards ofefficiency in all sectors, fromresidential, commercial andindustrial to transport, and by

340th Annual Meeting Report 2006


providing real incentives,including tax incentives.

Dow’s CEO also urged muchgreater emphasis on efficientdeployment of energyresources, an area “sometimesoverlooked by policy makers.”For example, in the US andEurope, there has been greateruse of cleaner, greener naturalgas, which is abundant andinexpensive. However, apreference for this fuelcombined with static ordeclining supply, not enoughcompetition and poorly-timedliberalization has caused adramatic hike in prices,squeezing profits andthreatening further de-industrialization.

Diversity and security of supply,particularly in the large matureeconomies, are key to meetingthe overall energy challenge,Liveris said. The problemrequires public and privatesector to ask “whether we arethe right fuel to the right use.”Should we, for example, beputting more emphasis onnuclear, biomass and solarenergy?

Despite its flaws, Liverisdescribed the Kyoto protocol as“a significant achievement inthat it took on an immenselydifficult task: bringing togetherthe governments of the world tosolve a long-term globalproblem. And probably itsgreatest single success is thedevelopment of marketmechanisms to control carbonemissions, and here, onceagain, Europe has led the way.”

To make further progress,Liveris suggested all countriesshould participate to somedegree, and each should settargets to produce more energyfrom carbon-free sources,

putting people and technologyto work to create opportunitiesin every country and everyregion.

Focusing on the chemicalindustry, Liveris said: “Given thelikelihood that energy andfeedstock costs will remain highby historical standards, there isevery reason to believe thatproductive assets will continueto gravitate to regions that offeradvantaged feedstock, namelythe Middle East and parts ofAsia. In the short term, someowners of oil and gas – whetherprivate companies or state-owned enterprises – willforward-integrate usingconventional technology,” hecontinued.

More partnerships will developacross emerged and emergingeconomies, too, Liveris said.“Dow is teaming up withpartners who offer low-costfeedstock and local expertise,as we in turn offer technology,know-how and access to ourglobal customer base. Thecombination brings togetherstrengths that neither partnercan offer alone, while reducingthe risk and reducing the capitalintensity for both.”In the next 15-30 years, we arelikely to see true breakthroughssuch as the manufacture ofolefins from methane, usingcoal and stranded natural gas,or the use of biomass as afeedstock, Liveris said.Meanwhile, bio-engineering willhave a major role in alteringplants to enhance performanceof end-use plastic or chemical.

Some people still question boththe need for chemicals and thechemicals industry, Liveris said:“The only rational answer is:‘We cannot do without them.’Our sector is a $2 trillionenterprise that supports virtually

all others. Over 95% of thethings that touch our lives everyday… are made possible by thescience of chemistry and theproducts that are derived fromour industry.”

In the future, Liveris said: “Ourscience, our researchers, in ourcompanies and in ouruniversities, still have much tooffer the world, although thoseeducated in science areincreasingly found in places likeIndia and China and less inEurope and the United States.But wherever the expertise isfound, the salient point for thepetrochemical industry is this:‘We can help.’”

“In fact I would say we can leadthe way,” Liveris maintained.“We are about molecules. Wecan redesign them to createwonderful new materials andnew technologies that can havea direct impact on energyefficiency such as lighter-weightcars or filters that make dieselfuel run cleaner or breakthroughmanufacturing processes.”

No industry is more acutelyaware of the need to reduce itsdependency on oil and naturalgas, the Dow executivecontinued. “We have alreadytaken some important steps.From 1996 to 2005, forexample, Dow cut consumptionof energy per pound of productby more than 20%. It requiredan investment of $1 billion, butreturned $4.4 billion to thebottom line. Over the next 10years we are confident we canimprove our energy efficiencyby an additional 25%.”

With greater efficiency and acommitment to burning cleanerfuels, Dow has also pledged toreduce the intensity of itsgreenhouse gas emissions by2.5% a year to 2015, he said.


