Epca Cluster Report
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Epca Cluster Report



EPCA initiated a study which looked at the major chemical indsutry clusters in Europe with a view to understanding the supply chain in these clusters. I was fortunate to be a member of the think tank ...

EPCA initiated a study which looked at the major chemical indsutry clusters in Europe with a view to understanding the supply chain in these clusters. I was fortunate to be a member of the think tank and co-author this report



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Epca Cluster Report Epca Cluster Report Document Transcript

  • A Paradigm Shift : Supply Chain Collaboration and Competition in and between Europe’s Chemical Clusters Results of the EPCA Think Tank Sessions organized and sponsored by EPCAWith contribution of the INSEAD team, Technology and Operations Management,and the Editorial Committee THE EUROPEAN PETROCHEMICAL ASSOCIATIONAugust 2007
  • DISCLAIMER : All information contained in the report was collected from the participants and EPCA does not guarantee the accuracy thereof nor can it be held A liable in case it is not. Participants have guaranteed that information relating to cases summarised in the report was in the public domain and did not consist in sensitive business information. EPCA did not check the individual A compliance with competition rules of cases summarised nor can it be held liable if all or part thereof would violate competition rules. Competition law compliance is the individual responsibility of the individual companies concerned.2
  • INDEXNote on Competition Law 61. Management Summary 92. Introduction 13 2.1 European Chemical Industry – A Major Force under Threat? 13 2.2 Clusters & Competitiveness 14 2.3 The EPCA Study 153. Presentation of the ARRR and Tarragona chemical clusters 17 3.1 Definition of chemical clusters 17 3.2 Presentation of the ARRR and Tarragona clusters 20 3.2.1 ARRR Cluster 20 Antwerp subcluster 22 Rotterdam subcluster 24 Rhine Ruhr subcluster 27 Rhine Main subcluster 30 3.2.2 Tarragona cluster 304. Interview results 35 4.1 ARRR 35 4.1.1 Advantages of the ARRR cluster 35 Caselet: The benefits of co-siting: the Rotterdam 36 chlorine case Caselet: MultiCore pipeline in the port of Rotterdam: 38 a common infrastructure to the benefit of all 3
  • 4.1.2 Disadvantages of the ARRR cluster 39 Caselet: Asset pooling between LSPs in the Antwerp 41 cluster: the Oiltanking/Stolthaven collaboration Caselet: Benefit from cluster synergies via vertical 42 collaboration: the LBC/Ertisa case 4.1.3 Obstacles to overcoming cluster disadvantages 43 Caselet: Horizontal LSP collaboration in the Port of 44 Rotterdam - Pernis Combi Terminal 4.1.4 Opportunities for horizontal cluster collaboration 45 Caselet: ComLog – Common Logistics Procurement: 47 an example of both vertical and horizontal cooperation Caselet: The challenge of multi-company infrastructure 49 investments: the EPDC case 4.1.5 Opportunities for vertical cluster collaboration 52 Caselet: Joint consortium in the cluster: the CLA 54 initiative 4.1.6 Who should lead the development of the cluster? 55 Caselet: Proactive site leadership: the INEOS Ethylene 57 Oxide case 4.2 Tarragona 58 4.2.1 Advantages of the Tarragona cluster 58 Caselet: Dixquimics Pipe Rack 59 4.2.2 Disadvantages of the Tarragona cluster 60 Caselet: Multimodal Container Terminal 62 4.2.3 Obstacles to overcome cluster disadvantages 63 Caselet: Overcoming water scarcity in Tarragona: 64 a collaboration to the benefit of the cluster and its suroundings Caselet: Exploit synergies in the Tarragona cluster: 654 the disposal of treated water
  • 4.2.4 Opportunities for horizontal cluster collaboration 68 Caselet: When LSPs collaborate: 69 the Tradilo Multimodal Transport JV Caselet: When shippers collaborate: 70 the TAPP Mooring case 4.2.5 Opportunities for vertical cluster collaboration 71 Caselet: Ammonia Logistics 72 4.2.6 Who should lead the development of the cluster? 735. Comparison between the clusters in Antwerp, Rotterdam, 77 the Rhine/Ruhr region, and Tarragona 5.1 Raw material and competitive feedstock 77 5.2 Exports 77 5.3 Logistics 80 5.4 Authorities 80 5.5 Land owners 806. Conclusions & Recommendations 83 6.1 Manage cluster information to identify opportunities 83 6.2 Provide a platform to discuss cluster opportunities 84 6.3 Take common actions to exploit cluster opportunities 84 6.4 Long-term relationships are more profitable than short-term 85 benefits7. Appendix 87 Organization of the study 87 Literature sources 89 Definitions 89 5 Acknowledgments 90
  • NOTE ON COMPETITION LAW Competition law, both at national observed that the key objective level and at EC level, regulates – of rules against anticompetitive among other things – agreements agreements is that companies between companies that have the should act independently This p y. purpose or the effect of restricting of course does not mean that competition. any form of common action is excluded. It does, however, imply While in itself cooperation between that where cooperation is envis- companies to enhance supply aged, the intention should not be chain efficiency and, more broadly, to dampen rivalry between firms. to develop competitive industry It is therefore important that the clusters does not give rise to com- efficiency or competition enhanc- petition law concerns –and may ing intent behind cooperation be indeed help to reinvigorate compe- clearly identified at the outset. tition– the existence and nature of Moreover, the concrete effects on such cooperation may be misinter- r competition of cooperation should preted or not fully understood by be carefully weighed up. Do the competition authorities, or indeed increased efficiency, improved may be open to abuse. customer service and/or techno- logical advances promised by a For this reason it is important when certain cooperative strategy out- considering any form of coop- weigh the possible loss of rivalry eration to ensure (i) the compat- between firms working together on ibility of individual strategies with a project? competition law and (ii) that these strategies are described and com- Clearly, the compatibility of municated in a clear way that limits specific cooperative agreements any possible misunderstanding as with competition law ultimately to their nature and intent. requires a case by case approach. However, the following general ob- Broadly speaking, it can be servations can be made. Generally6
  • speaking, competition authorities volved in cooperative agreementswill be more concerned about: are important elements of evi- “Horizontal” cooperation than dence in the event that breaches “vertical” cooperation; of competition law are alleged at a Cooperation involving (even ex- later date. changes of information on) key parameters of competition such Finally, it is emphasized that – in as price or output; accordance with competition Cooperation between players in law – the present report is not concentrated sectors or coop- intended as a “shopping list” or set eration involving many players in of recommendations to industry, a sector. but aims to identify the great efficiencies that can be derivedIn addition to assuring themselves from the development of effi-that a particular course of conduct cient supply chain managementis indeed compatible with com- and strong economic clusterspetition law, companies must also more generally. Ultimately, it isensure that their assessments are up to each company to decidecarefully documented. Rigorous individually upon its own bestdocumentation and document business strategy.retention policies are thereforekey. Clear records must be kept,for example, of the reasoningbehind strategies adopted and anymeetings concerning them, theassessment of the effects of thosestrategies and why the companyconsiders them to be compatiblewith competition law. Paper trailsclearly showing the good will andintentions of the companies in- 7
  • 8
  • 1. MANAGEMENT SUMMARY With the attention of the chemical indus- Develop research connections with try focused on exploiting the low cost universities and institutions. feedstocks in the Middle East and the Continue with the working group growth markets of Brazil, Russia, India, activities where there are areas for China and South East Asia, this report further discussion and development. > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERS provides a timely reminder to policy makers, chemical companies and logis- As a consequence it was proposed that tics service providers of the significant the successful Think Tank model be opportunities for improving business maintained, comprising senior stake- potential in Europe’s chemical clusters. holders and decision-makers, to study Europe is still the largest, most sophisti- supply chain collaboration in chemical cated global market for chemical prod- clusters in Europe. During the first half ucts, with a well developed, efficient, of 2007, under the sponsorship of the highly productive asset base, sound EPCA Board, 53 senior representatives A infrastructure, leading edge research and of chemical companies, logistics service development and significant purchasing providers, public authorities and institu- power. Provided these advantages are tions, together with researchers from IN- sustained, including continued attention SEAD, engaged in this study. The Think to asset maintenance and operational Tank was chartered to test the conclu- and supply chain improvements, Europe sions from previous think tanks, identify can remain a competitive force in the working examples of cooperation (suc- global market place, despite what the cesses as well as opportunities for doom-mongers may say to the contrary. improvement and missed opportunities), develop ideas to overcome constraints The EPCA Supply Chain Think Tank and stimulate future supply chain col- reports of 2004 and 2005 concluded that laboration initiatives, using the examples there is a huge potential to be achieved of Tarragona and Antwerp/Rotterdam/ through collaboration between produc- Rhine-Ruhr (ARRR). Although each of ers, customers, suppliers and service the components of ARRR are clusters providers to drive out waste and cost. in themselves, the integration through Recommendations were made to: pipelines, waterways, rail and roads as well as the intensity of the exchanges Actively promote the conclusions of between them encouraged the Think the Think Tank working groups in order Tank to explore this as one mega-cluster. to change attitudes and perceptions of the industry. The work of the Think Tank has culmi- Alert entrepreneurial stakeholders to nated in the production of this report. 9 the business opportunities.Tank train, Marl Chemical Park, ChemSite
  • There is general agreement that, while operational decisions are taken remotely, progress has been made – and case without necessarily exploring all the supply studies illustrating this view are included chain opportunities within the cluster (*). in the report –, there are both op- portunities and threats for the future It is generally acknowledged that supply growth and added value of the clus- chain excellence can deliver lower unit ters which will require the attention costs, higher capital productivity (ROCE), of public policy makers and senior improved service and reduction of carbon management in the industry. Much emissions. With capital investments in the of the cluster development to date has chemical industry often having a lifetime been driven by individual rather than col- of 30-40 years, it appears prudent to lective initiatives. The long-term health ensure that such supply chain benefits of a cluster requires adequate infra- and the associated competitiveness can structure and sustainable mobility, but be obtained over the life of the project. also a strategic view on supply chains. This report explores and illustrates how To achieve the latter, more attention these benefits are being achieved through should be paid to creating the right cluster arrangements, but, more impor- r conditions for successful end-to-end tant, how many opportunities still remain supply chain collaboration. Whereas unexploited. Recommendations are made the integral supply chain perspective has on how this can be improved it being become a successful reality in sectors understood that decisions must be taken like consumer electronics and automo- by each individual company in full compli- biles, it has barely surfaced in the chemi- ance with competition rules. cal industry. Research by INSEAD, conducted The Think Tank discussions showed through interviews with key industry that the concept of chemical clusters, leaders and subsequently discussed with the associated dynamics and sup- inside the Think Tanks, has identified ply chain value proposition, receives many drivers, as well as blockers, increasing attention on Board meeting which impact cluster growth. These agendas and by senior manage- are discussed in detail in the body of the ment, but a paradigm shift has not report, and the reader is urged to explore come true yet. Despite the fact that the interviews and Think Tank results in some 8-10% of total industry turnover Chapter 4. On the basis of these results is spent on supply chain and logistics the Think Tank has derived four recom- activities, representing more than 37% of mendations for companies acting in10 total value-added, many investment and the clusters. (*) Cefic ‘Horizon: 2015: Perspectives for the European Chemical Industry’ Brussels, March 2004.
