Global Third-Party Chemical Distribution Market: Market Driver and Restraint
Such compounded growth stems from two causes. First, suppliers have realized that the cost to serve low-volume customers is quite high, and they continue to push customers with orders for smaller quantities to third-party distributors. Second, suppliers are increasingly using such distributors as a platform for growth, tapping into new regions or markets in which distributors already have strong relationships with customers in place.
The shift toward third-party distribution is fairly consistent across major verticals: CASE, HPC, and industrials. In certain segments, such as laboratory chemicals, the incidence of third-party distribution is extremely high because of sector-specific factors, which are often related to strong customer relationships. Indeed, third-party distribution accounts for more than 80% of the sales for specialty agricultural chemicals.
In the US, which represents more than 80% of the North American chemical market, there are clear growth trends in the South and the Midwest, where chemical customers increased their manufacturing capacity from 2013 through 2018 Several large customers—particularly in the CASE and HPC verticals—have relocated and built new facilities in Texas and Oklahoma, as well as in several other states in the Southwest. Increased regulations in the West, particularly in California, have accelerated this trend.
Global Third-Party Chemical Distribution Market: Key Takeaways
· The key differentiation strategy is to offer products that are organic, in order to leverage opportunity arising from the rising demand for additive-free, chemical-free, and natural food products
· In terms of form, the demand for powder is the highest, followed by liquid, attributed to its usage in food and beverages products as a coloring pigment
· One of the major challenges for the Third-Party Chemical Distribution market is the environmental changes.
Global Third-Party Chemical Distribution Market: Forecast by Nature
More than 85% of global chemicals are sold directly by the producers. Less than 15% are sold indirectly, either through agents, traders or chemical distributors.
Agents typically receive a pre-agreed commission from the producer and price the chemicals according to the producer´s instructions. Agents do not take title of the chemicals and they are very often small “one-man-bands”. Their success factor is the knowledge of a seller and potential buyer of certain chemicals and bringing them together.
On the supply side, chemical producers and sites in Europe consolidate and at the same time, more and more non-European producers are offering their chemicals to the European market out of non-European assets. Fine and specialty chemicals are increasingly produced in China and bulk commodities and petrochemicals in the Middle East and United States, so that the fragmentation of the chemicals industry overall remains the same and does not increase. This is very different from automotive, airlines, food, packaging, steel and many other sectors. The global market share of BASF, Dow, Sabic, Sinopec, etc. remains constant. BASF is still capturing less than 4% global market share. For every consolidation move in Europe or North America, new players are popping up in other regions of the world.
Global Third-Party Chemical Distribution Market: Forecast by Application
As the growth rates of agents and traders have been more in line with the growth rates of chemical consumption in Europe, this means, that an increasing share of chemicals is marketed no longer directly, but indirectly via distributors.
This is less the case when referring to bulk commodity chemicals, but very strongly in specialty chemicals solutions. Especially European countries with a low and/or declining chemicals production (e.g. Greece, UK, CEE/ CIS) offer best intrinsic growth opportunities for chemical distributors. This effect is particularly strong in challenged markets and applications (e.g. leather, textile, paper, rubber chemicals), i.e. markets, where the production base in Europe is increasingly uncompetitive, where commoditization is stronger than innovation and traditional players in those markets lose market shares against backward integrated and/or emerging market competitors. Within those regions and applications, chemical distributors are able to capture over-proportionately market shares against traditional principals.
For the principals, it becomes less and less attractive to maintain a full presence with own warehouses, commercial and technical sales force, formulation and other services. Unlike their principals, chemical distributors can complement and leverage their offerings and can thus offer more cost competitive commercial and supply chain services. This is a major reason, why on average chemical distributors are able to increase their European business more than the underlying principals/producers and the overall growth of chemical consumption.
Global Third-Party Chemical Distribution Market: Forecast by Form
Bulk industrial chemicals are often standardized chemical grades, which are sourced non-exclusively by the chemical distributor. Sourcing and selling are mostly separated. Thereby, customer relationships are more important than supplier relationship. Bulk chemicals are unpacked or distributor packed and are often hazardous and liquid, requiring capital-intensive investments into tank farms and fleets. Supply chain costs are high in relation to product price and regional presence is a must. Regional/local competition is about unit price, volume, scale and minimizing handling costs. A differentiator is often a high responsiveness to deliver the right product in full on time. Business is thus more transactional and short-term oriented. As the bulk industrial chemicals distribution business shows growth below average and as maintenance as well as the need to offer an effective supply chain increase, a local/regional consolidation in the markets towards the more efficient bulk supply chain peers can be recognized.
Packed, tailor made specialty solution chemicals are products that are branded by the principal and typically sourced exclusively by the chemical distributor. Exclusivity applies to both sides: The principal may not sell his products in the applications and countries agreed upon to another chemical distributor and the distributor may not source this product type from any other source. Specialty solution chemicals are mostly factory-packed performance products requiring a good understanding of the value-in-use for the respective applications.
Global Third-Party Chemical Distribution Market: Forecast by Region
The top 10 chemical distributors cover approximately EUR 13 billion (27%) of the European market (Figure 6). Brenntag is by far the market leader and more than double the size of the second largest actor Univar, at least in Europe. IMCD and Omya with their stronger specialty and solution provider portfolio have been outgrowing the market over the past years.
There are approximately 90 mid-sized chemical distributors with revenues of EUR 40-400 million (on average EUR 170 million), which account for about one third of European chemical distribution sales followed by a very large number (more than 1,900) of small and very small distributors.
Global Third-Party Chemical Distribution Market: Key Players
Univar, Brenntag, HELM, Nexeo Solutions, IMCD, Azelis, Biesterfeld, ICC Chemical.
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