“Because of our scale, that stepalone will reduce the equivalentof CO2 emissions from 3 millioncars or 6 million homes over thistime period.”

But Liveris said Dow cannot becontent with focusing only on itsown energy and greenhousegas footprint. “We must engageothers sharing our technologyand know-how with ourcustomers and our partnerswherever we do business.” Henoted how two decades ofResponsible Care has putchemicals “among the safestindustries, safer for examplethan going shopping in a retailstore.”

Now, he continued: “We at Doware now expanding ourcommitment to the muchbroader realm of sustainability,including not only the energyissue, but other challenges: tosustainable water supplies,adequate food supplies, decenthousing, and personal healthand safety.

We will become fully engagedon these four challengesbecause we have the resourcesand technology to make agenuine difference and webelieve that our entire industryhas similar resources and similarresponsibilities.”

To be successful and thriving,the chemical industry needsglobal economic growth, ahealthy environment, a stableand secure political climate, andthe trust of customers and itscommunities, Liverisconcluded: “ In other words, wemust do our part to set thestage for a future that is just asfull of promise and opportunityas our past has been. If we canapply the ingenuity of the mostimportant element of theperiodic table – the humanelement – we can solve theproblems that confront us.”

Dr. Martin StopfordManaging Director, Clarkson Research Services,London, United Kingdom

THE IMPACT OF ENERGY ON GLOBAL SHIPPINGAfter super boom, energy shipping now at “anothercrossroads”, says head of Clarkson Research

Shipping will continue to play central role in energy industry globalization, but currentuncertainty could pose major challenges, suggests Martin Stopford, Managing Director ofClarkson Research Services Ltd.

“Cheap, efficient sea transportfuels globalization,” MartinStopford told EPCA. “Last yearwe moved 6.8 billion tons ofcargo, about one ton of cargoper person per year. About halfof this business is energycrude oil, oil products, coal,LNG, methanol and LPG.”

Shipping takes a lot ofplanning, he said. “Order aship today, you’ll take deliveryin 2010 and it will still besailing in 2035.” The challengefor the energy shippingindustry is to match capacitywith demand and calculatehow many ships will beneeded. This is complicatedbecause there are five differenttypes of tanker ships forspecific products and they arenot interchangeable, hereminded the audience.

“Recently, shipping won thelottery,” he continued. “It’s hadthe best year since 1680! Backin the 1990s it cost around$11,200/day to charter energyships. Today, it’s around$22,700/day, and has evenrisen as high as $60,000/day.”Shipping’s current “super

boom” has been driven by thegrowth in world GDP andenergy demand, Stopfordnoted. With today’s GDPgrowth of 5% a year, thehighest since 1973, shipping’sorder book has doubled, andso have new building prices.But he warned: “Over the last40 years, we’ve had about 6 big [cyclical] dips and I’msure we’re going to get anotherone.”

Stopford gave a rapid sketchof shipping history, which isinterlaced with energydevelopments: “Every 20, 30or 40 years, the industry goesthrough a big change and it’sup to us to deal with it.”

During the Coal dominated19th Century energy shippingand by 1887 almost 50 milliontons were carried a year. Coalpowered ships cut journeytimes from six weeks to sixdays. By 1859, oil hademerged, and in 1861 the firstcargo of oil was moved by sea.To the great amusement,Stopford related how the firsttanker ship, Good Luck, “ranaground!”

By the 1930s, there was a lotof cheap oil, but it was a longway from consuming markets,said Stopford. However, threesignificant developmentsdrove energy shipping forward:cars, air transport and powergeneration. “Oil trade reallytook off in the 1950s, withprices around $1/barrel, andincreased tenfold. By the late1970s around 1.7 billion tonswas being shipped each year,”he continued.

