Logistics in the Chemical Industry

Done by: Por Leng Han (986623R12) Supervisor: Associate Professor Karimi Co-Supervisor: Assistant Professor Raj Srinivasan

Introduction

Logistics stemmed from the Greek word logistikos, the Science of Computation. Logistics gained prominence since the Second World War and established the mathematical discipline, Operation Research.

Introduction

Chemical Industry procures materials and distributes products globally.

Trade Statistics

Worldwide chemical exports reached 573.8 billions of dollars by year 2000.

(WTO International Trade Statistics 2001)

Transportation Cost constitutes 60% of overall Logistics Expenditure.

(GDP Analysis, Cass Logistics, Robert Delancy)

Anatomy of Supply Chain System

CARGO CARGO

Suppliers of Materials Logistics Service Provider

Shipping Documentation Bill of Lading Liaise with Carrier

Carrier

Purchaser of Materials
Bill of Lading

Railway

Motor

Containerization Shippers Letter of Instruction Cargo Insurance Custom Taxes and Clearance
Labeling of Hazardous Cargo

Air

Ocean Bill of lading is issued to Purchaser/Consignee who presents it to Carrier as proof of title to shipment delivered.

Classification of Goods
Materials
Process
Feedstocks Catalysts Utilities
Harmonized System Codes Hazardous Cargo

Non-Process
Unit Operations Instrumentations

Generic Specialty

Solids Liquids Gases

Office Supplies

Fast Moving Goods

Slow Moving Goods

Generic versus Specialty

Generic Materials :
Crude forms (eg crude oil, coal, natural gas).
Transported in bulk quantities for industry such as oil refinery.

Specialty Materials

High-value added products. Inputs for downstream industry (eg petrochemicals and pharmaceuticals). Require specialized packaging (eg. iso tank containers).

Solids, Liquids and Gases

Physical States of Process Materials
Solids Dry Bulk Cargo

Examples
Calcium carbide, oxidzers, Corrosive solids, Cement, Plastic Pellets, Fertilizers Gasoline, Fuel Oil, Alcohol, Other Flammable/ Combustible Liquids, Liquid Fuel Products Flammable Liquids, Combustible Liquids, Acids, Caustics, Poisons Corrosive Liquids, Typically Acids Pressurized Gases & Liquids, Anhydrous Ammonia, Propane, Butane, Other Gases That Have Been Liquefied Under Pressure Liquid Oxygen, Liquid Nitrogen, Liquid Carbon Dioxide, Liquid Hydrogen, Other Gases That Have Been Liquefied by Lowering Their Temperature Helium, Hydrogen, Methane, Oxygen, Other Gases

Non Pressure Liquid Low Pressure Chemical Liquids Corrosive Liquid High Pressure Liquid

Cryogenic Liquid

Gases

Compressed Gas

Hazardous Cargo
Nature of Hazard
Explosive (Class 1, 1.1 to 1.6) Gases displace oxygen (Class 2.2) Flammable Liquids (Class3) Substances liable to spontaneous combustion (Class 4.2)

Safety Symbol

Nature of Hazard
Flammable gases (Class 2.1) Toxic gases (Class 2.3)

Safety Symbol

Flammable solids (Class 4.1) Substances emit flammable gases with water (Class 4.3)

Hazardous Cargo
Nature of Hazard Safety Symbol Nature of Hazard Safety Symbol

Oxidizers (Class 5.1)

Organic Peroxides (Class 5.2)

Toxic Substances or Poisons (Class 6.1)

Corrosive Materials (Class 8)

Miscellaneous Hazards (Class 9)

1001 lbs/more material transported & composed 2/more hazards

Other Classifications

Harmonized System Codes

Developed by World Customs Organization (WCO). Universal classification for goods based on which tariffs are applied on exports and imports.

FMG versus SMG

FMG for high-value added goods and JIT inventory control. SMG for goods ordered in bulk based on long term projections of market demand.

Transport Industry

Railway
Freight Traffic : Bulk and Intermodal categories. Uniform Tariff Classification replaced by online public rates enquiry based on Standard Tariff Commodity Codes (STCCs). Types of rail service: Trailer-on-flat-car (TOFC) and Container-on-flatcar (COFC).

