FECC Member Companies Poised for Success
In Chemical Distribution, Sustainability and Responsibility Can Serve as Catalysts
Formula for the Future - The annual congress of the European Association of Chemical Distributors (FECC) is one of the most important dates in the European chemical industry's calendar.
Hundreds of delegates, from business leaders in the chemical distribution industry to stakeholders, will gather in Lisbon, Portugal, May 21 to 23 for this 48th edition of the FECC Annual Congress. The congress' theme "Sustainable and Responsible Distribution: The Formula for Success" serves as an umbrella for a variety of sessions. CHEManager Europe asked the leaders of several FECC member companies about their understanding of this formula.
Read what Francois Minec ,Velox; Alexander Ivlev, Ruskhimset; Barentz, Pavel Kratochvil, Barentz; José António Magalhães, Quimitecnica; John Zillmer and Chris Stockwell, Univar; and Peter Skou, R2 Group think about the state of the chemical distribution industry.
CHEManager Europe: This year's FECC Congress motto is "Sustainable and Responsible Distribution: The Formula for Success." How does your company turn this vague statement into concrete solutions?
Francois Minec (Velox): At Velox, we engage in a variety of initiatives that underline our mission to be a responsible employer and market player.
First, we have implemented a range of social benefits for our employees to protect their health and social well-being. Second, as a member of the FECC, we are committed to the Responsible Care agenda and have received the certificate. Third, we have also implemented a code of conduct, which binds our management and employees to respect the principles of corporate responsibility, fair employment, fair competition and environmental responsibility within the daily business.
Fourth, we included bio-based products (Ecozene, Cabopol, etc.) in our distribution portfolio to promote the market access and development of these ecofriendly products. Fifth, we thoroughly optimize our logistics to save energy and transportation costs as much as possible.
John Zillmer (Univar): Maintaining a sustainable business is not a luxury; it is a necessity, both ethically and operationally. Univar has long recognized the importance of integrating sustainability into the very core of our business strategy, ensuring that it forms part of our DNA.
Reduction of carbon emissions was made one of our top priorities almost a decade ago. The introduction of route planning softwae has increased our transport efficiencies and led to a reduction in fuel use. In the U.K. alone, the introduction of this software has helped reduce the carbon footprint of the business by more than 20%.
Coupled with this, the new generation of delivery vehicles we are bringing into service is custom-designed to minimize environmental effect and maximize the safe transportation of chemicals.
We are designing sustainability in to our sites, implementing simple initiatives that, together, have a significant influence on our environmental footprint. For example, advanced wastewater treatment systems and smart lighting are being introduced to reduce water and electricity consumption. We have initiated a Sustainability Challenge for our staff in Europe to raise awareness of environmental issues and to harness ideas that can be shared throughout the business and beyond.
We are also proud of the work we have done to increase the use of returnable containers at Univar, which has made a big difference since one of our key activities is repackaging bulk liquids and powders into smaller containers. Univar was one of the earliest adopters of the use of returnable containers, and many of the containers we use are of a bespoke design that was developed using our practical expertise to ensure the integrity of the containers for safe transportation and storage of chemicals. We were also able to advise on incorporating design elements that have increased the working life of the containers, which can be in excess of 10 years.
Our suppliers and our customers invest significant resources in developing sustainability strategies. The ability of a distributor to form a meaningful and constructive link in this chain through serious commitment to product stewardship is becoming one of the most important differentiators in our industry.
To ensure product stewardship is embedded in our company, we have strengthened our supplier approval process. We want to foster relationships with partners that recognize the value of responsible and sustainable business and, like Univar, act with integrity. This approval process includes assessment of prospective service partners as well as product suppliers. The assessment addresses critical issues such as environmental and safety compliance, commitments to the International Labor Organization labor standards, and quality of product or service.
We want Univar to be a safe and efficient place to work. This was one of the main motivations behind U+, our site certification program introduced in 2006. U+ is an aspirational target-based internal certification applied to each Univar site to help continually improve environmental, health, safety and quality standards. By aiming to ensure our sites exceed the industry sector requirements, the program has helped cut overall Lost Time Incidence Rate by 60% over four years, as well as increase the number of ISO certifications awarded.