  • Information sharing is key.The interviews have shown that manyopportunities to benefit from chemi-cal clusters are missed because eachcluster stakeholder (producer, LogisticsService Provider (LSP) or authority) hasonly a partial view of the flows proc-essed. Compared to chemical clustersin the rest of the world, it is surprisinglydifficult to obtain even basic aggregateinformation on European chemical clus-ters. Consequently, initiatives to buildcluster-wide infrastructure solutions oreven merge shipments from differentcompanies are very difficult to under- rtake. Without a certain level of structuredand available information accessibleto all partners, firms will value invest-ments in the cluster with a higher risk ormight even invest in the wrong alterna-tive. Thus, to ensure that the competi-tive forces still work to the benefit of allcluster members, information sharing iskey and should go beyond exchangingforecasts between business partners.Clearly, any information exchange mustbe done in full compliance with competi-tion rules.A flexible discussion platformis required to organizeinformation sharing andcoordinate cluster initiatives.Considering the constraints of the chem-ical industry with respect to competitionlaw as well as the fact that firms operateindependently, we recommend the 11
  • creation of a flexible discussion platform in this report, the study has shown that to coordinate the information gather- r a significant gap between words and ing at a supply chain level and to create facts still exists. Although producers are common knowledge. This platform very knowledgeable about the benefits VCM’s production should be opened to producers, LSPs of going beyond arm’s length relation- plant, Tarragona, and authorities (state, region, port/ ships with LSPs, the interviews highlight Ercros cluster authority) who have the power the limits in practice. Frequent tendering to exchange ideas and opinions on the practices with limited information shar-r basis of the information gathered. ing reduces planning visibility for service providers and result in a high cost posi- Take actions to solve current tion for producers. cluster issues. The value of the cluster platform will be This report is a demonstration of con- demonstrated as soon as actions start fidence in the future of the European to be launched under its initiative. The chemical industry, but recommends platform will be an especially important policy makers, local authorities and communication channel when it comes industry leaders to be alert to the op- to discussing ways to improve cluster portunities and to the need for effective performance. Infrastructure shortages lean logistics and efficient supply chain or congestion problems are topics that economics to help sustain this com- have to be solved collaboratively, taking petitive advantage. Although individual into account the complexity of the inter-r companies will continue to pursue their dependencies between stakeholders in own self-interest, the report urges the the cluster. For the ARRR mega-cluster, establishment of local chemical industry a working group should be dedicated to platforms, represented by all stakehold- the harmonization of the legislation and ers, to explore these opportunities in supply chain practices between compa- more detail. nies and the three countries. No platform currently exists that brings companies Leveraging these supply chain oppor- together to address such issues. tunities through intensive collabora- tion within and between clusters will The paradigm shift on collabo- go a long way to ensuring the con- rations has not taken place. tinued competitiveness of Europe’s Despite the various examples provided chemical industry.12
  • 2. INTRODUCTION2.1 European Chemical Industry – and generated 2% of Europe’s gross A Major Force under Threat? national product (Source: Eurostat, 2007). Recent studies performed in theFrom food packaging to pharmaceuti- Rhine/Ruhr region indicate that one job > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERScals, the chemical industry plays a domi- in the chemical industry creates threenant role in today’s national and global additional jobs in the chemical-relatedeconomies. Developing and sustaining a sector.local chemical industry, able to competeon a global scale, has both economic Since 1990 the European chemicaland political importance as the chemi- industry has been growing at an averagecal industry supplies the full spectrum rate of 2.8% per year, outstripping theof Europe’s manufacturing industry with European manufacturing industry whichintermediate products. has grown by 1.6% in the same period. At the end of 2006 the industry had de-In 2006 the European chemical industry livered a positive trade surplus of 41.0comprised more than 30,000 firms, billion, up by 6% compared with 2005.directly employed 1.9 million workers, Extra-EU chemicals trade balance 1995-2006 120 100 80 billion 60 40 40.6 41.3 39.0 41.0 35.8 37.0 38.1 20 24.5 26.5 23.8 19.3 20.9 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006** Trade balance Extra-EU imports Extra-EU exports 13 Figure 2-1 Extra-EU chemicals trade balance (Eurostat, 2007)
  • Therefore, the European chemical 2.2 Clusters & Competitiveness industry has been, and will remain, a leading factor in economic An Arthur D. Little study from 2005 – The growth, warranting specific atten- Staying Power of Europe’s Chemical In- tion from policy makers. dustry – compared the production costs of Europe’s chemical sites to the US, Despite these positive numbers, there India, China, and the Middle East. While are signals that the growth and export the report acknowledged that Europe potential of the European chemical in- may be expensive, the surprising conclu- dustry could be under threat. Agricultural sion was that it still remains one of the chemicals and fibers have experienced most competitive regions in the world. negative growth, the trade surplus for The study challenges the hypothesis that organic chemicals has declined in the significant relocation of European-based face of increased import flows from chemicals manufacturing operations Saudi Arabia, and despite a strong is likely to happen in order to serve performance from polyolefins, huge new developing and developed markets at petrochemical capacity in the Middle reduced cost. East will inevitably impact demand for European sourced production. The study conducted both a qualita- tive and a cost based assessment of European companies have of course the operating environment in which a contributed to the development of com- chemical company can deliver value. peting clusters closer to emerging mar- The four factors determining the quality kets (China/India) and cheap feedstocks of the environment were demand condi- in the Middle East. Although much of tions, technological advancement and the new production is expected to find innovation, environmental regulations, a home in Asian markets, there is a and the formation of clusters. With concern that European competitiveness the exception of environmental regula- will suffer as companies prefer to invest tions for which the report underlined that scarce financial resources in growing “governments must improve cooperation regions, and allow the European asset with companies to develop environmen- base to become obsolete. Up-to-date tal efficiency at low administrative cost”, manufacturing assets as well as efficient all other factors are well established and reliable logistics networks are a in Europe, including the presence of prerequisite for remaining competitive in strongly integrated clusters. global markets.14
  • The report observed that Europe enjoys collaborative relationships, as a way ofthe benefit of a limited number of raising the bar on performance, withoutstrongly clustered areas. With raw mate- negatively impacting competition.rials being the main input to the chemi-cals industry, their immediate availability In addition, notwithstanding the factthrough ports, refineries, and pipelines is that Europe has well-established andof prime importance, as well as the op- effective clusters in place, supportedportunity to develop derivative products by highly sophisticated logistics serviceat the lowest possible logistics cost. providers and supportive public authori- ties, further benefits would be obtainedIt should be clear that the continued by engaging all stakeholders in enhanc-global competitiveness of European ing the linkage between clusters.chemical manufacturing is closelylinked to the efficiency of its clus- In this context EPCA took the initiativeters. Chemical clusters are all about of conducting a more in-depth study ofthe supply chain at work. European chemical clusters.The port and pipeline infrastructurefacilitates upstream supply chain 2.3 The EPCA Studyoperations and economics. The highlevel of integration and interconnectivity Since European manufacturers cannotbetween the cluster participants creates differentiate themselves through a costsignificant opportunities to benefit from advantage on feedstocks (versus Middleefficiencies through reduced transporta- Eastern producers), the integration oftion intensity (i.e. lower freight costs, energy and intermediate raw materialsreduced risk from the movement of haz- as well as supply chain efficiencies rep-ardous products, reduced emissions), resent key drivers for competitiveness.more effective utilization of assets, and Previous studies from EPCA and CEFICefficient use of working capital. have shown that 37% of the value added created by chemical companies can beThe inevitable tension between com- spent on transforming, storing, and mov-petition and collaboration has probably ing products.limited the full exploitation of theseopportunities in the past. However, there The EPCA-CEFIC Think Tank Reportsis evidence of an increasing willingness issued in 2004 and 2005 concludedto explore the scope and benefits of that a huge potential can be achieved 15
  • through collaboration between “custom- tion as well as missed opportunities, ers, suppliers, service providers and, develop ideas to overcome blockers and occasionally, competitors, to drive out constraints and stimulate future supply waste, and hence cost”. The estimated chain collaborative initiatives. accumulated potential in Europe from a range of proposed measures was up to The scope of the study, represented in 15 billion. Figure 2-2, is therefore at the interface between supply chain topics and cluster The key recommendations suggested theory. in these reports as “next steps” were centered on capturing supply chain The Think Tank study was limited to an collaboration opportunities, in various empirical investigation of two principal forms. The 2004 report explored pooling clusters; ARRR (Antwerp, Rotterdam, of resources, enhanced use of multi- Rhine, Ruhr) and Tarragona. Although modal and multi-user terminals (hubs), traditionally the ARRR cluster has been and further exploitation of swaps and viewed as separate individual clusters, pipelines. The 2005 Report specifically the degree of interdependence, integra- encouraged more collaboration and tion and infrastructure linkage encou- information sharing to achieve improved raged EPCA to consider this as one asset utilization. mega-cluster. The ARRR group reflected this approach. Consequently the successful Supply Chain Think Tank model (comprising Following a brief generic presenta- senior stakeholders and decision-makers tion of chemical clusters and a more representing producers, service provi- detailed description of the target clusters ders, public institutions, and academia) in chapter 3, the results of interviews was maintained in order to explore the conducted in the ARRR and Tarragona opportunities offered by Europe’s chemi- clusters will be presented in chapters cal clusters in terms of supply chain 4, including numerous case studies efficiency and to identify to what extent illustrating successful cluster-driven col- cluster development can contribute to laboration. The comparative governance Europe’s long term competitiveness. structure of each cluster and the impact Specifically, the study would test the on cluster development will be reviewed conclusions of the previous think tanks, in chapter 5, followed by conclusions identify working examples of collabora- and recommendations in chapter 6. economies of scale share information cluster scope of supply chain share assets economies of scope economics EPCA study collaboration proximity of customers/ coordinate actions suppliers and competitors Figure 2-2: Scope of the EPCA study16
  • 3. PRESENTATION OF THE ARRR AND TARRAGONA CHEMICAL CLUSTERS3.1 Definition of chemical clusters Langen, 2004), a cluster is defined as a “geographically limited concentrationLinks between a specific industry and of mutually related business units,a geographic location can be easily associations and public or privateobserved in the economic map of the organizations centered on a specific > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERSworld. For example, financial services economic focus”. This definition willare related to the city of London, fashion be extended in the following chapters toto Milan and Paris and high-technology match the specificities of the chemicalelectronics to Silicon Valley. The chemi- industry.cal industry could be associated withthe area of Rotterdam, Antwerp and the A chemical cluster, like other industrialRhine/Ruhr region, strongly sustained by clusters, is characterized by a highthe presence of 3 important ports (the 2 concentration of manufacturing compa-seaports of Antwerp and Rotterdam and nies and service providers operating inthe inland port of Duisburg) and by the the chemical business. But the clusterdense network of logistics interconnec- population consists also of associationstions in place. and public or private organizations that participate in and are co-responsible forThe phenomenon of regional industry creating a vibrant environment in termsconcentration was explored by Alfred of productivity, innovation and creationMarshall as early as the 1920s (Marshall, of new businesses. For example, in the1920) with respect to the progressive chemical clusters examined by the Thinkconcentration of firms making and ma- Tank the relevant port authorities attractchining steel around Sheffield. The atten- new investors in the area and offer stra-tion of the economic and political sphere tegic land positions for specific businesson this phenomenon has continuously development in addition to dealing withincreased since then, due especially traditional port activities.to the recognition that such networkswould constitute an ultimate source of In the manufacturing stage of the valuecompetitive advantage for an economy chain, the products of a company are(Porter, 1990). the inputs for the manufacturing process of a company further downstream inThese localized industries that combine the value chain. In addition, chemicala high specialization with an unusual companies tend to outsource industry-competitive success in a particular related services and therefore attractfield and a specific geographic location waves of third party investments inrepresent what Michael Porter described warehousing, transportation, general 17in the 1990s as “clusters” (Porter, 1998). services, waste treatment and disposal,According to more recent research (de as well as a full range of utilities.
  • This interaction and interdependence same might not be true for companies between the firms in a cluster creates operating in the same stage of the value complementarities, synergies and a chain. Companies operating in the same combination of skills and incentives product or business segment in the that is hard to reproduce by competi- cluster could choose whether or not to tors operating on an isolated basis. collaborate. This aspect is the real strength of a clus- ter and explains why many governments, However, the fact of being located in especially in Europe, are attempting to a cluster offers unique opportunities promote the formation of local clusters. for collaboration, even between rival firms. Optimizing capital investments, Figure 3-1 shows how chemical compa- increasing the average utilization of nies are integrated into the materials flow assets, swapping capacities and ma- system from crude-oil to ethylene and terials and exchanging information are propylene and the C4 cut between BP’s only a few examples of collaboration Gelsenkirchen sites and the companies opportunities that can successfully located in the ChemSite-Marl Chemical take place in a cluster. The geographi- Park in Germany. cal proximity of firms within the cluster and the possibility of having frequent While the interaction between compa- face-to-face interactions represent an nies operating in subsequent stages ideal trigger for developing this kind of of the value chain is almost essen- collaboration initiative. tial for each company’s success, the C4-Cut interactions in the Rhine/Ruhr cluster BP’s Gelsenkirchen refinery obtains crude-oil feedstock via the crude-oil pipelines from Rotterdam and Wilhelmshaven. The re- finery transforms this crude-oil into a range of products, among them naphtha, which is used as feedstock by the 2 crackers owned and operated by BP in Gelsenkirchen. These crackers produce, among others, ethylene, propylene and the C4 cut, which are feedstocks for chemical companies. Sabic Polyolefin located in the Gelsenkirchen site, uses ethylene and propylene from the crackers. BP’s sites are also connected to the ARG ethylene and the Rhine-Ruhr propylene grids to for- ward what is not consumed locally. The C4 cut is used as feedstock for the production of a range of chemical products produced by several chemical companies located in the ChemSite-Marl Chemical Park.18 CLUSTER
  • Crude oil Wilhelmshafen / RotterdamChemSite - BP Refining & Petrochemicals Gelsenkirchen (Germany) Refinery gas Jet fuel Ammonia P-Xylene Solvents C4 Cut 350kt 280kt 130kt 100kt LPG Diesel and heating oil Methanol Ethylene Hydrogen 300kt 960kt 210K Nm3/h Gasoline Bitumen Benzene Cumene Propylene 430kt 500kt 660kt Petroleum Coke Cyclohexane 150ktBP Polyethylene Polypropylene 400kt 500kt Sabic PolyolefineChemSite - Marl Chemical Park (Germany) Butanes ETBE Butadiene 1-Butene Tert.-Butanol Di-n-Butene Syngas Iso-Butene i-Nonanol Plasticizers Oxeno Polyoil Lanxess Buna T-Butyl-phenols Sasol Latices Polymer Latex Cyclo- Cyclodo- Homo-, Co- octadiene decatriene Terpolymers Polyocte- Cyclodo- Cyclodo-decane namers decanol Capacities: = 0-50kt Cyclodo- 1,12-Dode- = 50-100kt Polyamides Lauro-lactame decanone candioic acid = 100-200kt = 200-500kt Degussa 19 Figure 3-1 C4-Cut interactions within the Rhine/Ruhr cluster
  • 3.2 Presentation of the ARRR and 3.2.1 ARRR Cluster Tarragona clusters Though Antwerp, Rotterdam, and the On the basis of the previous EPCA Rhine-Ruhr separately form clusters reports, the Think Tank decided to as defined in Section 2, the Think Tank investigate to what extent firms decided to consider the whole of the actually benefit from the supply chain region as one mega-cluster, hereafter optimization opportunities provided referred to as ARRR. Indeed, the inte- by chemical clusters. For the sake of gration, interconnectivity and product consistency, the Think Tank decided flow between the individual areas to limit its scope to Northern Europe justify this approach notwithstanding (i.e. Antwerp, Rotterdam and Rhine/ the fact that ARRR is spread out over Ruhr - ARRR) as well as Tarragona three EU member states. (Spain), leaving other significant clus- ters out of the analysis. The ARRR mega-cluster is the largest interconnected chemical production In the following subsection, the historical cluster in the world in terms of pro- evolution and uniqueness of each of the duction throughput. The mega-cluster clusters mentioned will be described. is also the most integrated chemical production region in the world. The main clusters include the port areas of Antwerp in Belgium, of Rotterdam in The Netherlands, and two major inland areas – Rhine/Ruhr in North Rhine-Westphalia (NRW) and the Ludwigshafen-Mannheim-Karlsruhe area. A number of “satellite” clusters are interconnected with these clusters. These include Terneuzen, Geleen/ Sittard, Feluy and Frankfurt. These satellite clusters have in common that they are highly dependent on the clus- ters in order to be successful, as they Figure 3-2 Main chemical clusters in lack the manufacturing depth to be20 Northern Europe self-sufficient. The interconnections
  • Figure 3-3 Overview of cluster interrelationshipsbetween the clusters and surround-ing satellite clusters include pipeline,waterways, rail and road, enabling asophisticated and highly efficient sup-ply chain management.The Antwerp/Rotterdam and Rhine/Ruhrclusters are connected via ethylene pipe-lines passing through the SABIC satellitecluster in Geleen. The propylene pipelineconnection between both regions (EPDCproject) has not taken place for reasonsmentioned in Section 4 (see caselet inSection 4.1.4). 21
  • Antwerp subcluster The Antwerp chemical cluster, located in the Port of Antwerp, covers more than 3,650 hectares along the Schelde Figure 3-4 Port of Antwerp - geographical River. Antwerp strongly developed as a overview classical trading port in the 19th century, and the petrochemical industry only emerged in the 1930s with the construc- The right bank kept growing between tion of two refineries. Chemical produc- 1966 and 1971 with major investments tion in Antwerp really took off after the from BASF (1966), Bayer, Monsanto and Second World War when two additional Solvay (all 1967) and Degussa (1970). refineries and the first ethylene oxide The growth dynamics of BASF’s inte- production facility started in 1951 at the grated Antwerp site attracted Air Liquide Marshall dock. which in 1971 signed one of the first co- siting agreements in the Port of Antwerp. Between 1951 and 1963, the first series The remaining areas were leased step by of investments in downstream refinery step in 1972 to Dow-Halterman, Rhône products emerged on the right bank Poulenc (at present these facilities are (Figure 3-4), leading to the extension of owned by Katoen Natie) and Bayer, fol- the historical docks up to the Zandvliet lowed by Aqualon in 1979. lock, and to the opening of the Boudew- ijn lock. Joint investment in two steam The cluster experienced a growth phase crackers and corresponding ethylene between 1979 and 1987 without signifi- processing capacities (at the time 500K cant new settlements. Subsequently, tons) in 1963 clearly made the Port during the period between 1987 and of Antwerp an increasingly chemical- 2006, the port of Antwerp benefited focused cluster. By that time, Union from the arrival of additional manufactur- r Carbide Belgium and Amoco Fina had ers such as North Sea Petrochemicals already opened up their factories in the (Shell/Borealis), INEOS Phenol (at the port in order to exploit the by-products time Phenolchemie), as well as, from of the refineries. 1963 was also the year 1999 onward, Japanese companies when the left bank of the port began to (Kuraray, Nippon Shokubai and Tokyo be exploited by Bayer Rubber (at the Kasei Europe). time Polysar Belgium), subsequently followed by five chemical multinationals The Port of Antwerp encompasses22 by 1970, among others 3M and Exxon a wide range of the chemical value Mobil (at the time USI Europe). chain, as illustrated in Figure 3-5.