During this period, oil transportbecame a core business forthe oil majors, who owned ortime chartered 90% of thefleet. By the mid 1970s450,000 ton ships were thenorm. But between 1974 and1989, the super tankerbusiness ran aground on asuper recession.

This happened for tworeasons, Stopford explained:oil majors squeezed shippingcontracts so hard thatshippers began investing innew ships causing an“investment bubble.” But thiscoincided with an oil shock,



and by 1986, 50% oftransport shipping capacitywas surplus.

For over 10 years, shipping“made nothing.” The oilmajors dropped out, oiltraders took over and therewas a rise in flags ofconvenience. Energy ship-ping got a bad reputationdue to big oil spills andenvironmental disasters,Stopford recalled.

Then, between 1997 and2007, everything changedand “we have seen thegradual rise of the superboom for shipping, withsecond hand prices doublingand costs even hitting$90,000-100,000/day. Theindustry’s assets have seentheir value doubled,”Stopford noted.

Now, after 25 years, thetanker market is tight, due inpart to 1990s under-investment and scrapping ofolder vessels. During thistime, shipping has beentransformed through moder-nisation, wise investment,and a much tighterregulatory regime. Today, athird of the industry ispublicly listed.

Stopford concluded that:“Shipping investors are nowat another crossroads. We’llneed another billion tons ofoil moved by sea by 2025.”About half will be needed bythe developed economies,the rest by the emergingeconomies. This means weneed 450 million tons extradeadweight of capacity,which will require $400 billion investment, andship owners already have$150 billion worth of energycarriers on order.

The future depends on thekey variables that will likelyimpact energy trade.Stopford asked: “Will therebe a geopolitical nightmare?Will a high oil price regimetrigger another oil shock?Will oil products peak out in2010? Will environmentalrisks have an impact? Howshould industry respond?”Paraphrasing John F.Kennedy, he suggested: “I don’t think you should askwhat we should do. I thinkyou should ask what themarket’s going to do to you.”

Paul KrugmanAuthor & New York Times Op-Ed Columnist, New York, USA

THE IMPACT OF ENERGY ON GEO-POLITICALSAND GEO-ECONOMICSForget the oil price surge: worry about the USeconomy, says a leading commentator

As GDP continues to grow despite a big jump in oil prices, Princeton economist and New YorkTimes opinion writer Paul Krugman says a US housing slump might tip the global economy offa cliff.

This oil shock is different thanothers we have experiencedsince the 1970s, ProfessorPaul Krugman told themeeting. “The 1973 and 1979crises were driven by oil supplyshocks, war and the Iranianrevolution. But the recessionsthey triggered were essentiallyimposed by central banks –such as the Federal Reserveand the Bundesbank – becausethey feared inflation.”

Today’s oil price surge hasbeen primarily caused by ademand shock, driven by theemerging economies. In 2002,the OECD accounted for thebulk of oil demand, but todayover 50% of the growth indemand is from non-OECDcountries, notably China andIndia. This time, however, theglobal economy is in muchbetter economic shape, whichis why we have not seen aneconomic downturn, hecontinued.

There are structural reasonsfor this, Krugman explained.

“For example, US oilconsumption hasn’t grown inline with GDP. We’re a muchless energy intensive economy.So while the price spike hasbeen large as in the 70s, it’smuch less important relative tothe size of the economy.”

“Alan Greenspan [former USFederal Reserve chair] used tosay GDP is ‘getting lighter.’ Hemeant we’re using less tons ofstuff per dollar of GDP than weused to. This month, the US isready to employ more peoplein health care than inmanufacturing. You needpetrochemicals for healthcare,but you don’t need as manybarrels of oil per doctor as persteelworker.”

Inflation has also remainedrelatively low and stable, whichis another reason thePrinceton professor does notexpect an “imposed”recession. “It doesn’t seemlikely. The late 70s oil spiketriggered double digit inflationand led to double digit interest

rates. But there’s little sign ofthis happening again.”

