Off the bench

ANALYSIS Overall, chemical shippers in Europe have paid lower freight rates this year than in 2011. But not every trade lane is showing the same trend, as LHC’s Michiel van Dorst and Gijs Hofman report

LHC Consulting’s annual Full Truck Load (FTL) Chemical Liquid Bulk Benchmark study compares the contracted freight rates paid by chemical shippers for liquid bulk transport services across Europe. It is carried out on a city-by-city basis, taking account of differences in transport mode, equipment type and product classification. LHC Consulting (a ChemLogix Logistics company) notes that the companies taking part in this year’s study have a combined spend of some €420m on chemical bulk liquid freight per year.

This year’s report

On an aggregate level, freight rates for shipping chemical liquid bulk loads throughout Europe decreased slightly between 2011 and 2012. At the same time, prices across different trade lanes often moved in opposite directions. Shipments originating in the Iberian peninsula, for example, became 9 per cent less expensive on average, at least in part due to the financial crisis in that part of Europe. During the same one-year period, however, shipments out of Sweden became 5 per cent more expensive.

Apart from developments in basic freight rates, it is also important to look at fuel prices since they can have a significant impact on the total freight spend of shippers. While there was a general decrease in basic freight rates from 2011 to 2012, fuel prices increased by approximately 10 per cent. As a result, chemical shippers on average still experienced a total cost increase for their liquid bulk freight. In addition, this means that fuel costs now account for an even larger part of total freight spend than before.

Last year most shippers (82 per cent) expected an average freight rate increase for 2012 of up to 5 per cent. This year, that number has dropped to 45 per cent. The same number of participants now expect steady freight rates for the upcoming year. The remaining 10 per cent of respondents expect a fall of up to 5 per cent in average rates for chemical liquid bulk freight. 

Last year, there were no shippers predicting a fall in freight rates. This significant change of opinion among chemical shippers may be caused by the deteriorating macro-economic situation in Europe. This is producing a decline in the level of demand for chemicals and therefore in the required capacity for shipping these products. As carriers normally try to maximise the utilization of their fleet, they may agree to be paid lower prices by their customers and this, in turn, could lead to a drop in freight rates.

Trends and opportunities

The benchmark study also identified a number of trends in chemical liquid bulk shipping by analysing the responses of the different participants to the qualitative questionnaire. The most interesting as well as important conclusions from this year’s study are as follows.

• Most chemical shippers participating in the benchmark (86 per cent) procure FTL chemical liquid bulk freight on a pan-European level. Only a small number of companies follow a more decentralised approach and procure liquid bulk freight on either a country or site level.
• The main focus during a tender for chemical liquid bulk freight is on cost (35 per cent), followed by service (25 per cent), security (21 per cent) and sustainability (13 per cent).
• Shippers have significantly increased the number of carriers they are using over the past year. The overall average has increased from 19 to 29, while the average number of strategic suppliers has increased from five to nine. Companies may have decided to increase their carrier base as a way to safeguard capacity at a time when carriers are frequently going out of business.
• Not all shippers measure the on-time delivery performance of their carriers. Those companies that do measure their carriers’ performance on average apply a target of close to 99 per cent. In day-to-day practice, carriers deliver almost 97 out of every 100 shipments on time to the customer.
• Chemical shippers are using a range of services that are provided by their carriers. All companies participating in this year’s study ship dangerous goods under ADR regulations. Other services offered by carriers and frequently used by shippers are EDI connectivity, temperature-controlled transport, loading and unloading, Track & Trace functionality and document handling.
• Most companies’ strategy on sustainability in transport is limited to increasing the share of intermodal transport through a combination of road and rail, barge and/or short sea transport. The carbon reduction potential of intermodal transport as compared to road transport indeed can be as high as 66 per cent for specific trade lanes¹, although it is important to note that there are various operational and financial constraints that inhibit a full modal shift across all lanes.

The 2012 FTL Chemical Liquid Bulk Benchmark study provided all participants with a detailed and accurate insight into the performance of their liquid bulk freight procurement. A number of shippers proved to have contracted very competitive rates for their liquid bulk freight, but there were also shippers for which a significant savings potential was identified.

The benchmark also helps companies to identify those trade lanes that require immediate attention and for which more competitive rates should be negotiated. Companies can subsequently use this information during contract renewal discussions with current carriers as well as during freight tenders.

Apart from the financial benefits that follow from benchmark participation, the study’s qualitative findings enable shippers also to optimise performance from both a service and sustainability standpoint. In addition, they facilitate a strategic approach towards liquid bulk freight procurement by showing companies how to enhance both their procurement organisation and strategy.

Acquired by CLX Logistics LLC (parent company of ChemLogix LLC) in September 2012, LHC Consulting continues to maintain operations under its established name as a division of CLX Logistics Europe.

www.lhc.nl