  • C1 C2 C3 C4 C6 C 7,8 CIShip, pipeline, barge Pipeline, barge, rail Rail, road Mainly road Figure 3-5 Value chain of the Antwerp cluster (red items are produced, grey items 23 are not produced, in the cluster)
  • Rotterdam subcluster replaced coal during the war), industry and society. Oil had to be imported Rotterdam, initially a fishing village in the from other world regions and Rotterdam 15th century, was already a significant quickly became the biggest European gateway to the European hinterland port of oil imports. before the rise of the industrial revolu- tion, due to regular trade lines to Asia The oil refineries of Shell and Caltex and South America (for tobacco and (Texaco) started the cluster just after the spices). Fueled by the rise of the Ger-r Second World War. In the sixties, crude man steel industry in the Ruhr region, oil pipelines to refineries in Germany Rotterdam became through its access and Antwerp were commissioned. This to the Rhine River the port of choice for decade also saw the first big wave of importing ores for the German factories chemical investments: Dow, Akzo, ICI and exporting steel products. In order (now Hexion), Esso Chemicals, Kemira to cope with higher traffic and heavier and Arco (now Lyondell) all set up their L loads, access to the port was improved plants. Since the petroleum trade con- by a new channel (“Nieuwe Waterweg”) tinued to grow tremendously quick in the and the port was extended stepwise sixties, shipbuilders had to increase the towards the sea. capacity of their vessels. However, the new “mammoth” tankers were not able After the First World War, with the grow- to enter the existing port infrastructures. ing use of automobiles, oil became a Consequently, the Europoort zone was24 strategic resource for armies (oil had built to the west of the port; it was 20
  • Figure 3-6 Port of Rotterdam - graphical overviewmeters deep and had three additional As land became scarcer in the port in therefineries. The logistics facilities kept last few years, more and more co-sitingpace with the construction of several initiatives took place between chemicaltank storage terminals, working both for plants and tank storage companies, es-the industry and for companies using pecially in biofuel production (BioPetrolthem as entry or exit points for Europe. at a Vopak terminal, Dutch Biodiesel atBarges, railways, trucks and pipelines Argos and When Biofuels at Koole).took care of the transport to and fromthe hinterland and within the port area. The oil and chemical cluster within the Port of Rotterdam now comprisesOver time, the port kept on growing an extensive combination of crude oilwestward with more chemical plants and refineries, chemical plants, industrialservice companies, and the decision gases production, tank storage termi-was taken to extend the port by nals, pipeline connections and all kindsreclaiming land from the sea. This gave of service companies. In total it coversbirth to the Maasvlakte in 1973 (Figure 2,865 hectares, representing 60% of3-6). In the nineties, several co-siting the available land in the port, with anagreements were set up with industrial emphasis on raw materials process-gases and combined heat and power ing and base chemicals manufactur-producers (e.g. Eastman with Air Prod- ing (Figure 3-7) (pag 26).ucts and Eneco, ICI/Huntsman with AirLiquide and Eneco). 25
  • C1 C2 C3 C4 C6 C 7,8 CI Ship, pipeline, barge Pipeline, barge, rail Rail, road Mainly road Figure 3-7 Value chain of the Rotterdam/Moerdijk cluster (green items are26 produced, grey items are not produced in the cluster)
  • Rhine-Ruhr subcluster Most of the chemical sites were run by one user only (single user sites) untilThe German state of North Rhine- the mid-1990s when chemical majorsWestphalia is the base of two major started to reorganize their product port-chemical centers: the Ruhr region folio. In the course of structural changes(ChemSite cluster) in the northern in the chemical industry, traditionalpart and the Rhine area (ChemCo- chemical industry sites with single userslogne cluster) in the southern part. were transformed into integrated multi-Together these chemical regions form user sites (chemical parks), where manythe Rhine/Ruhr cluster. They are well users benefit from shared material flowsconnected by road, rail, pipeline and and infrastructure, making efficient jointwaterway, with Duisburg as the largest use of all the facilities available. The utili-inland port in Europe. With 720 km of ties as well as the site management arewaterways, 180 inland ports and 8,000 mostly still performed by the initial userkm of railways, the region is connected of the site (site operator). This structuralto both the raw material import centers change has created new opportunities,or feedstock production sites (Rotter- as each site is now even more focuseddam, Antwerp, Wilhelms-haven) and the on attracting complementary partnersGerman and Eastern European hinter- (manufacturers, LSPs, research centers)land. to create additional synergies within the chemical parks.The chemical industry in the Rhine/Ruhrcluster emerged in the 19th century In the late nineties, some manufacturerswith the exploitation of the neighboring of the cluster decided to merge theircoal reserves of the Ruhr. In a similar efforts in attracting new companies,fashion as in Antwerp and Rotterdam, triggered by the vision of the “openedthe development really took off after chemical cluster” idea. The ChemSitethe Second World War when the former initiative was created in 1997 as a public-chemical group IG Farben was broken private partnership between the Germandown into several units and petrochemi- state of North-Rhine-Westphalia andcal manufacturers installed refineries and chemical manufacturers in the Northernsteam crackers in the cluster (Rheinische Ruhr region promoting the attractivenessOlefinwerke GmbH in Wesseling, EC of the region. Hüls AG (now Degussa),Erölchemie in Worringen). This helped which has been operating in Marl onethe cluster to maintain its long-term of Germany’s biggest sites since 1938,competitiveness by replacing the declin- founded ChemSite together with, amonging lignite and anthracite reserves by oil others, Veba Oel (now BP Refining & 27as an input for the chemical cluster. Petrochemicals), Rutgers Chemicals,
  • Figure 3-8 ChemSite cluster - graphical overview (source ChemSite, 2007) DSM (now SABIC) and the state of ChemSite currently promotes 7 sites, North Rhine-Westphalia. Since then, from the fully integrated petro-chemical the ChemSite initiative has successfully cluster operated by Degussa to the extended to the whole Ruhr region. research focused cluster of TechnoMarl. All chemical parks and sites are situated very closely together in the Ruhr region. With a total area of 1,400 hectares, these locations offer about 240 hectares for the relocation of new companies. ChemCologne represents the counter- part of ChemSite for the Cologne/ Leverkusen/Bonn region with the biggest producers in terms of volume being Bayer and its spin-offs, as well as Degussa. The range of its 150 members spans classical manufacturers, logistics service providers and authorities; it also includes universities. Like ChemSite, the sites represented (Figure 3-9) are promoted with the objective of attracting new investors. The chemical parks and sites in the Rhine/Ruhr cluster cover the whole chemical value chain with particu- Figure 3-9 ChemCologne sites lar emphasis on base and specialty (source ChemCologne, 2007) chemicals (see Figure 3-10). This emphasis is key when considering the potential provided by the high density of universities and chemical research cent-28 ers in the vicinity.
  • C1 C2 C3 Polyether polyol, PG C4 C6 C 7,8 CIShip, pipeline, barge Pipeline, barge, rail Rail, road Mainly road Figure 3-10 Value chain of the Ruhr cluster (orange items are produced, and grey items are not produced, in the cluster) 29
  • Rhine Main subcluster 300,000 intermodal units per year are handled in the cluster. This cluster consists of the Miro (Karlsruhe) refinery and petrochemi- 3.2.2 Tarragona cluster cals complex, the BASF Ludwigshafen Verbund site, and several smaller The Tarragona region is located 100 chemical sites including Raschig’s km west of Barcelona, in the north- specialty chemical site in Ludwig- east of Spain. The petrochemical cluster shafen. The cluster receives primary raw of Tarragona plays a major economic materials (crude oil and natural gas) via and social role in a region inhabited by pipeline and depends on the Miro and some 500,000 people. Tarragona is the other European refineries for its primary most important chemical manufactu- feedstock naphtha. The BASF Verbund ring cluster in the southern Europe site also currently receives naphtha and Mediterranean area. The global from Antwerp and Cologne via barge on chemical production of the chemical the river Rhine. Other feedstocks and companies in the Tarragona cluster intermediates are transported by either amounts to 18 million tons per year, rail or road. 25% of which is exported mainly to the Mediterranean area. Approximately 44% In terms of overall volumes, the clus- of the total plastics production in Spain ter handles over 20 million tons of raw is produced in the cluster, thus confirm- materials per year and similar volumes of ing its leadership in the Mediterranean sales products. The Rhine Main cluster area. The Tarragona chemical cluster is is the most integrated petrochemical, in- the third largest producer of ethylene in termediates, polymers and performance Europe. materials cluster in Europe with over 200 production units producing more than The economic success of the chemical 8,000 products (including brands and area depends on Tarragona Port, which formulated products). enables the import of raw materials and competitive feedstock for the chemical All of the sites in the cluster have highly manufacturing process. The total mari- integrated infrastructure, utilities, ser- time traffic through the Port of Tarragona vice, waste management and logistics amounts to about 35 million tons per systems serving to minimize their envi- year and the petroleum products (crude ronmental impact. Although significant petroleum, naphtha, fuel oil, propane, volumes into and out of the cluster are crude condensates, diesel) and chemical30 conveyed by pipeline and barge, over products represent around 50% with a
  • total of almost 18 million tons per year.Since the 1960s, thirty-four companiesincluding some major international oneslike Bayer, BASF and Dow, and Repsol,Spain’s largest petrochemical company,have set up production sites in thechemical cluster of Tarragona.The cluster consists of a northern anda southern area that are both linked tothe port (Figure 3-11).North industrial park covers 470 hec-tares in the municipalities of La Pobla deMafumet, El Morell, Constantí and Pera-fort. It is a refinery and cracker basedintegrated petrochemical complex.The main players are Repsol and DowChemical Iberica.South industrial park covers 717 hec-tares in the municipalities of Tarragona,Vila-Seca and Reus. It is a multi-companyintermediates, polymers and specialtychemicals site including Repsol, DowChemical Iberica, Bayer, BASF, Basell,Ercros and Solvay.In the locations of Flix and Tortosa,about 100 km south of Tarragona, thereare other smaller Ercros plants, produ-cing chlorine, formaldehyde and deriva-tives. Although well interconnected withthe cluster in Tarragona, these plants arenot part of it. Figure 3-11 Tarragona’s chemical cluster consists of 31 a South and a North industrial park linked to the port.