Krugman then moved todiscuss international creditflow and here the outlookassumed a gathering gloom.“Oil spikes cause consumers tospend less money on otherproducts and the oil producerstake a while to spend the extramoney they are making. Butthe ability of the producers torecycle their money isimportant,” he added. “In the1970s, we didn’t do that toowell. Back then, oil surplusesgot recycled to dodgyborrowers, particularly in LatinAmerica, where the emergingmarkets were not ready toemerge. This time around,there’s a different kind ofborrower.”

The key capital exporters are“those countries earning morethan they spend and, one wayor another, lending moneyout,” Krugman continued. “Wefocus a lot on Asianeconomies, particularly China,



and how big they are. ButSaudi Arabia and Russia alsohave huge energy reservesthat will generate surpluses.And where is all that moneygoing? Well, to the US.”Krugman pointed out thatwhile Europe’s trade isroughly balanced, the US isrunning a huge deficit. “TheUS is borrowing moneybecause the US seems aless dodgy borrower thanothers, such as some LatinAmerican countries. But thequestion is: what is the USdoing with this money? Is it asustainable use of sur-pluses?”

He was not reassuring: “TheUS is spending it on ahousing boom and a verylarge boom in consumerspending, which is verylargely being paid for byborrowing against theappreciating value ofhouses. Two years ago, Iwould have said the story ofthe world economy was thatthe US had shifted toprimarily making money byselling each other housesand paying for the houseswith money they hadborrowed from China. Now,you have to say the money isbeing borrowed from Chinaand Saudi Arabia.”

“Does the housing boommake sense? Or is it abubble?” he asked. Mostpeople have assumed theUS housing market wouldhave to slow down, butwould it be a hard or softlanding? “Well, Greenspansaid it was froth in themarket and anticipated a softlanding, but homebuilders’confidence has plummetedand the housing market inUS has been falling apartspectacularly in last few

months. There has been a25% decline in buildingstarts and there’s more tocome.”

Krugman now fears that theUS may be moving into arecession: “The odds are40%.” Moreover, the US, hesaid, has been an engine forthe world economy, and ifthe US stopped borrowing,where will the money berecycled to now? Hesuggested we could beapproaching a “WileyCoyote moment,” where thecartoon character runs offthe edge of a cliff, treads theair for a second or two whilehe realises there is no solidground under foot, thendrops like a stone. “A USrecession is not just a USstory,” he said.

Meanwhile, around the worldthere are other portents ofinstability. While there are nooil supply shocks on theimmediate horizon, moreand more oil is coming fromautocratic, unstable andcorrupt regimes. “Thesepeople are bad at running abroadly diversified economy,”Krugman noted.

Concluding, he returned tooil pricing, noting that levelshave fallen back recently.Krugman asked: could it bethat the failure of Israel’saerial assault in Lebanonhas lessened the likelihoodof an attempt to forceregime change in Iran, thusreducing the possibility of oilsupply disruption? And whatwill the oil price do?Borrowing from JP Morgan,Krugman said: “It willfluctuate.”

ENERGY & PETROCHEMICALS: ASK THE PANEL!After making their presentations onDay 1, speakers joined a paneloffering further insights andobservations. Dow’s Andrew Liverissuggested the industry might focus“on four Es and a D!” These, heexplained, are Energy, Economy andthe Environment, which are allinterplaying themes, and theEfficiency and Diversity of supply. TheDow chairman also said his companyexpected to see “a tectonic shift in thestructure and organisation of thechemical industry due to theadvantaged position of the ‘owners’ ofoil and gas assets.”

Paul Krugman had little comfort foranyone hoping he’d been toopessimistic on the outlook for UShousing. “I can’t see a housing slumpbeing reversed easily by cuttinginterest rates.” However, AndrewLiveris said he was amazed by the UScapacity for consumption, noting thatthe boom industry was in storage,where people could store thepurchases that wouldn’t fit in theirhomes.