These achievements ensure our business runs more efficiently and make us a trusted partner for our customers and suppliers and a respected member of the communities in which we operate.
José A. Magalhães (Quimitecnica): The aim of sustainability led us to expand our geography coverage from Portugal to Iberia and to Africa, and to focus on the development of activities with higher content of service.
Sustainability also led us to design our installations and operational procedures in order to avoid accidents, to limit environmental and health effects and to use external verification such as ESAD II and ISO 9001 to get unbiased evaluations.
Pavel Kratochvil (Barentz): I agree; the formula is vague. Luckily in daily operations and daily activities, you can be vague. Life proves and clearly shows that those who use only empty proclamations and vague statements, in business or in private life, must be sooner or later lost. It is simple as such. Barentz has prepared midterm and long-term plans, vision and mission, which have been presented to our employees and to our business partners. These clearly show how we want to develop our company within the next couple of years.
Very soon Barentz will celebrate its 60th anniversary, and we would hardly survive if our plans, activities and development were not sustainable. We are not in politics; we are in the hard and very competitive business environment, where you simply must be concrete, sustainable and very transparent for your business partners.
Peter Skou (R2 Group): It is clear that corporate social responsibility (CSR) is becoming a more and more important factor. Concrete actions that are taken in our business are, among other things, verification of our partners in showing that everything is done properly.
Distribution is also an advantage when we combine truckloads with different products for dispatch to single customers instead of sending different trucks with different products. That is, of course, also a key element for the distributor, and we continuously have to improve on sustainability and responsible care.
Alexander Ivlev (Ruskhimset): Since the very beginning, one of the core competitive advantages of our company was guarantee of availability of the whole range of chemical raw materials at our regional warehouses. Our customers are small and medium-size enterprises. They are interested in minimizing stock of raw materials at their own warehouses, and we provide them with the possibility to deliver the raw materials as often as they want from the local warehouses of our company, which are close to the customers' facilities.
How has the role of chemical distributor evolved over the last years?
Peter Skou (R2 Group): Over the past three to four years - and especially in 2009 - the industry was hit by the financial crisis. However, the financial crisis and cash shortage in the market have in reality meant that the distributor's role has become even more important. We have clearly seen that downstream is keen on shipping as much as possible in one go, and upstream wants just-in-time delivery and in small volumes. This is where the distributor is a perfect match, and therefore the industry as such had a good run.
Francois Minec (Velox): The notion of "partnership" between the principals and the distributor has become increasingly important over the last years. Today, our providers not only expect us to sell their products to small accounts, but they also appreciate our effort in terms of market development, developing new application fields as well as providing the manufacturer with feedback from the market and upcoming market trends.
John Zillmer (Univar): As a distributor, it is no longer enough to simply wait for orders to come in and then ship the required products. Instead, we have to be proactive. We have to truly understand our partners' business so that we can work collaboratively to provide them with unique solutions. At Univar, we have always put significant effort into developing world class, cross-border technical expertise. This has been a real asset when it comes to operating as a trusted business partner.
Increasingly, customers and suppliers are expecting distributors to provide market intelligence on our products and the industries and territories where we sell them. As a leading global organization supplying products into a wide variety of industries, we are able to compile a more comprehensive view of our products and industries than many of our partners. Access to this intelligence allows Univar to operate in the best advantage of our customers and supplier partners, allowing those partners to make better decisions when considering new markets and product lines. This process of providing information strengthens our relationship with them and creates unparalleled connectivity across the value chain.
José A. Magalhães (Quimitecnica): We didn't see a big change in the chemical distributor's role. We are channel partners, and this is our mission.
Pavel Kratochvil (Barentz): In short, I believe that the role is always the same. It is to be an added-value and complex service provider between the producer and customer. But the business environment has changed during the last couple of years. Good and sustainable distributors have to prove their non-replaceable position all the time.
However, I have a feeling that still today, even good - or perhaps just good and reliable - distributors have to prove and protect their roles and position in the market. Why "just good and reliable ones"? Simply because the wrong ones are just buying and selling - regardless of what and to whom and what kind of service and added value they bring. These distributors do not care how they are perceived; they have very short-term objectives, if any.