  • The main raw materials - crude oil and sent from Bayer back to the Ercros plant natural gas - are all imported. Natural in Flix, where, combined with phosphoric gas is imported in the form of LNG and rock received by train from the port of then processed in several gasification Tarragona, it is used for the production Terminal, Constantí - facilities along the coast around Barce- of dicalcium phosphate. Tarragona, Katoen Natie lona and Cartagena. Natural gas is also provided via the Trans Pyrenean pipeline The majority of the Tarragona chemical link Calahorra from Lacq in France, and cluster companies are members of the from the Maghreb-Europe Gas pipeline Tarragona Chemical Business Associa- from Algeria to Spain. tion (AEQT), which is, in turn, part of ( the national chemical trade association 25% of the Tarragona cluster’s produc- FEIQUE. The main role of AEQT is to tion is exported. The value chain, from lobby the local, regional and national raw materials and feedstocks to final government with the aim of defending products is depicted in Figure 3-12. the interests of the chemical industry The value chain of the Tarragona cluster and to maintain and develop the chemi- is typical of a refinery-cracker based cal cluster’s reputation as a whole. AEQT petro-chemical complex. Since the refin- has participated with the local authorities ery produces a typical “coastal” product in several projects, including the case slate, refinery residues are not gasified of assuring water supply from the Ebro to synthesis gas, resulting in no produc- river, setting up a fire-fighting brigade tion of C1 feedstocks or intermediates for all the companies in the cluster, and in the cluster. Similarly the production of developing the rack of pipelines from xylenes is also absent from the cluster. the port to the southern industrial park (Dixquimics). There is a high integration between the companies in Tarragona, as one third of the products are used within the cluster as input to other manufacturing stages. Repsol and Dow, for instance, provide ethylene via a 100 km long pipeline to Solvay for its PVC manufacturing plant in Martorell. Ercros sends chlorine from its plant in Flix both to the Ercros plant in Vila-Seca for the production of EDC/ VCM and to the Bayer plant for the pro-32 duction of MDI. Hydrochloric acid is then
  • Acetic Acid, methyl VAM, methyl methacrylate, acetate, acetocyanohydrin PVOH C1 Ammonium Nitric Acid Sulphate LDPE, HDPE Polymers, Copolymers C2 Ethylene oxide, acetaldehyde, ethyl acetate Ethoxylates, glycols Polyols, poly glycols Polyurethane C3 Polyester resins, acrylic Propylene Oxide, ACN Polyols, propylene glycols dispersions Butadiene, MTBE, Butadiene- C4 succinic anhydride, Polybutadiene Styrene, 1-octene C6 Ethyl Benzene Styrene EPS, SBR, ABS, SAN C 7,8 PVC, MDI, Plastics, bleaches, CI VCM, HCL hypochlorites polyurethanes Ship, pipeline Pipeline Pipeline, rail Mainly roadFigure 3-12 Chemical value chain - Tarragona cluster. The products in orange are produced within the cluster, whereas the products in grey are not. 33
  • 34
  • TERQUIMSA terminal, Port of Tarragona 4. INTERVIEW RESULTS A total of 26 executives from the 4.1.1 Advantages of the ARRR ARRR cluster and 27 executives cluster from the Tarragona cluster were interviewed by INSEAD researchers. For producers, the access to competitive Statistics obtained from the inter- raw materials and feedstocks, proxim- views were subsequently discussed ity of suppliers within the cluster area > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERS in the respective ARRR and Tarragona and existing infrastructure are the main Think Tanks, as well as in the Steering reasons for being in the ARRR cluster Committee. This section presents a (Figure 4-1). Proximity of suppliers and summary of the results from this proc- availability of feedstock account together ess. It is organized around 6 questions for 44% of the responses stating input concerning the ARRR and Tarragona costs as being the main advantage of cluster functioning: the chemical clusters. Manufacturers de- What are the advantages of the clus- velop close physical links with their sup- ters? pliers to maximize operational efficiency What are the main disadvantages of and shorten freight legs, as illustrated in operating in the clusters? the Rotterdam chlorine case (see below). What are the obstacles hindering Although accessibility to the hinterland problem solving? customer base is vital, the proximity of What are the opportunities for hori- customers is not perceived by chemi- zontal cluster-driven collaboration? cal manufacturers as being a significant What are the opportunities for vertical reason for locating in the cluster, while it cluster-driven collaboration? is the main driver for LSPs who decide Who should lead the ARRR and Tar- to locate close to their markets. This also ragona clusters? indicates that outbound logistics was not considered as a limiting factor when 4.1 ARRR cluster manufacturers decided to locate in the The statistics for the ARRR cluster clusters. together with the comments and in- terpretations of the ARRR Think Tank are reported below. High concentration of customers 62% 11% Availability of infrastructures 10% 26% Proximity of suppliers 6% 23% Availability of competitive feedstock and raw materials 2% 21% Availability of skilled workforce 8% 10% Marketing 8% 6% 35 Availability of right technology 1% 3% Eased flow of informations and benchmaking 3% Figure 4-1 ARRR - Benefits of chemical clusters (green/LSPs, blue/producers)
  • The benefits of co-siting: the Rotterdam chlorine case Rotterdam is home to one of the most highly integrated and ef- ficient chlorine and derivatives clusters in the world, built around the modern chlorine manufacturing operations of Akzo Nobel in the Botlek part of Rotterdam. Chlorine is supplied by a network of pipelines to a number of derivatives producers in the vicinity. Shin-Etsu, a Japanese producer of vinyls, has a long-term contract with Akzo Nobel for the supply of chlorine to its ethylene dichloride (EDC), vinyl chloride monomer (VCM) and polyvinyl chloride (PVC) manufacturing processes. The EDC and VCM plants are physically located on the Akzo Nobel site, while the PVC plant is a few kilom- eters away in Pernis. The connection between VCM and PVC units is by pipeline, leasing one of the multicore pipelines for this stretch (see description of Multicore below). Huntsman is another important member of the Rotterdam chlorine derivatives cluster, having a long-term chlorine supply contract with Akzo Nobel for its MDI manufacturing operations in the Ro- zenburg area of Rotterdam. The chlorine that Huntsman uses is returned to Akzo Nobel in the form of gaseous hydrochloric acid, which is then used as an additional feedstock for the EDC/VCM production by Shin-Etsu. This recycling step allows the chlorine molecules to be used twice. Hexion takes chlorine from Akzo Nobel for epichlorhydrin produc- tion and uses it to manufacture a range of epoxy resins at its plant in Pernis. Tronox also plays a role in the Rotterdam chlorine derivatives clus- ter. The company manufactures titanium dioxide at its Botlek plant and draws its chlorine needs from Akzo Nobel via a dedicated pipeline link. These 5 companies have established a highly integrated and syn- ergistic collaborative model enabling optimal production efficien- cies and economics to the benefit of all stakeholders, avoiding in addition the highly dangerous above-ground transportation of chlorine. A significant expansion of chlorine capacity has been necessary to support the growing demand among the derivative producers.36 CLUSTER
  • Terminal, Tarragona, VOPAKThe discussion of the Think Tankaround these results provided theoccasion to review the history of theexisting clusters with the participants.The group agreed that there is a virtu-ous development cycle of a chemicalcluster. Companies move to clustersas part of natural organic growthand self interest – not necessarily toconsciously exploit the collabora-tive opportunities and advantages ofthe cluster. First, manufacturers settlein a region for geographical reasons,looking for upstream supply synergieswith other manufacturers. LSPs thensettle in the cluster once a critical masshas been reached, ensuring serviceproviders a satisfactory revenue streammainly from storage warehousing,handling activities and transporta-tion within the cluster, and servicingcustomers of their customers locatedoutside the cluster. The critical massalso applies to the development ofsupporting infrastructure like internalcluster pipelines which can only beoperated with a sufficient guaranteedthroughput. We observe that LSPsand port authorities often team up toprovide attractive infrastructure formanufacturers, reinforcing the clusterdynamics. The MultiCore pipeline inRotterdam is a very good illustrationof this situation. It seems that similaractions initiated by producers are rare. Pipe rack connection, Marl Chemical Park, ChemSite 37
  • MultiCore pipeline in the port of Rotterdam: a common infrastructure to the benefit of all The effective and efficient operation of the Rotterdam chemical cluster depends on the availability of adequate infrastructure. For many years the Port of Rotterdam Authority has played an active role in supporting the creation of optimum conditions for par- ticipants in the cluster. Pipelines play a key role in the cluster in moving large volumes of liquids and gases in a safe, environmen- tally friendly, and cost efficient manner between producers and users. Working in a Joint Venture with VOPAK, the Port of Rot- terdam Authority has created Multicore, a unique concept for the renting of pipeline capacity (on a variable time and distance basis) for companies in the port and industrial area. This offers an attrac- tive, cost effective alternative to truck transport or inland vessels and barges. The 20 kilometer long Multicore pipeline bundle (four pipelines with different diameters and constructed of different materials) runs from east to west, straight through the port and industrial area. Further expansion west (between Europoort and Maasvlakte over a distance of 17 kilometers) is in preparation. Oil products, as well as chemicals and gases, can be transported via the MultiCore pipeline bundle. CLUSTER38 Figure 4-2 MultiCore pipeline concept in the port of Rotterdam
  • The competition of LSPs benefits the 4.1.2 Disadvantages of the ARRRexisting base of chemical producers clusterand signals the attractiveness of thecluster to potential new entrants. This As a consequence of the developmentpositive feedback loop might weaken if of the Antwerp and Rotterdam clusters,the cluster becomes a victim of its own the tonnage leaving both clusters hassuccess and starts struggling with bot- grown significantly over the lasttleneck issues. 15 years (for instance the container traffic in Antwerp increased fromUnlike the Silicon Valley cluster, inter- 16.5 million tons in 1990 to 80.8 millionviewees did not view the availability tons in 2006). Unfortunately, chemicalof skilled workforce and marketing producers from Antwerp and Rot-capabilities in Antwerp, Rotterdam and terdam share their road infrastructurein the Rhine/Ruhr area as a significant with private users and other indus-advantage compared to the geographi- tries, thereby creating a bottleneckcal and infrastructure advantages. that the public authorities will haveNevertheless, the Think Tank dis- difficulties solving in the short term.cussions pointed out that a skilledworkforce is needed today and also Manufacturers, LSPs and portincreasingly in the future. authorities need to team up and use the Antwerp and Rotterdam cluster Traffic congestion 44% 43% High competition 30% 17% Land unavailability 21% 13% Lack of investments 5% 13% Lack of infrastructures 15% Figure 4-3 ARRR - cluster disadvantages (green/LSPs, blue/producers) 39
  • Derivatives site, Tarragona, Dow synergies on hinterland deliveries to cluster development that has attract- make environmentally friendly trans- ed many service providers to the port modes a competitive alternative region. However, one LSP mentioned to road transport. Indeed, more than that the size of the market was big 70% of the responses mention conges- enough to allow many LSPs to build tion stems from the lack of investment sufficient critical mass to work profit- in infrastructure in the Antwerp/Rot- ably, thus not requiring LSPs to merge terdam cluster. The extension of the their assets. As a result of this frag- Port of Rotterdam with the scheduled mentation of the market, companies Maasvlakte 2 (see Figure 3-6) might may have to load and/or discharge aggravate the problem if producers are parcels from different storage points not willing or able to increase the rail in the port. This extends the waiting and barge portion of their shipments in time for the vessels, increases demur- the near future. rage costs and harms asset produc- tivity. To tackle the asset fragmenta- Apart from traffic congestion, manufac- tion issue, Oiltanking and Stolthaven turers do not consider land availability Terminals, two logistics providers, or competition as being significant have teamed up to develop dedicated hurdles for operating in the clusters. storage facilities, thereby reducing inef- Competition is considered by the ficiencies in vessel loading. interviewees as being worldwide and not simply limited to the ARRR cluster. Furthermore, the existence of swap arrangements and common capacity investments such as the HPPO plant in Antwerp show that, subject to the respect of competition rules, manufac- turers have no problem collaborating when the synergies are obvious and the value proposition is economically and strategically sound. Apart from traffic congestion, LSPs perceive competition between them- selves as a disadvantage of the clus- ter. This, as mentioned earlier, is the40 logical consequence of a successful
  • Asset pooling between LSPs in the Antwerpcluster: the Oiltanking/Stolthaven collaborationIn March 2006, Oiltanking GmbH and Stolthaven Terminals BVannounced an Antwerp terminal joint venture called OiltankingStolthaven Antwerp NV, which will operate as an independentliquid storage provider on the right bank of the river Schelde.The terminal is located in the midst of the Antwerp chemical clus-ter and is part of the extensive logistics infrastructure supportingcluster operations. The terminal will be developed as a “SpecialtyChemical Hub” for the Antwerp and Rotterdam (plus Amsterdam)clusters, and as a transportation hub to improve the turnaroundand utilization of the Stolt chemical parcel tanker fleet.Parcel tanker operators can face up to 40% of total vessel timein port, moving from one jetty to another. The downside of thecluster may be that there are too many producers and LSPs whohave the critical mass to build their own assets, rather than beingforced by their small size to explore all the opportunities to sharelogistics assets inside the cluster.CLUSTERThe LBC/Ertisa collaboration is another illustration of a logistics pro-vider (LBC) collaborating and setting up dedicated storage assetson a customer’s site (Bayer) to serve another customer (Ertisa). 41
  • Benefit from cluster synergies via vertical collaboration: the LBC/Ertisa case In July 2006 the LBC tank terminal group and Ertisa, a subsidiary of the Spanish oil and energy group CEPSA announced their intention to form a Joint Venture to build and operate a tank stor- age terminal in Antwerp. The first phase of the project would be to build storage for Ertisa products – followed by a second phase for other LBC customers. There would also be facilities for the han- dling of rail tank cars, road tank trucks, and tank containers. Other value added services, such as drumming and blending, would be built in line with demand. The terminal will be located at the Bayer site on the right bank of the Schelde river, in the heart of the chemical cluster. The site offers deepwater access to accommodate the largest chemical parcel and product tankers. The demand for storage was based on Ertisa’s increasing pro- duction of phenol and acetone in Huelva in the south of Spain, and the need to position product close to its major customers in Northern Europe. This complemented LBC’s plans to strengthen their position in the growing Antwerp chemical cluster, extend their relationship with an established customer, and provide existing and new customers with a prime new location for stor- age and other services. This development is also in line with Bayer’s plans to develop the spare land on their site as a chemical park, and with the process of optimizing the use of services and infrastructure available on the site. This is a good example of cluster-driven collaboration.42 CLUSTER
  • TTR terminal, Port of Rotterdam, VOPAK 4.1.3 Obstacles to overcoming balanced, but point out two issues in cluster disadvantages the current cluster setup. The first is linked to the competition intensity According to shippers, the main ob- between LSPs, which is fueled by the stacle to solving congestion issues is producers’ practice of breaking down the low willingness of the stakehold- their logistics activities into smaller ers to tackle this issue in a collabo- pieces and granting short term con- rative fashion (55% of the answers, tracts to a set of competing LSPs, Figure 4-4). Since manufacturers have rather than exploiting a “total cost to outsourced their logistics activities, serve” solution. According to a service they do not see themselves taking the provider participating in the Think lead in developing logistics solutions Tank, the fragmentation of the logistics on a local scale. This point of view is market is the consequence of the lack reinforced by the fact that the deci- of willingness of producers to collabo- sion centers for potential investments rate with LSPs. Nevertheless, the Think are often not located in the cluster, Tank discussions also highlighted the which leads to such projects receiving fact that LSPs collaborate voluntarily lower attention on the radar screen of when their service scope is comple- a producer’s top management (22% of mentary (e.g., the Pernis Combi Termi- the answers). nal in Rotterdam) or when a producer asks competing service providers to The answers of LSPs are more develop a solution together. Lack of collaboration between the companies 23% 55%Lack of port authorities, governmental and regional actions 23% 12% Absence of companies local decision centres 9% 22% Fragmentation of the market 26% 5% Lack or misallocation of EU investment funds 19% 6% Figure 4-4 ARRR - obstacles to overcoming cluster disadvantage (green/LSPs, blue/producers) 43