Michael Buerk wondered if there wasany future for European petro-chemicals if the big companies were

moving closer to oil and gas reservesand science education is now focusedin Asia. The panel agreed thatgovernments in Europe needed to getthe message across to the public atlarge and young people specificallythat science matters because it drivessolutions to the problems we face.And while Europe and the US havelong histories of scientificdevelopment and discovery, furtherdenudation of this would drive the“tectonic shift” in the industry.


Dr. Patrick DixonChairman, Global Change Ltd., London, United Kingdom

WORLD CLASS SUPPLY CHAIN : THE COMPETITIVE EDGELogistics revolution is overdue, global change guru tells EPCA

In a world that is changing at mind-boggling speed, petrochemical logistics risk being leftbehind. What’s the answer? Modernise quickly, consolidate and co-operate more, and focuson optimisation of business and environmental performance. How? Unlock the passion of theindustry’s people to drive progress and make logistics exciting, says Dr. Patrick Dixon,Chairman, Global Change Ltd.

“Just about everything shifts inthe world apart frompetrochemical plants. Andeverything else in the worldshifts, except petrochemicallogistics,” said Dixon, as hetore into his subject. “My focusis on the outer edge of theradar screen. I’m looking forwild cards, which are lowprobability but potentially veryhigh impact events that cancome crashing into yourpetrochemical strategy,changing your entire world andin one moment destroying yourmargin.”

He suggested that in anybusiness there are 300-400such wild cards, each with lessthan 1 per cent risk ofoccurring this year: “But if youhave 300-400, then - forexample - a big shippingcompany is likely to be hit beone, two or three of them everyyear on average.”

Turning his spotlight ontoEuropean petrochemicals, Dixonlaunched a major assault onthe status quo. He suggested a

major crisis could overtake theEuropean chemical industry,due to a combination of factorsincluding high costs, a rapideastward movement ofmanufacturing, a lack ofconsolidation in the industryand among its logistics serviceproviders, and a lack ofinnovation in the supply chain.However, this could beovercome by a logisticsrevolution injecting new lifeinto the industry, he said.

Currently, the Europeanchemical industry’s internallogistics are “a nightmare,”said Dixon. The industry isspending a60 billion a year oninternal transport, congestionis increasing, costs are toohigh and far too many tonnesof product are travelling far toomany kilometres. “There ischaos in the road haulagesector,” he argued. “Thelargest haulier has just 2% ofthe market, and you havetrucks driving hundreds ofkilometres taking the sameproduct in opposite directions,passing each other on the

motorway, then returningempty.”

This amounts to a waste ofenergy, space and money, andis unlikely to endear theindustry to a publicincreasingly focused onenvironmental issues such asCO2 generation and globalwarming, said Dixon. And hewarned the industry that itwould soon face competitionfrom China, with a tonne ofproduct shipped to Europe forthe same cost as internaltransport within Europe.

EU plastics distribution costsare a10/tonne higher than inthe US, and there are too manyfinished plastics productsbeing trucked over greatdistances, he added. Turningplastic pellets into bottles, thenshipping those bottles, whichare full of nothing but air,hundreds of kilometres iscrazy, Dixon said. More hubsand spokes, better logisticsintegration and far more use ofproduct exchange – whichcould save the industry


$35 million a year - are thesolution.

Major changes are also required inthe relationships betweenchemical producers and betweenthose companies and theirlogistics service providers, Dixonargued. Fewer players on bothsides would simplify the industry’sstructure, offer economies of scaleand make longer-term contractsand planning much easier, Dixonsuggested. However, he alsorecognised that Europeangovernment needed to play anenabling role in terms of transportinfrastructure development and interms of logistics regulation. Lesscompetition could make logisticseasier, cheaper and more efficientin both business andenvironmental terms, he said.

