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Petrochemical means new opportunities, challenges

Mark Appleyard discusses new frontier for Middle East logistics.
Mark Appleyard, regional business director for chemicals, Agility
Mark Appleyard, regional business director for chemicals, Agility

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Written by Mark Appleyard, regional business director for chemicals, Agility

This century will belong to what we call ‘emerging markets’. Our Emerging Markets Logistics Index, released earlier this year, underlines the huge potential such markets have as major logistics hubs in the future. Their growth prospects, market size and increasing connectedness will help re-shape global economics. To put things in perspective, consider this: in just 10 years, emerging markets will add one billion consumers to the global marketplace and in 50 years, they will be nearly twice the size of today’s economic leaders. This should really give us pause for thought.

One reflection of this massive shift, is the new set of opportunities and challenges emerging in the Middle East as companies shift their production portfolio downstream, converting oil and gas into a broader range of value-added chemical products. No question that these will significantly impact trade flows of the future – we are going to see a major shift in the manufacturing footprint of the global petrochemicals industry. Of course, what will be driving this change is the massive need for petrochemicals and related products across emerging market economies.

This all adds up to big opportunities for the Middle East and I am confident this trend will accelerate. Petrochemicals such as polymers are used in a wide range of manufacturing applications such as pipe systems, wires and cables, automotive components and advanced packaging and do much to feed and fuel industrialisation in emerging economies like China. On the back of this, we can expect petrochemicals production in the Middle East to more than double by 2015, compared to 2010 levels. What this means is that the dominant industry position in Europe, North America and Japan will be increasingly challenged as major new capacity along the Gulf comes on-stream in countries such as Oman, Saudi Arabia, Kuwait and the UAE. In turn, this trend will result in healthy economic diversification in oil-rich countries, and will help create employment that is both local and long-term.

From a logistics perspective, this is great news. Two parallel trends – the fast rate of infrastructure development within emerging markets on the one hand and the ever increasing production of petrochemicals in the Middle East to meet these demands on the other – represent a prime opportunity for us in the logistics industry. Since we can expect emerging markets to continue on their trajectory of strong growth, I would argue it’s a sound strategy to build logistics capabilities in these markets, but we have a major challenge when we see the discrepancy in regulation and safety standards for the handling of dangerous goods. Regulations vary significantly in emerging markets.

In the Gulf for example, current legislation is fragmented and inconsistent, especially where road transport is concerned. Although we are operating here under well-established international regulations for air (IMO/IMDG) and sea (IMDG), we need a standard across the region for road. To that end, Gulf countries should embrace the European Agreement concerning the International Carriage of Dangerous Goods by Road (ADR). With 47 countries already adhering to these standards, I believe we can easily apply them in the Gulf and I would recommend that elements of the regulations be adopted on a rolling basis. We could start with setting vehicle standards, followed by driver training and then introduce policy requiring companies to employ a safety advisor. My vision is one of a steady and measured evolution of the legislative framework in the Middle East.

The shift to emerging markets raises some further challenges for us in the industry. Developing market customers tend to be smaller and require packed products instead of bulk. Additionally, chemical supply chains in emerging markets are widespread, stretched across many countries and even continents. And this has important implications for goods transfer. To successfully manage such supply chains, I really feel we need to adapt to the needs of these markets rather than simply applying what we know from experience in mature markets. I believe specialised skills coupled with a global footprint are now necessary for logistics providers to meet these challenges and develop hubs and gateways for the distribution channels of the future. We should also balance the economies of bulk shipping with the costs and complexities of packing and storing at different sites.

Expert know-how of industry sectors, as well an understanding of cultural and business environments in both the Middle East and other emerging markets are paramount. As logistics providers we must invest in maintaining good, solid relationships with government, the private sector and other stakeholders. We are seeing a big change in what’s flowing to where. There are some great opportunities and some great challenges too, but at the end of the day, we as logistics providers have a unique opportunity to meet such challenges and open up gateways from the Middle East into Asia and emerging markets in general. It is an exciting prospect and one I believe will drive exponential growth in the industry as a whole.

 

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