  • Horizontal LSP collaboration in the Port of Rot- terdam - Pernis Combi Terminal Pernis Combi Terminal in the heart of the industrial port area of Rotterdam was created in 2005 on the initiative of Den Hartogh Logistics, Nijhof-Wassink, MCS (Multi-Modal Container Ship- ping) and VLS. The project started in 2003 when the LSPs agreed that there was market potential for a Tri-modal service centre in the Rotterdam industrial area, combining road, rail and water. This terminal could be further complemented with warehousing, drumming lines and container storage. The terminal started its operations in February 2006. Each of the four collaborators has its own specialty to bring to the venture: Den Hartogh Logistics is a bulk liquid chemical logis- tics specialist, Nijhof-Wassink a bulk specialist, MCS a shipping specialist and VLS a warehouse specialist. This LSP collaboration offers the Rotterdam chemical cluster an efficient hub and spoke tri-modal solution. Truck, barge and rail combine Sea Port and European Maritime cargo with the Europe- an rail and road network, offering the possibility of consolidating Continental and Maritime cargo for distribution into Europe or transshipment to overseas destinations by truck, rail or barge. The drumming and warehouse operations further complement these services. The current train services have been operating directly to Györ (Hungary) since February 2006 and to Lyon (France) since June 2007, and there is a daily shunt to the main Rotterdam station for outbound services to other destinations. The current barge services offer shuttles to and from the other European chemical clusters. CLUSTER44
  • TERQUIMSA terminal, Port of TarragonaThe second issue is linked to the frag- A solution could be to develop pan-mentation of the market which leads European networks, but the competi-to the inability of LSPs to obtain a tion intensity may hamper the deve-complete picture of the cluster flows. lopment of joint operations of sharedWhile fragmentation ensures intense assets between LSPs.competition between logistics serviceproviders, the latter lack the criticalsize and planning stability to optimize 4.1.4 Opportunities for horizontaltheir logistics infrastructure. In fact, cluster collaborationin the current setup, the Think Tankmembers were skeptical about wheth- Both producers and LSPs agree oner this fragmentation really benefits the opportunities offered by horizontalproducers in the long run. Producers cluster collaboration, i.e., cooperationestablish their logistics network by with competitors in order to capture thetapping into the independent networks synergy effects offered by the clusterof several logistics service providers. (Figure 4-5). Each opportunity and itsTaking into account the fact that chemi- limits will be addressed in the follow-cal customers follow multiple sourcing ing.strategies, shipments might arrive from Pooling of logistics resourcesdifferent independent channels. The between service providers couldresulting demand variability affects the increase the efficiency of the currentoperating efficiency of LSPs, who need assets and improve the competitive-to adapt their capacities ad-hoc at high ness of the cluster as a whole.costs. Pooling of logistics resources 34% 36% Developing logistics infrastructures 30% 28% Sharing of info for planning purposes 25% 14% Swap arrangements 9% 13%Collaboratively enhancing supply chain skills 3% 8% Figure 4-5 ARRR - opportunities for horizontal cluster collaboration (green/LSPs, blue/shippers) 45
  • Pooling of logistics assets the cluster. The horizontal collaboration of Oiltanking and Stolthaven Terminals Interestingly, the pooling of logistics is an example of LSPs consolidating resources is the most frequent answer assets in order to correct inefficiencies for both producers and service provi- related to jetty fragmentation. ders (35% of the answers). According to the LSPs, the growth of the cluster As mentioned previously, producers has allowed them to build their own lo- follow a contradictory strategy with gistics capabilities separately. In some respect to the cluster opportunities. cases, however, this uncoordinated Producers expect LSPs to be able to growth has led to inefficiencies within collaborate in order to optimize the use of their assets. Simultaneously, they fuel the competition between LSPs by frequently tendering their logistic CURRENT SITUATION processes while not giving guarantees ISOLATED OUTSOURCING OF LOGISTICS SERVICES on quantities. The fact that service hinterland region X providers have currently a very partial cluster and temporary view of the overall shipper 1 LSP 1 customer 1 cluster flows prevents them to design shipper 2 long-term, sustainable concepts for LSP 2 supplying the hinterland. In a nutshell, customer 2 shipper 3 LSP 1 manufacturers forego cluster-inherent synergies with respect to their out- bound logistics by fragmenting the POTENTIAL SCENARIO market and not sharing logistics assets COORDINATED OUTSOURCING OF LOGISTICS SERVICES with their competitors. hinterland region X cluster In the presence of a dynamic but shipper 1 customer 1 fragmented market for LSPs, shippers shipper 2 LSP 1&2 are the main players able to trigger customer 2 the development of solutions exploit- shipper 3 ing cluster synergies in distribution logistics. In this context, one promising opportunity is the ComLog initiative of Bayer, Degussa and Lanxess. Figure 4-6 Isolated tendering cannot take46 advantage of cluster opportunities
  • ComLog – Common Logistics Procurement:an example of both vertical and horizontalcooperationBesides integrating service providers more closely into producersupply chains (vertical cooperation), the cooperation betweenproducers themselves (horizontal cooperation) presents poten-tial for synergies (e.g., by using a common portfolio of serviceproviders, optimizing logistics concepts, and achieving operat-ing efficiencies for all parties involved). When all the parties arelocated within a cluster the concepts can be more easily devel-oped and the opportunities and benefits more readily achieved.Based in the ChemSite cluster, Bayer and Degussa imple-mented an innovative form of horizontal cooperation whenthey set up a common logistics procurement operation in 2003called ComLog. Today the partners are Bayer, Lanxess andDegussa – the latter being represented within the RAG Group byRAG Service GmbH, under which the procurement function hassince been centralized.Operating within a cluster environment leverages the benefits ofbundling of demand for logistics services from three manufac-turers. As a result LSPs are able to operate on a more efficientscale.One example that horizontal collaboration can foster verticalcollaboration is the strategic partnership between ComLog andthe German Railway company Railion. Next to a long term framecontract minimizing operating costs for inland transportationand providing incentives to shift more cargo from road to rail, thecontracted volumes allowed the implementation of a ComLogspecific single railcar solution.CLUSTER 47
  • Infrastructures Thus, shipments could leave the main opportunities production centers via rail or water and be dispatched in smaller loads by road Consensus also exists about the fact from spokes in the hinterland. that the development of industry- wide infrastructure would contribute Although clusters might provide the to relaxing the transport bottleneck. critical mass to make capital-inten- From the interviews, the most cited sive investments such as pipelines or opportunities have been pipelines and multimodal hubs profitable, horizon- multimodal hubs that will be discussed tal collaboration between chemical in the following. manufacturers is not automatically emerging for various reasons. First, For feedstock and commodities in a there is the need to act in conformity liquid or gaseous phase, pipelines with competition rules. Sharing quanti- appear to be the most effective alterna- ties and destination information be- tive to road transport, reducing risks tween manufacturers is highly sensitive inherent to the transport of dangerous from a legal standpoint. Second, manu- goods as well as carbon emissions. facturers might not be willing to share As the interviews revealed, potential assets with their competitors if they for improvement through pipelines feel no need to do so because of their within clusters is limited since already perceived superiority in the market, or more than 90% of the commodities if they feel this will effectively elimi- are forwarded through them. However, nate a competitive edge, or barrier to opportunities to link several clusters re- entry. Thirdly, different manufacturers main (especially for propylene supply). follow different strategic objectives, The main benefits are expected further making industry-wide investments downstream (intermediates and final difficult, although the cluster itself and products) where the shipment quanti- other stakeholders would benefit as a ties are much smaller (full truckload or whole. The failed EPDC pipeline project less than truckload) and thus shipped provides a good example to illustrate directly by truck rather than via multi- the dynamics in practice and their modal platforms. Multimodal platforms consequence. are perceived as a means to reduce the road congestion by merging ship- ments from different sources, but they require all LSPs to use the same hubs48 in order to guarantee sufficient loads.
  • The challenge of multi-company infrastruc-ture investments: the EPDC caseA project to construct a polymer grade propylene pipeline link-ing several production and consumption sites in northwest Eu-rope had been considered by some companies in the Europeanpetrochemical industry for many years. The example of the ARGethylene line illustrated that this type of line could be a success-ful way of moving propylene around the industry, with the clearenvironmental benefits of using pipelines to transport this gaswhile preserving potentially beneficial economics.By 1999 the industry believed that a substantial European short-fall of polymer grade propylene to supply derivatives was likelyto come about in the following years, requiring increased importsfrom other regions of the world. Consequently, more companiesbecame interested in a pipeline linking European polypropylenemanufacturers to the sea and access to polypropylene imports. Itwas at this time that the EPDC (European Pipeline DevelopmentCorp) was created in order to construct the so-called ‘U-line’linking Rotterdam/Antwerp with Marl in the North and Wesselingin the South.EPDC originally comprised 15 industry shareholder companies; by2005 these had been reduced to 8 as a result of industry consoli-dation. These 8 companies (INEOS, Westgas, Shell, Sabic, Cela-nese, DSM, Sasol and BASF) had interests in, and economic ben-efits from, different parts of the line. All agreed that, once the wholeline was constructed, the entire petrochemical industry in WesternEurope would benefit in unforeseen ways from its completion.On the surface, this seems like a real example of industry cooper-ation leading to improved infrastructure linkage between clustersin Western Europe. However the decision was taken in March2007 to terminate the full project, although a build of reducedscope, in northern Germany only, may still go ahead.According to industry experts, the failure of this apparently ben-eficial horizontal collaboration has several origins. Firstly, the‘lowest cost’ objective of the project introduced elements (i.e., adrive for subsidies) which extended the project and, in fact, add-ed cost. To achieve the maximum in subsidies, at least two yearswas added to the project timeline. Furthermore, the conditionsimposed by the authorities to obtain these subsidies resulted inhigher costs and restricted flexibility in attracting new investors.As a result costs were 35% higher as a direct consequence of thesubsidy conditions – far outweighing the value of the subsidy! >> 49
  • > A second reason is that the single project cross-border execution strategy was not in line with existing pipeline construction market realities, as there were no cross-border pipeline and engineering companies. A tailored approach by country had to be adopted which, with hindsight, added complexity and cost. Thirdly, the business model, which had many shareholder ‘givens’ or conditions, hindered the project roll-out. The share- holder companies were driven by their ‘internal economics’: “What’s in it for me?” - and not in the first place by an overall general industry or stakeholder value. This had several conse- quences, but, put simply, each decision taken by EPDC had to be tested against individual company self interest. This length- ened both the process and the overall project time and cost. The shareholder ‘givens’ thus restricted the EPDC ability to optimally manage the overall project. Hence the project took too long from inception to decision, leading to increasing costs, particularly in the last two years, as global shortages of raw materials and EPDC contractor capac- ity impacted all projects. Of course, as costs rose, profitability declined – which led to a unanimous view in March 2007 that the project was not viable. C CLUSTER R50
  • number of SKUs 1000 scope of profitable swaps 100 10 product type feedstock commodities intermediates specialities Figure 4-7 Scope of profitable swapsSharing of planning infor- and polypropylene producers are lessmation to exploit cluster willing to collaborate in swap arrange-synergies ments within a local area.Despite the ComLog example, sharing Apart from the increasing number ofof transport planning information be- product variants making a direct swaptween chemical manufacturers is very cumbersome to organize (see Figurecritically perceived, especially because 4- 7), polymer commodities manufac-of concerns related to competition turers are reluctant to allow their cus-rules. Moreover, the joint design of a tomers to receive competing products.logistics network could lead to the To cite one interviewee: “you do notexchange of strategic information want to remind your customer that yourrelated to the long-term sales plans of competitor can also deliver the samecompeting manufacturers. For these item”. Swap agreements thus seemreasons, producers consider that to be triggered by the willingness toLSPs should share planning data in avoid empty transport legs. In thisorder to exploit the synergies of joint context, the most significant savingsshipments. are achieved through swaps between two different clusters. Isolated chemi- cal clusters separated from eachSwap arrangements other seem more interested in swaps than integrated ones. Therefore, itAlthough the manufacturers have cited is not surprising that the potentialswap arrangements as examples of of swap arrangements is cited morehorizontal collaboration in 13% of the frequently in Tarragona than in thecases, we observe that the occurrence Antwerp/Rotterdam region.of this answer depends on the posi-tion of the company in the chemicalchain and on its competitive strategy.All interviewees are concerned aboutcompliance with competition rules andcompanies referring to swaps do thisafter due examination of competitionlaw effects. Swaps seem to be morecommon practice for raw materialsand feedstock, whereas polyethylene 51
  • Development of workforce Concerning inbound and outbound competencies logistics, we recall that this integration might only pay off in the cluster con- Finally, companies do not grant the cept if the service provider has already same importance to the joint develop- reached a critical mass in the cluster. ment of workforce competencies as they do to infrastructure topics. Supply To benefit from cluster synergies, LSPs chain skills are not seen as a priority, need to have access to the best plan- although the interviewees fear an ning information available so they can imminent shortage of skilled work- efficiently plan their loads and optimize ers when the baby-boom generation the use of their assets. Thus, service retires. providers perceive a collaborative sharing of data as the main opportunity 4.1.5 Opportunities for vertical (35% of answers), while this is not re- cluster collaboration flected in the producers’ answers. From the interviews, we know that automat- Customer/supplier relationships offer ed forecast exchanges between LSPs opportunities to obtain the benefits of and producers (via electronic data in- clustered operations. From the Think terchange for instance) are very rare, Tank discussions in 2004 and 2005, it and this potentially results in higher was obvious that lack of information transaction costs to the service sharing made it difficult for manu- providers. Forecasts are generally facturers and LSPs to obtain a clear exchanged on a monthly aggregated picture of structural network oppor- basis via spreadsheet applications. tunities and benefits from operational Forecast data with higher granularity is planning. The integration of service either not available due to planning providers in the strategic network uncertainty or too costly to exchange planning process of shippers is the via automated IT bridges. The CLA most frequently quoted opportunity in initiative between BP Chemicals and our interviews (48% for LSPs, 33% for major logistics players, organized producers - Figure 4-8). This inte- within the scope of one single legal grated planning has started with some entity located on the BP site in order to shippers but remains limited to a very enable access to the best information small set of logistics service providers. available, is an exception to the rule.52
  • Towers of distillation for the production of VCM at plant, Vila-Seca - Tarragona, Ercros Integration of LSPs in designing SC solutions 48% 33%Collaboratively sharing planning data for logistics resources 35% 19% Develop more rational use of transportation modes 18% 20% Develop VMI/CMI solutions 17% Increasing bulk distribution 11% 53 Figure 4-8 ARRR - opportunities for vertical cluster collaboration (green/LSPs, blue/producers)