Transport Industry

Motor Carrier
Trucking firms categorized under less-than-truckload (LTL) and truckload (TL). Rates making based on National Motor Freight Classifications (NMFCs), which describes transportation characteristics of as follows: Density (shipping weight per cubic foot) Stowability Handling Liability

Transport Industry

Air Carrier
Increasingly used for shipments of FMGs and small quantities of value-added cargo (eg. pharmaceuticals). Shrinks delivery time, reduces inventory costs, avoids high insurance and costly packaging. Rates making based on The Air Cargo Tariffs (TACTs) (available online as E-TACT).

Transport Industry

Ocean Carrier
Very large tankers (VLCC) of 150,000 to 299,999 dwt to carry crude petroleum and natural gas.
Types of Charter : Time and Voyage.

Freight rates of oil carriage in bulk based on Worldscale.

Most chemicals carried on Contract of Affreightment (COA) terms.

Containerization

Distribution of Merchandise in an unitized form, thereby developing the intermodal transport system. Iso tank containers carry process materials for chemical industry. International Maritime Organization (IMO) classification: IMO 1 (For hazardous materials). IMO 2 (For non-hazardous materials). IMO 3 (For compressed liquefied gases).

Container Types

IMO 1 (Workhorse of tank container transport business).

26000 litres in 20 feet tank.

78 drums carrying up to 15600 litres in 20 feet tank.

Flexitank
Pillow-like tank (21000-25000 litres) in 20 feet dry container.

Transportation Constraints

Safety
Hazardous shipments (eg. HF) not allowed through populated areas. Delivery time loss due to detouring and higher cost in materials handling.

Operational
Maximum weight limit (eg. for motor carriers). Container dimension (incompatibility between different transport modes). International Restrictions (eg. ships of hazardous cargo directed to specific depot for custom clearance).

Logistics Service Providers

Fourth Party Logistics (4PLs) Third Party Logistics (3PLs)
Non-Vessel Operating Common Carriers (NVOCCs) / Ocean Transport Intermediary (OTI)

IT Service Providers Business Management Consultant

Transportation agents / Shipping Brokers International Freight Forwarders Customhouse Brokerages Export Packers

The Next Wave

Greater Functional Integration Broader Operational Autonomy Client Client
4PL 1990s2000

Business Process Management 4PL 3PL Providers IT Service Providers

Client

Outsourcing 1980s1990s Insourcing 1970s-1980s

Client

3PLs

Client

Internal Logistics Operations

Incoterms

Incoterms
Published by International Chamber of Commerce. Interpret terms in international sales contract.

Egs of Incoterm, Ex Works ( named place)

Cargo delivered by seller at Named Place (ie works, factory, warehouses)

Selle r

Buye r
Buyer bears all costs and risks involved in taking cargo from named place

Cargo not cleared for export and not loaded on any collecting vehicle

Common Logistics Issues

Lack of control and visibility. Materials Procurement from several suppliers. Information Overload.

Exception Handling and Management.

Shipment Arrangement. Security in Supply Chain Management. Within the Chemical Company.

Logistics Innovation and Changes

Integration of purchasing and transporting decisions. Logistics Management Solutions. E-enabled Solutions. Security Solutions.

Performance Metrics
On-time delivery Inventory Count Accuracy Order Fill Outbound Freight Costs Customer Complaints (Product Distribution)

Types of Metrics
Inquiry response tim e Cash-to Cash Labour utilized per capacity Units processed per tim e unit Cost to serve Custom er com plaints On-tim e delivery Order fill Inventory count accuracy Outbound freight costs

30% 32% 36% 37% 37% 77% 79% 81% 86% 87%

Best-in-Class versus Median

Best-in-Class versus Median for Chemical and Pharmaceutical Industry
Total SupplyDelivery Upside Chain Cash-toPerform ance Production Managem ent Cash Cycle to Request Flexibility Costs Tim e

BIC Median BIC Median BIC Median BIC Median

33% 121% 4% 11% 6% 30% 99% 79%

Problem Formulations

Oil Refinery
Logistics Challenge: Production Schedule Marine Pollution Tanker Ownership versus Chartering Unloading of Oil

Petrochemicals
Logistics Challenge: Integration of Plant Production Schedules and Logistics Management. Engaging Partners in Logistics.

Problem Formulations
Determination of Shipping routes and delivery time. Hubbing and warehousing considerations.

Pharmaceuticals
Logistics Challenge: Main Channels of distribution (Security issues).

Movement by Air.

Conclusion

Controls and regulations on the transport of hazardous materials getting more stringent over the years.

Up-to-date management expertise and technological innovation necessary for optimization of chemical industry logistics.