And also because of them some third parties on the market still think that a distributor is just a needless element in the whole chain. That's why good, reliable and sustainable distributors with long-term visions and missions must permanently protect their positions toward suppliers and even toward their customers. Although there have been some improvements, even on the legislative level, during the last couple of years, a lot remains to be done in order to bring distributors on the same level with their partners.
Alexander Ivlev (Ruskhimset): Even five years ago the main function of distributing companies in Russia was informational intermediation. Distributors researched the market and contacted the suppliers, while the final customers were not able to arrange direct relationships with the producers. That's why distributors operated mostly as traders and sold big volumes to one customer.
Nowadays Russian enterprises are much more involved in international relationships and are able to arrange import deliveries of transit volumes themselves. That's why distributors should concentrate on their classical functions: offer a wide range of raw materials, maintain the products in-stock and deliver in less-than-truck quantities.
According to a recent study, China and India are taking over important roles in both the import and export of chemicals. What does this mean for the European chemical distributors?
Peter Skou (R2 Group): The behavior and market developments in countries such as China and India are of course a very hot topic for European distributors. Yes, China and India are extremely important markets, but we have to look at it as an opportunity instead of a risk.
China is the second biggest economy in the world, but on the list of income per capita in relation to gross domestic product it is only No. 93, which means the scope for commercial activities with China is enormous. Europe has to - as it has always done - adapt to a "new world" and develop highly technical products and solutions, meaning innovation for Europe is the future.
Francois Minec (Velox): This means significant risks and opportunities for us. On the one hand, we face the challenges related to market relocations from Europe to China. Some customer applications are now almost entirely produced on the Asian continent where a European distributor usually has limited market access. On the other hand, we have the opportunity to develop new distribution partnerships with Chinese manufacturers and to import more from Asian countries.
Chris Stockwell, (Univar): Like other companies in our industry, our focus is on high-growth markets, with no better example than China. The rise of China as a producer and consumer of chemicals has been dramatic, and the opportunity for chemical distribution is significant. The Chinese chemical distribution industry is large, highly fragmented and in an early life cycle. The same is true, to differing degrees, in Latin America and Eastern Europe, creating a significant opportunity for us as we expand our footprint in these regions.
In addition to expanding our distribution footprint, we leverage our global sourcing and exports organization to connect the many networks enabling us to provide unique business solutions globally. These solutions simplify logistics and supply chain for our global producers and customers and allow us to provide global distribution for local and regional producers.
José A. Magalhães (Quimitecnica): From the perspective of a small chemical distributor, without any active selling activities in those regions, China and India are used only as sourcing alternatives. In this respect our experience is that the fraud and active cheating situations are increasing, especially with China. We have several cases of cheating and fraud behaviors of Chinese companies, from fraudulent Reach information to the delivery of fake products. This, associated with the higher capital commitment, makes the Chinese sourcing alternative less attractive to us.
Pavel Kratochvil (Barentz): There are still a lot of opinions on the market that these large economies are a kind of threat for Europe. I do not think so. I strongly believe that it is a great opportunity for us. However, it is an opportunity only for good and well organized distributors who see the opportunity on both sides - their own sales and distribution over there, as well as sourcing possibilities at the same time. But you have to invest in that. You must be present there, have a lot of good and sustainable connections, reliable sources, etc.
In our company we do both - we have our own responsible sourcing activities in Asia, and we are following our development plans for our own distribution business there. It has become an important part of our long-term strategy.
Alexander Ivlev (Ruskhimset): The markets of many chemical products have oligopolistic structures. Few suppliers of raw materials have appointed few companies for distribution of the goods, and new distributors had no access to the products demanded by the markets. In this situation Chinese and Indian producers of the same products became a good alternative source for the necessary products. In an environment of multiple M&A deals when big companies acquire small ones, and the market becomes even more oligopolistic than it was before, distributors of the small companies lose their contracts with the producers.
As far as there is no competitive offer from European suppliers, distributors are forced to go to China and India to search for the necessary products.
But along with the positive aspects of collaboration with Chinese and Indian producers, there is the negative part as well. Manufacturers from China and India are ready to sell their products to any company that applies to them.
Such a marketing strategy can affect the distributors and the whole market negatively, because the first buyer could already have invested considerable time and money into the promotion of the products, and the second one can enter the market with the dumping price and ruin the goodwill of the producer and the products established previously and make their market position worse.
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