  • Joint consortium in the cluster: the CLA initiative BP Chemicals decided in 1999 to tender all the liquid volumes out of their Benelux storage and production facilities, seeking a Pan-European solution for the transportation of their total volume. In 1999, the whole package was divided between 12 transport companies, who all had their niche market strengths. To enter the tendering process, 4 companies decided to establish a legal entity with the sole purpose of delivering a one-stop-shop service to BP Chemicals for the complete Benelux liquid package. The legal entity was headed by the following companies: Bertschi AG, Dedijcker NV, Dedecker-Vanriet NV, and VanderLee Transport This ‘natural’ alliance between 4 LSPs was enabled by the follow- ing factors: They had trust and respect for each other with a similar back- ground (family owned, own fleet and drivers, high quality stand- ards). Each company had its own geographical strength and they were therefore complementary partners with subsidiaries spread throughout the ARRR-cluster. When, in mid 2005, Dedijcker NV stopped its activities in the haul- age industry, the three remaining partners managed to absorb its volume without hampering the day-to-day operations. The success of the Alliance was dependent on a single contract, joint investment in equipment, and a CLA implant in the BP Chem- icals office. BP enjoyed the advantage of dealing with one part- ner, both commercially and operationally, and having joint project teams to work on continuous improvement in the supply chain. This is an example of cluster driven collaboration with natural alignment, resulting from cluster proximity, rather than being enforced. According to the interviewees, success was heavily dependent on mutual trust and an openness to share information and costs.54 CLUSTER
  • Site, Worringen - Cologne, INEOSChemical manufacturers face similar in- The shift from road to rail and water-formation quality issues with their cus- based freight was seen as an oppor-tomers and identify vendor-managed tunity by both LSPs and producersinventory (VMI) solutions more than in about 20% of the cases. However,customer-managed inventory (CMI) the interviews highlighted the lack ofas an opportunity to improve supply reliability of these transport modeschain transparency. Currently, suppli- compared to road, as well as theers of chemicals face erratic demand costs of accessibility. Similar to thepatterns from their customers and do Rotterdam MultiCore case, a coordi-not have the opportunity to be proac- nated approach between producers,tive because of the lack of information port authorities and LSPs appears toshared. Without reliable forecast data, be necessary, given the significantshippers are not able to optimize their investments required.shipments to use the synergies of-fered by clustered customers. 4.1.6 Who should lead the develop- ment of the cluster?The last main opportunity related tovertical cluster collaboration is the The earlier discussions highlighteddevelopment of more efficient ways the need for coordination betweento dispatch products outside the stakeholders (producers, LSPs,cluster. Producers agree on the fact authorities) to identify and exploit thethat increased bulk shipments would opportunities offered by chemicalimprove the load of the trucks, but in clusters. This opinion is shared by allthe interviews they also mentioned interviewees; none of them answeredrepeatedly the limits of this approach. positively to “we don’t need coordina-First, customers might not want to tion” (Figure 4- 9).invest in bulk storage capacities. When The question however remains whoit comes to commodities and certainly should take the lead in the identifica-to specialty chemicals, the quantities tion and exploitation of the opportu-to be delivered can be too small to nities. The interview results are veryjustify bulk shipment, or the material revealing in the sense that LSPs statemay not be suited for this purpose in the majority of cases (65%) one focal(e.g. PVC rolls). Although an increase organization is required to take thein bulk transport is attractive from an lead, but there was no agreement onenvironmental perspective, marketing who that should be. The manufactur-aspects constrain the expansion of ers’ answers are more precise and sug-bulk transportation further down the gest industry associations and manu- 55chemical chain. facturers in general take the lead in
  • identifying opportunities within the and are therefore partners of choice cluster and triggering investments. when it comes to getting a bird’s-eye view of their network. The Think Tank provided the opportu- nity to debate on what a coordinating Indeed, cluster leadership does not body should look like and what actions mean that a company dictates its rules it should be empowered to undertake. to others. Chemical clusters need With respect to the land ownership participants which are prepared to structures in the European clusters take the lead on initiatives, in most of (apart from ChemSite), “directive” the cases driven by self-interest (like coordination bodies seemed impos- the INEOS Ethylene Oxide case), but sible. Port Authorities in Antwerp and paving the way for other manufactur- Rotterdam or cluster associations like ers and stakeholders by proving the ChemSite are recognized as having a viability of cluster-driven concepts. global view of their respective cluster One focal organisation 65% 33% Industry association 9% 28% Manufacturers in general 9% 28% Public Authorities 17% 3% LSPs 8% Nobody, we dont need coordination 0% 0% Figure 4-9 ARRR - cluster development leadership (green/LSPs, blue/producers)56
  • Proactive site leadership: the INEOS Ethylene Oxide case INEOS Oxide has a long history in Antwerp through a series of suc- cessive ownerships. In turn it has been Union Carbide, BP Chemi- cals and Inspec at the Zwijndrecht site on the left bank of the River Schelde. Third party hosting at the 200 ha site has been in place for many years, since BP Chemicals’ decision to sell its LDPE as- sets to Neste and its hydroethoxylates facilities to Union Carbide. With spare land available, and a strong interest on the part of IN- EOS to find additional on-site users for ethylene oxide, a highly hazardous product unsuitable for transportation, the site has been heavily promoted to attract investors; especially companies look- ing to establish an operational foothold in Europe. Kuraray, the first Japanese chemical company to settle in the Ant- werp port area, built an ethylene vinyl alcohol (EVOH) copolymer resin plant in 1999, and has subsequently progressively increased capacity. Nippon Shokubai followed Kuraray two years later and built a super-absorbent polymers plant on a plot adjacent to the INEOS site. As a result eight parties are now on the site including General Electric, Dow, Praxair, Seppic, Specialty Polymers Antwerp, and Borealis.INEOS site Dow Kuraray Seppic ethylene oxide INEOS Borealis Spec. Polymers Nippon Antw. Shokubai GE plastics oxygen, nitrogen power Praxair INEOS / Essent EnergyUtilities, wastewater treatment, maintenance, process control Figure 4-10 INEOS Oxide co-siting concept The site offers many cluster advantages to new investors: land for production facilities; shared infrastructure; feedstock supply on site as well as by pipeline; utilities; waste treatment; and lo- gistics facilities, including a jetty, a railhead, loading gantries and tank storage. Due to this proactive site management, the ethylene oxide capacity has more than tripled in the last 15 years. 57CLUSTER
  • TAPP AIE - oil products terminal, Port of Tarragona, BASF and Dow 4.2 Tarragona of the necessary inputs for the manu- facturing processes of the chemical The statistics for the Tarragona cluster companies settled in Tarragona. The together with the comments and inter- appropriate flow of chemicals from the pretations of the Tarragona Think Tank port to the refineries, the crackers and are reported below. the storage locations is ensured by a suitable infrastructure. 4.2.1 Advantages of the Tarragona cluster The Dixquimics pipelines rack, which involved both a high percentage of The main advantages perceived by the companies and the local authorities, Tarragona producers are the availability emphasizes the importance of infra- of competitive feedstock and raw ma- structure in the Tarragona cluster op- terials, and the proximity of suppliers. erations. It also points to the necessity With an import of almost of considering the longer term mainte- 18 million tons of petroleum products, nance and growth of the cluster’s and the port represents the main source regional infrastructure. High concentration of customers 53% 10% Availability of infrastructures 18% 22% Proximity of suppliers 9% 27% Availability of competitive feedstock and raw materials 6% 27% Availability of skilled workforce 6% 9% Marketing 4% Availability of right technology 3% 6% Eased flow of informations and benchmaking Figure 4-11 Tarragona - Benefits of chemical cluster (green/LSPs, blue/producers)58
  • Dixquimics Pipe RackDixquimics represents the rack of over 60 pipelines connectingthe port with the south industrial park in the Tarragona chemi-cal cluster. Several companies use the same pipeline complexfor their product interchanges. We can report as an example thecase of ethylene oxide, flowing from IQA to Dow Quimica andClariant, and the case of chlorine, flowing from Ercros to Bayer.Started in 1998 with the participation of just 5 chemical com-panies, Dixquimics now involves 16 companies in the Tarragonaindustrial complex, and moves 1.5 million tons/year of chemicalsalong a route of about 7 km.The prospect of significantly decreasing investment costs andunifying all the pipelines into one single legal entity, in order toobtain a simplified authorization process, led the chemical com-panies to collaborate to embark on this project.Since its construction, Dixquimics has favored the developmentof logistics synergies between cluster players. In this respect, theexample of Terminales Quimicos S.A. (Terquimsa) handling vinylacetate for Celanese at its port facilities, constitutes an impor-tant example. Indeed, due to the Dixquimics rack of pipelines,the previous vinyl acetate road transportation has been com-pletely eliminated and product handling has been completelyoutsourced to Terquimsa.CLUSTER 59
  • The availability of infrastructure rep- a main advantage of the cluster. The resents a key advantage for the LSPs promotion of training courses in logis- in the Tarragona cluster. However, the tics and supply chain management is main reason that they were attracted to unanimously welcomed by the compa- the cluster is the high concentration of nies in the cluster. chemical companies, and therefore of customers. This observation is consist- 4.2.2 Disadvantages of the Tarra- ent with the progressive specialization gona cluster of the producers in the manufacturing of chemicals, and their subsequent The main disadvantage reported by outsourcing of industry-related serv- the producers in the cluster is the ices. The presence of the LSPs started lack of land availability. The chemical 20 years ago. The integration of the companies claim that, as the tourism LSPs with the producers is gradually industry has developed in the region, progressing, but examples of LSPs there has been less attention paid to co-siting on the land of the chemical the chemical industry by the local and producers and engaged in storing, han- regional government. The fact that no dling and transporting chemicals on a additional land has been earmarked long term basis, are not common yet. for future chemical industry zoning The recruitment of well-qualified has become a serious concern for logistics and supply chain specialists both the producers and the LSPs, is reported as being quite difficult for since land availability plays a pivotal both chemical companies and LSPs. role in the longer term development of This could explain why the availability the cluster in Tarragona. of skilled workforce is not perceived as Traffic congestion 33% 18% High competition 40% 10% Land unavailability 14% 53% Lack of investments 7% 10% Lack of infrastructures 6% 9%60 Figure 4-12 Tarragona - cluster disadvantages (green/LSPs, blue/producers)
  • Chemical park, Tarragona, BayerLand for future growth of the chemi- According to LSPs, the main disad-cal industry in Tarragona is available vantage of being associated with thealmost uniquely within the properties cluster is the high level of competi-of the chemical companies. Indeed the tion. This may explain the rare cases ofchemical facilities do not fully occupy horizontal collaboration between LSPsthe land of many chemical companies, in the cluster. Pooling logistics resourc-and a substantial part (about 50%) es and joint development of logisticsremains unexploited. The Think Tank infrastructures are not considered asin Tarragona agreed on the necessity real opportunities by the LSPs. A highto analyze the feasibility of managing percentage of LSPs consider thatexisting unexploited land on a joint/ the trigger for collaboration betweencollaborative basis which could en- them should come from the chemicalable long term land leases or sales of producers.land to third party investments. Theassociation of chemical companies Producers and LSPs partly agree thatin Tarragona, AEQT, is not vested traffic congestion is a disadvantage ofwith the power of managing the land, the cluster. The traffic congestion is-but the possibility of broadening and sues do not relate to movements withinstrengthening its role has been the the cluster, but rather to linking Tar-subject of several discussions in the ragona to its hinterland markets. TheThink Tank sessions. distance from neighboring European countries, the specific Spanish railHowever, the chemical companies gauge different from the French one,claim that the substantial percentage and national constraints in road trans-of unexploited land in the Tarragona port (e.g. driving bans) are reportedcluster is also related to the complex- by the companies in Tarragona as theity of getting the right authorizations main complications in the distributionfor the development of chemical of the products from the manufacturersprojects on available/zoned land. to the customers.Finally, although showing a lowerpercentage result, the LSPs are also The prospect of increasing logisticsseriously concerned about the issue of efficiency triggered for example aland availability, since land prices in the collaboration initiative between Bayerchemical industrial parks in and around Polimeros, S.L. and Bertschi Iberica,Tarragona have significantly increased S.L., with the objective of develop-over the last few years. ing a container terminal based on the existing railway connection on Bayer’s 61 property.
  • Multimodal Container Terminal The Tarragona chemical cluster does not have a container rail terminal. Containers to and from the Tarragona manufacturing sites have to be moved by truck to Constantí, where the nearest terminal is located. In 2005 the opportunity of constructing a container terminal for the whole Tarragona chemical cluster led Bertschi to start negotiating with Bayer, which had ample land available, and on whose property a railway connection was al- ready present. After signing the land lease contract with Bayer at the beginning of 2007, Bertschi is expected to complete the project by the fourth quarter of 2008. The new set-up on the Bayer site will serve the whole Tarragona chemical cluster, with the following advantages: - pected to significantly decrease, due to the proximity, easy access and flexibility of the rail terminal. This in turn would positively impact the carbon footprint; transshipment to rail within the cluster; mean that supply chain and production optimizations are possible. The project of developing the multimodal terminal on the Bayer property will benefit several other chemical producers in the cluster of Tarragona, such as Dow, Lanxess, INEOS, BASF, Rep- sol, Aiscondel, Basell and Clariant. The vertical collaboration between Bertschi, Bayer and the other producers in the logis- tics infrastructure on the Tarragona site is expected to create significant synergies between the chemical companies and to enhance the competitiveness of the Tarragona chemical cluster as a whole.62 CLUSTER
  • 4.2.3 Obstacles to overcoming clus- right partner and mutual trust, appearter disadvantages difficult to fulfill. However, the opportu- nity to share capital investments, mixedThe lack of collaboration between with the specific needs of the industry,companies is perceived by both pro- has triggered several collaborationducers and LSPs as the main obstacle initiatives within the cluster. The projectthat stands in the way of overcoming undertaken by chemical companiesthe cluster disadvantages. and local authorities to recover water for the chemical industry from theThe prerequisites for any collabora- urban water treatment plant representstion initiative, such as establishing a a key example.fair allocation mechanism, finding the Lack of collaboration between the companies 36% 32% Lack of port authorities, governmental and regional actions 14% 23% Absence of companies local decision centres 21% 32% Fragmentation of the market 14% 7% Lack or misallocation of EU investment funds 15% 7% Figure 4-13 Tarragona - obstacles to overcoming cluster disadvantages (green/LSPs, blue/producers) 63
  • Overcoming water scarcity in Tarragona: a collaboration to the benefit of the cluster and its surroundings Water shortage is a critical problem along the Spanish coasts, and more generally in the whole Mediterranean area. Tarragona is a location where a combination of different factors, including ex- pansion of the chemical industry, population growth and tourism pressure, has increased water consumption to dangerous limits. The increasing demand for water, with limited natural resources, has even challenged the quality of the water, which has attracted the attention of the Catalan government. In this context, a water pipeline of about 100 km from the Ebro river to the Tarragona area has been constructed. The pipeline, with a capacity of 4 m3/ second, was built to provide water for both industrial and urban use, at respectively 60% and 40%. Since the start up of the line, industry consumption has increased from 0.79 m3/second to 1.05 m3/second. Urban demand has approximately doubled, due to a population growth in the area by 40% from 1990 to 2005. Finally, the increase in tourism has satu- rated the capacity of the pipeline, especially during the months of July and August. The need to explore new sources of water led the local authori- ties to embark in 2005 on a project for recovering water from the wastewater urban treatment plants. The project required an investment of 25 million and had the objective of reclaiming part of the chemical wastewater intended for industrial use and making it available for urban use. Finally, by using recovered water for the cooling towers of the chemical plants, an amount of 0.57 m3/s of additional water was made available for human consumption.64 CLUSTER