For other potential improvementsin logistics, Dixon said thechemical sector should look atretailing, which gets product to thecustomer fast and efficiently. Henoted that radio frequencyidentification devices (RFID) havehelped Wal-Mart improvewarehousing efficiency by 40%and cut thefts in transport by 70%.Gillette has ordered 500 millionRFID tags, while Wal-Mart willneed 10 billion!

Dixon also said more use shouldbe made of rail and shipping. “I’mamazed by the incredible efficiencyof water transport. It costs youmore to move a container 120 kilometres by road in Europethan it costs to ship a containerfrom London to China.” And when,he wondered, would we “see theequivalent of the bulk holidayoperators and consolidators in theshipping business in the same waythat you see in the travel industry?”

In conclusion, Dixon made a pleafor a bigger, better profile forlogistics. It is, he said, essential ifthe industry is to attract the right

talent into the function. “It’s notproducts that make the differencein an industry, it’s the people.” Healso urged the sector to find a wayto enable people to bring as muchpassion into their working lives asthey put into their private lives,often doing work for free for agreater, collective good.

12 Day 2 - Leadership through World Class Demand/Supply Chain Management

LEADERSHIP IN WORLD CLASS SUPPLY CHAIN

MANAGEMENT: ASK THE PANEL!Following Dr. Patrick Dixon’s highlyentertaining and thought-provokingcritique of petrochemical logistics,some senior executives from bothproducer companies and logisticsservice providers had an opportunityto respond and comment on issuesfacing the sector in Europe.

Smoothing some ruffled feathers,Shell’s head of procurement, KeesLinse, agreed that Europe may not bein “supply chain heaven” but saidsubstantial consolidation andrationalisation has been achieved. Hewas also far more optimistic thanDixon about the future: chemicalproduction will be competitive andremain a key economic force,particularly facilities in a favourablelogistics position and proximity torefinery synergies, he argued.

BASF’s supply chain head, RalfSonnberger agreed there are issuesneeding attention, but like Linse healso made a good case for thelogistics achievements of the

European industry. Producers wereincreasingly focused on adding valueand on upgrading logisticsperformance. “It won’t be the biggestcompanies that survive, but the mostadaptable,” he suggested.

BASF itself has many examples ofleading edge supply chainmanagement, Sonnberger added,citing the foundation of Rail4Chem in2001 and investment in a bimodalterminal, leaner product portfolios andan award-winning mobile silo conceptfor engineering plastics.

All the panellists concurred on theneed for much greater transparencyand co-operation between playersinvolved in logistics. Vopak ChairmanJohn Paul Broeders said long-termplanning and co-operation and abetter focus on total cost concepts ofservice could help cement strategicpartnerships between producers andlogistics suppliers, which is essentialfor sustainable competitiveness. Hespoke for all his colleagues when

noting the many political barriers tocreating efficient logistics, includingpermits, regulation and infrastructure.

Captain Pasquale Formisano, Directorof the MSC shipping group, urgedgreater trust and transparencybetween logistics buyers andsuppliers. “We need to share the costsand the benefits. It is not helpful whenall we hear is talk about squeezingsuppliers. When I have buyers sayingthey want to see the shippers’ bloodon the floor, is it surprising that ourrelationships are difficult?” He saidmost shipping contracts were for sixmonths to a year maximum. Thismakes forecasting very difficult forshippers and closer relationshipsharder to build.

The panel agreed that some verysuccessful examples of collaborationhave been achieved and that EPCA,Cefic and the European ChemicalTransport Association have animportant role to play in fosteringthese win-win partnerships.


14 Day 2 - Leadership through World Class Demand/Supply Chain Management

www.epca.beEPCA – a.i.s.b.l. The European Petrochemical Association i.v.z.w.

Avenue de Tervueren 270 Tervurenlaan – B-1150 Brussels – BelgiumTel : +32 (0)2 741 86 60 – Fax : + 32(0)2 741 86 80

energy & petrochemicals leadership through world class ... · industry, liveris said: “given...

Documents