  • The project of unifying the current pipelines that dispose of treatedwater into the sea represents another example of collaboration thathas involved all chemical companies in the cluster.Exploit synergies in the Tarragona cluster:the disposal of treated waterThe different start-ups of the chemical companies in Tarragonaand the absence of a cluster coordinating central body can beconsidered the causes of the existence of eight pipelines for dis-charging treated water into the sea.Two of these pipelines are in the north industrial park and dis-charge water from the crackers, the refinery and the chemicalcompanies into the sea. The remaining six pipelines are in thesouthern industrial park; one from Asesa inside the port, onefrom Dow and BASF in the central area of the cluster, and theremaining in the west part of the cluster.Following the expansion of the port area, the pipelines for thetreated water disposal became internal to it. The resulting envi-ronmental concerns required an urgent solution.This situation has driven all the chemical companies to invest inmerging the eight pipelines into one, with a disposal point twiceas far from the shore (from 1800 m to 3600 m) and at an increaseddepth below the surface (from 22 m to 35 m). All the companiesactive in the cluster have embarked on this project, with acontribution proportional to the company’s rate of treated waterdisposal.Starting in mid 2008, the project is expected to reduce theenvironmental impact of the cluster operation, since moving thedisposal point to a location deeper and farther away will improvethe dilution of the treated water with sea water.CLUSTER 65
  • The examples of collaboration re- ported above are clearly triggered by the necessity to share capital invest- ments on assets and infrastructure necessary for the manufacturing of chemicals. However, when the chemi- cal companies and the LSPs address the lack of collaboration as one of the main obstacles overcoming cluster disadvantages, with a percentage re- spectively of 36% and 32%, they mean something more than sharing capital investments. Both the chemical com- panies and the LSPs are concerned about the necessity of joint action for defending and developing the chemi- cal business interests and lobbying the regional and local authorities. Indeed 23% of the chemical companies and 14% of the LSPs claim that there is a lack of action and of involvement of public institutions and local/regional governments in supporting further development of the chemical cluster in Tarragona.66
  • Styrene plant, Perafort - Tarragona, Repsol 67
  • Salt treatment plant of chlorine-soda, Vila-Seca - Tarragona, Ercros 4.2.4 Opportunities for horizontal sites in Tarragona to distant custom- cluster collaboration ers. However, the range of products suitable for swaps is quite narrow and Producers and LSPs have mostly is restricted to base chemicals and diverging views on opportunities for commodities. Swap arrangements horizontal collaboration. are possible in general if the two partners are of a comparable market Developing logistics infrastructure size. The difficulty of finding the right and pooling logistics resources are partner, together with the necessity of considered most important for LSPs, establishing mutually convenient agree- whereas producers consider swap ments and the perceived risk of losing arrangements to be crucial. These market share represent significant results seem to be in line with the per- obstacles to the further development of ception of traffic congestion as one of swap arrangements. the main disadvantages of the Tarra- gona cluster. As a consequence, LSPs The willingness to promote operational look at opportunities for more efficient synergies between LSPs in order to de- logistics solutions, while producers velop more efficient logistics solutions are more interested in promoting swap is clearly demonstrated by the case of arrangements, subject to competition Pañalon and Transportes Martin, who law compliance, to decrease the need implemented multimodal distribution for transporting chemicals from their services jointly for container assets. 30% Pooling of logistics resources 2% Developing logistics infrastructures 38% 12% Sharing of info for planning purposes 14% 24% 2% Swap arrangements 34% Collaboratively enhancing supply chain skills 16% 8% Figure 4-14 Tarragona - opportunities for horizontal68 cluster collaboration (green/LSPs, blue/producers)
  • When LSPs collaborate:the Tradilo Multimodal Transport JVIn the cluster of Tarragona the two companies Pañalon andTransportes Martín have been active in transporting chemicalproducts by road for more than 30 years. In Spain, both companieswere considered leaders in the market of chemicals transporta-tion.In 1999, based on the customers’ increasing demand and the per-spective of its continuous growth over the following years, the twocompanies decided to join their resources and found Tradilo. Theobjective of the new company was to develop a reliable and flex-ible plan of multimodal distribution services, based in Tarragona.Tradilo has quickly developed, together with shipping companies,a reliable sea “highway”, connecting Tarragona with almost all thebig ports of the Mediterranean Sea. The link with Italy has provedto be particularly efficient.Tradilo owns 200 tank containers, dedicated to the transport ofchemical and petrochemical products, and benefits from the fleetsof vehicles of both the two founding companies, amounting to atotal of 1,800 vehicles.Three years after the foundation of Tradilo, the two companiesPañalon and Transportes Martín decided again to join their re-sources and found a new company, Tradilo Inversiones. The newcompany is a logistic public platform of 130,000 m2, providingfull complementary services to the chemical transportation com-panies, such as ADR parking, a container platform, a station of6 cleaning lines, a waste treatment plant and all the adminis-trative services. Tradilo and Tradilo Inversiones have settled inthe industrial park of Constantí. This location benefits from theproximity to customers’ plants (the distance between Tarragonaand Constantí is about 6 km) and a well developed transportinfrastructure network (airport in Reus, port of Tarragona, contain-er railway station and motorway).CLUSTER 69
  • The opportunity of increasing asset utilization rate and sharing z handling costs of bulk chemicals led two other companies, Dow Quimica and BASF, to start a joint venture. When shippers collaborate: the TAPP Mooring case In 1998, BASF installed a dock in the Port of Tarragona for the charge/discharge of bulk chemicals. In recent years, this facility was operated at low utilization rates (less than 50% of capacity), creating a sizeable operational inefficiency. In 2003 Dow was planning to install a dock in the Port of Tarra- gona (next to the existing BASF dock) for the charge/discharge of bulk chemicals, and the opportunity for the two companies to collaborate was obvious. BASF sold 50% of the existing dock to Dow, and in June 2006 both companies integrated their respective part of the dock into a new society, TAPP A.I.E. (Terminal de Atraque de Productos Petroquímicos, Asociación de Interés Económico). The collaboration between BASF and Dow resulted in fully ex- ploiting the capacity of the dock, while sharing equally the related operation and depreciation costs. CLUSTER70
  • Producers and LSPs agree that shar- and more reliable and complete plan- ing planning information is an oppor- ning data from the producers would tunity for horizontal collaboration. The be crucial for providing more efficient possibility for producers to collabora- logistics solutions. tively provide LSPs with planning data for logistics services was explored by the Tarragona Think Tank. The main 4.2.5 Opportunities for vertical obstacle to this kind of interaction cluster collaboration lies in the way chemical companies choose their LSPs. Indeed it seems Producers and LSPs are mostly in that a large part of the demand for agreement on opportunities for vertical logistics services is aggregated by collaboration. several chemical producers at a company level, and contracts with Integration of LSPs in designing Sup- LSPs are drawn up at headquarters. ply Chain solutions and collaboratively Promoting more effective integration sharing planning data are considered of local decision makers into central most important. A tighter integration decision making and procurement between producers and LSPs has processes could represent a large op- already demonstrated several benefits, portunity to enhance the efficiency of as exemplified by the case of the logistics services. Indeed LSPs have Repsol and Terquimsa collaboration in confirmed that long term contracts, the Ammonia Logistics project. Integration of LSPs in designing SC solutions 35% 30%Collaboratively sharing planning data for logistics resources 20% 42% Develop more rational use of transportation modes 29% 4% Develop VMI /CMI solutions 6% Increasing bulk distribution 11% 24% Figure 4-15 Tarragona - opportunities for vertical cluster collaboration (green/LSPs, blue/producers) 71
  • Ammonia Logistics: Repsol/Terquimsa collaboration Before 1999, ammonia was delivered to the Tarragona chemi- cal cluster by sea through the ports of Valencia and Barcelona and from there by rail to the Repsol manufacturing plants. The absence of cryogenic storage facilities at the port of Tarragona prevented the product from being delivered to the port itself. The opportunity of reducing the logistics costs and increasing the se- curity level of the transportation triggered a collaboration initia- tive between the companies Repsol and Terquimsa. By installing a cryogenic facility at the port of Tarragona and by building a 14 km long pipeline from the port of Tarragona to the Repsol chemical plants, the rail deliveries of ammonia have been completely discontinued. Ammonia storage and the pipeline have been fully operative since the end of 1999. The project has benefited both parties involved, especially in terms of increased safety, and flexibility of the procurement process. The project resulted then in a consist- ent release of logistic assets (Rail Tank Cars), up to 1400 RTC/ year. CLUSTER72
  • Large platform, Antwerp, Katoen NatieLSPs are also interested in a more 4.2.6 Who should lead the develop-rational use of transportation modes. ment of the cluster?However, lack of flexibility, limited net-work access, and poor service quality Producers and LSPs are in agreementstill prevent chemical companies from that the cluster requires leadership.choosing rail or water-based trans-portation modes. In this context, it In order to develop the long-term visionappears that the export of chemicals for the chemical cluster in Tarragona,from the port of Tarragona could be the think tank focused on the need toimproved. Insufficient export through- investigate the formation of a stake-put does not justify regular shipping holder driven model.lines, especially for containers, andmany companies are forced to use the This model would consist of three dif-more flexible port of Barcelona, which ferent tiers:has the disadvantage of being almost100 km away and therefore of adding authorities on the operational orunnecessary logistics costs. implementation level One focal organisation 12% 30% Industry association 49% 46% Manufacturers in general 14% 8% Public Authorities 13% 9% LSPs 12% 7% Nobody, we dont need coordination 0% 0% Figure 4-16 Tarragona - cluster development leadership 73 (green/LSPs, blue/shippers)
  • Plant, Tarragona, Pañalon Defining what decision-making powers and the Port, Road, Rail authorities/ this cluster leader would be vested with Infrastructure Companies on the would be a further step. It emerged coordination level from the interviews that the issue of land scarcity is one of the priori- be agreed by the stakeholders ties that the cluster leader would be encouraged to address, since the The activities/roles of the various par- opportunities of further development ties in the model would be: for the cluster in Tarragona appear to - depend very much on this. ment and operation is the domain of the Port, Road, Rail or Infrastructure Companies together with the Produc- ers and Local/Regional Authorities domain of the LSPs, Producers and a Supply Chain Group to be formed (it is anticipated that the SC Group will consist of representatives from all key stakeholders) - structure, coordination and operation strategies is the domain of the LSPs, SC Group, Producers, Port, Road, Rail authorities, and Local authori- ties public-private partnership between the stakeholders) is responsible for creating the vision and strategy for the cluster which is then implement- ed as above.74
  • Strategic Level Cluster Leadership Vision, Strategy Port, Road and Rail SCCoordination Level Authorities, or Group Infrastructure Companies Implementation SC Integration SC Infrastructure Local and Operational Level LSPs Producers Regional Authorities Figure 4-17: Proposed Tarragona stakeholder model 75
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  • 5. COMPARISON BETWEEN THE CLUSTERS IN ANTWERP, ROTTERDAM, THE RHINE/RUHR REGION, AND TARRAGONA 5.1 Raw material and competitive terdam are extensively exploited for feedstock shipping outgoing containers. In some cases, the Tarragona throughput does The clusters in Antwerp, Rotterdam not reach a sufficient volume to justify and Tarragona have developed around regular shipping lines. It therefore often > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERS their respective ports. Indeed the port occurs that companies ship contain- represents the principal access point ers from the port of Barcelona instead to raw materials and competitive of Tarragona, thus adding unnecessary feedstock for the manufacturing of logistics costs and contributing to traffic chemicals. Significant quantities of congestion. Investments in the area crude oil and natural gas find their way could increase the throughput of the to the Ruhr region (ChemSite cluster) via port exports and pave the way for the other sources: crude oil via a pipeline development of more regular shipping from Rotterdam and Wilhelmshaven; lines. and natural gas via the German pipeline network. The Ruhr region, although land- The Think Tank discussions revealed locked, is well connected to the seaports that both import and export activities of Rotterdam and Antwerp due to the of the clusters made better coordina- nearby river Rhine and the inland water-r tion of legislation on VAT, customs ways. The importance of the necessary and security between Belgium, The inputs for the manufacturing processes Netherlands and Germany a must within the cluster is underlined by the for the ARRR mega-cluster. These results of the interviews, where the avail- discussions stressed also the impor- ability of raw materials and competitive tance of the coordinated development feedstock is considered by almost one of suitable container infrastructure third of the companies as one of the in and around the clusters as well as main advantages of the clusters. from the clusters to the hinterland. 5.2 Exports Figure 5-1 compares the clusters in Ant- werp, Rotterdam, the Ruhr region and The impact of the port on the eco- Tarragona along several critical dimen- nomic success of the chemical clusters sions, such as the link between industry is considered fundamental for exports and government, land ownership, and as well. The ports of Antwerp and Rot- cluster growth opportunities. 77Plant, Krefeld - Uerdingen, Bayer
  • Tarragona Cluster Port of Antwerp Authority Configuration Link with government ports Land Ownership Infrastucture & Service Cluster Growth Investment78
  • Port of Rotterdam Authority ChemSite Figure 5-1 Comparison between the four clusters in Antwerp, Rotterdam, Ruhr region (ChemSite cluster) and Tarragona along several critical dimensions 79
  • 5.3 Logistics staffed by the local/regional government to coordinate interest in the development The importance of the logistics serv- and operation of ports. ices offered by the cluster is different in the four areas considered. ChemSite is a public-private partner- r ship launched by the chemical industry, In the case of Rotterdam and Antwerp, the state of North Rhine-Westphalia and the ports are responsible for the mari- local authorities in the Ruhr region. It time traffic but are also involved in the forms an umbrella for all activities in the maintenance and development of the chemical industry value stream in the cluster infrastructure. region. In the Ruhr region, ChemSite offers the Tarragona does not benefit from a spe- chemical companies highly developed cific partnership between local industry chemical parks and sites with sophisti- and government with respect to chemi- cated infrastructure, tailor-made services cal operations. and integrated material supply systems. 5.5 Land ownership The Port Authority of Tarragona has the function of managing the imports and Land ownership also plays a role exports of cargo through the port, but is in the governance of the cluster as not involved in projects on infrastructure expansion investments can only be maintenance and development. These performed if attractive land parcels activities remain mainly a prerogative of are made available. the chemical companies. In Rotterdam, the Port Authority is the 5.4 Authorities owner of the land. Usually, land in port areas cannot be bought by the chemi- The involvement of the local authori- cal companies but is leased for long ties and the regional government in periods, from 20 to 50 years. The Port the chemical industry constitutes of Rotterdam Authority is engaged, a further element of differentiation together with the Dutch government, in between the four areas. projects for increasing land availability. The project Maasvlakte 2, which involves The Port Authorities of Antwerp and the reclamation of new land from the Rotterdam are government-owned North Sea at the western end of the port,80 corporations, therefore appointed and is a key example.
  • In the case of Antwerp, the land isowned by several stakeholders, i.e. thePort Authority, private companies andlocal government. The availability ofland within the Antwerp port area, bothgreenfield and on host sites, is the resultof a deliberate strategy from the Belgiangovernment and local and port authori-ties. Since the 1950s, they have called Figure 5-2 Land under-utilizationfor land clearance on both sides of the due to misaligned incentivesriver Schelde and have mapped outindustrial zones.ChemSite offers about 240 hectares of Tarragona cluster: 53% of the chemicalvacant industrial land to new compa- companies interviewed in Tarragona havenies at a total of seven chemical parks raised the problem of land availability,and sites in the Ruhr region. The land is whereas in ARRR only 13% of the com-owned by industry partners. The sites panies interviewed are concerned aboutvary between fully developed petro- this issue.chemical, base and specialty chemical,high-technology and chemical process- Figure 5-2 shows a typical case in Tar-ing locations, both greenfield and ragona of a chemical company whosebrownfield sites. New companies can owned land is less than 50% exploited.be integrated into the comprehensivematerials flow system, can share the in-frastructure with other companies on siteand can make use of all kinds of servicesavailable on site.In Tarragona the land is owned by thechemical companies. The unoccupied bythe chemical companies, which amountsto more than 50% of their land, can onlybe exploited with their agreement. Fromthe results of the interviews, we seethat the lack of land availability is con-sidered the principal disadvantage of the 81
  • In addition to owning all or part of the In conclusion, the differences between land, the Port Authorities in Rotter- r the four areas can be summarized to dam and Antwerp play the role of land one main dimension : centralization of brokers. Subject to the business of the development initiatives. While the new investors, they have the necessary northern European clusters benefit from experience to propose strategic loca- the efforts of Port or cluster authorities tions for the supply of raw materials and to push the development of their respec- the integration of their operations with tive clusters, Tarragona still suffers from other cluster players. ChemSite provides the absence of a central coordination a comprehensive “one-stop-shop” for body initiating collaboration initiatives new investors and acts as a land broker and attracting investments. Having on behalf of its industrial partners in the said this, the study still points out the Ruhr region. difficulties experienced by all cluster stakeholders in getting information In Tarragona there is no central unit which enables them to obtain a clear that assumes the role of land broker. As picture of the flows and thus iden- owners of the land, chemical companies, tify opportunities. Given the variety of and only they, have the right to rent on independent firms acting in the cluster, an individual basis their unexploited land retrieving and managing cluster-relevant to potential investors. information is a challenge that still needs to be addressed. In Rotterdam and Antwerp, the Port Authorities actively coordinate strategic The mega-cluster ARRR is decentral- initiatives with stakeholders in the port. ized. Discussions in the Think Tank They act as chemical cluster leaders, revealed the need for a co-operation lobbying the government on develop- platform between the subclusters of ment initiatives. ChemSite leads the Antwerp, Rotterdam and Rhine-Ruhr. cluster in the Ruhr region and is respon- sible for formulating long-term cluster development strategy in collaboration with stakeholders and shareholders. In Tarragona the cluster growth depends on initiatives of individual companies promoting their sites for investments.82
  • 6. CONCLUSIONS & RECOMMENDATIONSThe co-existence of competition 6.1 Manage cluster information toand collaboration is a key feature identify opportunitiesand strength of European chemicalclusters. The competition within and Organized information sharing > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERSbetween chemical clusters benefits all between all stakeholders should bestakeholders. Shippers benefit from a put in place to improve cluster op-greater range of alternatives to design erations. Information sharing is notand operate their networks. LSPs enjoy simply a case of producers providingthe advantage of a larger, local market forecasts to service providers. Thewhile potential investors benefit from willingness to create common knowl-competing cluster authorities investing edge about capacities and flows into further attract new cluster partici- the cluster will create an awarenesspants. Despite the competitive inten- of the potential efficiencies and willsity, collaboration is being increasingly drive market initiatives towards therecognized as the next frontier to mas- discovery of more opportunities thanter interdependencies and maximize are known currently. In many cases,efficiencies in the supply chain. The the existing asset base could bemany caselets throughout this report much better utilized. Cluster-wideare evidence of the fact that supply issues such as traffic congestionchain collaborations (recommended (Antwerp/Rotterdam, Tarragona)by the previous think tank reports) are or suboptimal land use (Tarragona)increasingly being explored. Never- might require significant investmentstheless, considering the supply chain in the future. Authorities, i.e. clusterissues discussed in this report, we con- authorities, national and local gov-clude that there is still significant room ernments and the European Com-for improvement. This section of the mission (DG Enterprise, DG Energyreport will make recommendations and and Transport) are willing to supportpropose solutions, which if adopted, the chemical industry in this, butwill go a long way to ensuring that ad- require the best information availableditional benefits in chemical clusters to value investment proposals thatcan be continuously achieved. cannot be carried by listed compa- nies. Consequently, authorities must become partners in the informa- tion sharing process and become partners in the development of the European chemical clusters. 83
  • 6.2 Provide a platform to discuss 6.3 Take common actions to exploit cluster opportunities cluster opportunities - mously agree on the urgent need for countries that are, despite EU-wide the chemical clusters to be effec- directives, not fully aligned in terms tively managed and to set up an of legislation. Since this lack of appropriate organization to imple- harmonization creates unnecessary ment a suitable management system. transaction costs, the Think Tank Operating in clusters is complex participants strongly recommend an considering the interdependencies identical implementation of EU-leg- between manufacturers, service islation by the Belgian, Dutch and providers and authorities. Information German states. This encompasses sharing is key to the coordination of especially VAT harmonization and actions within the clusters. How- customs-related as well as security ever, both for the Tarragona cluster legislation. This can be worked out in and for the mega-cluster Antwerp- the scope of the cluster platform to Rotterdam and Rhine/Ruhr, no single be created. Over a longer term, this coordinating body is currently active type of co-ordination and harmoniza- to support cluster-related informa- tion between different clusters could tion exchange. Therefore, the Think be extended to all chemical clusters Tank recommends, for Tarragona in Europe. and ARRR, the creation of a working group bringing all relevant cluster development of infrastructure link- stakeholders together in order to ing all European chemical clusters ensure that the recommendations so that the European Chemical mentioned above become reality. Industry can effectively continue to Otherwise, the isolated initiatives will compete with other regions in the not exploit the benefits of the chemi- world such as the US Gulf Coast. The cal clusters. set up of a specific working group for that purpose is suggested. European clusters (Chapter 5) calls for a working group relying on volun- the development of appropriate im- tary participation of manufacturers, port/export container facilities facili- LSPs and authorities. tating massive imports and exports as well as the transportation of the84 containers to the customers located in the hinterland of the clusters.
  • Rail sliding on the Cologne site, INEOS6.4 Long-term relationships aremore profitable than short-termbenefitsThe former EPCA reports have beenactively promoting long-term collabo- hubs), and consequently underminesrations between shippers and service efforts to reduce the carbon footprintproviders for the benefit of both. The in chemical supply chains. Clearly theThink Tank members acknowledge development of long-term relation-the progress that has been made, as ships with a limited set of partnersshown by some caselets in this report, provides the opportunity for servicesince the first EPCA report in 2004 providers to develop the logisticsbut the interviews show that there is solutions producers are seeking.still a gap between what the chemicalindustry says and what is practiced. benefits of long-term relationships,The Think Tank therefore makes the LSPs will have to put greater em-following recommendations. phasis on their ability to think stra- Shippers should develop long-term tegically and to implement strategy relationships with selected logistics in a pro-active way. Manufacturers providers, allowing them the possi- often perceive service providers as bility of fulfilling the collaborative role operators and do not involve them in that producers expect from LSPs (i.e. their strategic and tactical planning proactive, forward-looking, flexible processes. A paradigm shift starts and highly competitive). Traditional with the design of contracts which confrontational relationships be- give a greater degree of freedom but tween shippers and service providers also higher responsibilities to LSPs. encourage market fragmentation, These contracts should however en- with the result that many LSPs are courage LSPs to pro-actively develop too small to cover a large propor- cluster- and Europe-wide services tion of a single shipper’s demand for instead of condemning them to react logistics services. Manufacturers fuel at each tendering round. this fragmentation through frequent developing tendering rounds and cherry-picking coordination skills and high level at several suppliers. This competitive generalists trained in strategic intensity often prevents the realiza- thinking and planning is the recom- tion of synergies between LSPs (such mendation to attain this goal for both as merging shipments in multimodal producers and LSPs. 85
  • The European chemical sector has some of the strongest industrial clus- ters in the world. Its future is bright, provided it manages to strongly build on these clusters, for instance by ena- bling successful supply chain collabo- ration. Other sectors, like automobiles and consumer electronics have led the way, and showed that competi- tion and collaboration can effectively co-exist, to the benefit of all stakehold- ers. However, the groundwork needs to be laid out first. It consists of basics like information exchange, discussion platforms, collaborative end-to-end solution development, and a long-term perspective on cluster development. Botlek and Pernis area, Port of Rotterdam86
  • 7. APPENDIXOrganization of the study participating to the Think Tank meetings, while the remaining part was suitablyFrom September 2006 to August 2007, selected among industry experts of theEPCA set up a Think Tank dedicated to A respective cluster. The later Think Tanktwo chemical cluster areas in Europe. meetings served the purpose of com- > A PARADIGM SHIFT : SUPPLY CHAIN COLLABORATION AND COMPETITION IN AND BETWEEN EUROPE’S CHEMICAL CLUSTERSThe Think Tank consisted of a Steering menting on both the statistical resultsGroup and two sub-groups of chemical of these interviews and the anonymousmanagers, each dedicated to a specific statements made during them. Togethercluster. The ARRR (Antwerp, Rotterdam, ( the results and the comments providedRhine/Ruhr area) group examined the a basis from which to discuss the issuestransnational cluster covering parts of raised, understand their origin and findBelgium, The Netherlands and Germany. ways to tackle them.The other group examined the Tarragonacluster located in the North of Spain. From this process description, it should be clear that the report, at best, presentsEach group was composed of repre- the collective views of the participat-sentatives of EPCA member companies, A ing experts. It is neither a scientificdesignated or invited by the EPCA document nor a fully representativeboard, and supply chain researchers account of all relevant industry experts.from INSEAD, Fontainebleau, France. Nevertheless, the process followedThe ARRR Think Tank meetings took was sufficiently rigorous and we areplace in Brussels, and the Tarragona confident that the report does provide aThink Tank took place in the offices of solid baisis for discussion and, hopefully,several companies of this cluster. The action.ARRR Think Tank had 7 meetings whilethe Tarragona members met 6 times,with a high level of attendance.The first Think Tank sessions contrib-uted to the determination of a relevantcluster charter, to the definition of clusterboundaries and to the issues faced bythe clusters. Based on the result of thediscussions, INSEAD drafted a ques-tionnaire and interviewed 53 persons,shared between the ARRR and theTarragona cluster and between produc- 87ers and service providers. The majorityof the persons interviewed were also
  • The Steering Group (SG) had a major role in initiating the process and moni- i toring the Think Tank discussions. The Steering Group was composed as fol-l lows: Frank Andreesen (Bayer) Hans-Jörg Bertschi (Bertschi) Phil Browitt ( gility) (A Cathy Demeestere (EPCA) A Fred du Plessis (ECSPP) Antonio Gomis (Repsol YPF), replaced later by Benjamin Palomo (Repsol YPF) Paul Gooch (The Logical Group) Alfred Heuser (BASF) Baptiste Lebreton (INSEAD) Paolo Letizia (INSEAD) Graham van’t Hoff (Shell) Luk Van Wassenhove (INSEAD, Chairman) The two Think Tank groups were composed as follows: ARRR cluster Tarragona cluster Ronald Backers (Port of Rotterdam) Josep Andreu (Transport Prats) Thomas Bode (RAG Degussa) Manuel Arce (Ercros) Cathy Demeestere (EPCA) A Javier Bort ( QT, Chairman) (AE Johan Devos (Bertschi) Josep Maria Chillida (BASF) Hans de Willigen (VOPAK) Genoveva Climent (Port of Tarragona) Bas Ensink op Kemna (SABIC) José Curado (BASF) Danny Eyckmans (Shell) Fred du Plessis (ECSPP) Paul Gooch (The Logical Group, Chair-r Michael Euler (Schmidt Iberica) man) Antonio Gomis (Repsol YPF) Margarete Gersemann (ChemSite) Luis Jove (Bayer) Bertrand Gyselynck (Total Petrofina) Erik Klonhammer (Katoen Natie) Joris Hurenkamp (Port of Rotterdam) Paolo Letizia (INSEAD) Eric Janssens (Port of Antwerp) Jesus Loma (Bayer) Baptiste Lebreton (INSEAD) Cesar Meler (Repsol YPF) Fabian Leroy (Katoen Natie) Sebastian Mussini (Repsol YPF) Paolo Letizia (INSEAD) Juan Carlos Nebot (Bayer) Angela Neu Meij (BASF) Cesar Nunez (Solvay) Susanne Ramp (Hoyer) Ed op den Camp (SABIC) Peter Rose (INEOS Olefines) Josep Pallares (Universita Rovira i Phillip Schneider (Reederei Jaegers) Virgili) Bernhard Schnittger (European Com- Benjamin Palomo (Repsol YPF) mission) Rose-Marie Pype (ECTA)TA Xavier Van Rolleghem (Port of Antwerp) Aurora Sanchez (Panalon) Peter Viebig (Bayer) Jan Schoonbaert (VOPAK) Mark Warner (Den Hartogh) Cesar Valdes (Dow Chemical) Aernoud Willeumier (Port of Rotterdam) Salvador Vidal Rodriguez (Bayer)88
  • Literature sourcesArthur D. Little (2005). The Staying Power of Europe’s Chemical Industry.Cefic ‘Horizon : 2015 : Perspectives for the European Chemical Industry’ Brussels,March 2004.De Langen, P.W. (2004). The Performance of Seaport Clusters. PhD Thesis, ErasmusResearch Institute of Management, University Rotterdam.Marshall, A. (1920). Principles of Economics (8th edition). London: MacMillan.Porter, M. E. (1990). The competitive advantage of nations. New York: Free Press.Porter, M. E. (1998). Clusters and the new economics of competition. Harvard Busi-ness Review, 76(6): 77-90.Porter, M.E. (1998). On Competition. Harvard Business Review.DefinitionsADR International Carriage of Dangerous Goods by RoadAEQT Tarragone Chemical Business AssociationARG Aethylen Rohrleitungsgesellschaft mbH & Co.KG (Ethylene Pipeline Company – not a strict translation)ARRR Antwerp Rotterdam Rhine RuhrC4 Cut Effluent from steam cracking containing Butadiene and IsobuteneCEO Chief Executive OfficerCMI Customer Managed InventoryEPCA European Petrochemical AssociationEPDC European Pipeline Development CorporationHPPO Hydrogen Peroxide Propylene Oxide. A cooperation between Dow, BASF, and SolvayHSSE Health, Safety, Security, and EnvironmentINSEAD Institut Europeen d’Administration des AffairesLNG Liquified Natural GasLSP Logistics Service ProviderNRW North Rhine-WestphaliaROCE Return on Capital EmployedRTC Rail Tank CarVMI Vendor Managed Inventory 89
  • Acknowledgments On behalf of the EPCA Board I wish A In addition to delivering content, the to express our sincere thanks to the Think Tank sessions were pleasant and member companies who have delegated were characterized by mutual respect senior persons of their organizations to and fellowship, so typical for the chemi- participate in the 2006-2007 EPCA Think A cal industry. It rapidly became clear Tank on chemical clusters in Europe. during the meetings that European chemical players are not only clustering We also are very grateful to all the Think industrially, but that they are also good Tank participants who have dedicated at networking, generating through the time and efforts to generate and sub- meetings dynamics of creativity and stantiate the messages contained in this readiness for a mindset shift from the report. Both the Steering Group mem- competition model to other business bers and the participants in the groups models integrating a partnership ap- of ARRR and Tarragona have done a proach. great job. The many examples in the report show Special gratitude goes to Paul Gooch that to some extent collaborative and Fred du Plessis. Their in-depth models already exist, as suggested in knowledge of Supply Chain and the the 2004 and 2005 Think Tank reports. Chemical Industry as well as their contri- The recommendations of the Think Tank bution at meetings supported, together however also show that a lot remains to with the input of all participants, the be done to optimize supply chain and progress of the work. chemical clustering in Europe in order to safeguard a sustainable and competitive Our thanks also go to the INSEAD team European chemical business community. who handled the interviews and summa- rized the results so that the Think Tank So let us all work on turning recommen- could focus on understanding what ex- dations into action! ists and what is lacking in the examined European chemical clusters. With their We hope you enjoyed reading this report contribution, the Think Tank could reflect as much as we all enjoyed making it for on what we want the examined clusters you. to be and on how we could get there. IN- SEAD also drafted this report, for which Cathy Demeestere we are very grateful. Secretary General EPCA.90
  • EPCA Thanks following companies for their participation in the Think Tank sessionsand their contribution to this report :Photos cover : © Bertschi, © ChemSite, © Port of RotterdamPhotos inside : © Bayer, © Bertschi, © ChemSite, © Dow Europe, © Ercros, © INEOS Olefins,© Katoen Natie, © Pañalon, © Port of Rotterdam, © Port of Tarragona, © Repsol YPF, © ROYAL VOPAKDesign, lay-out and production www.tabeoka.bePrinted in Belgium by De Plano 91
  • The Think Tank activities and this reportare due to the courtesy of EPCA.EPCAa.i.s.b.l. The European PetrochemicalAssociation i.v.z.w.Avenue de Tervueren 270 TervurenlaanB 1150 Brussels - BelgiumPhone + 32 (0)2 741 86 60Fax + 32 (0)2 741 86 80WWW.EPCA.BETHE EUROPEAN PETROCHEMICAL ASSOCIATION