INDUSTRY INSIGHTThought Leadership

Green supply chain practices in the GCC chemical industry

By J Sivan, Senior Consultant, Supply Chain & Logistics Practice, and Gopal R, Global Leader, Supply Chain & Logistics Advisory, Frost & Sullivan

Economic diversification is a key growth driver

With economic diversification initiatives prioritizing non-oil GDP contribution, chemical-based manufacturing benefited from these initiatives and became a major contributor to the non-oil sector. The chemical sector contributed 50% of manufacturing at GCC level, and chemical exports accounted for more than 45% of GCC chemical production in 2022. The Global Supply Chain Resilience Initiative (GSCRI), announced by Saudi Arabia in 2022, is positioning KSA as a hub for supply chain diversification which will benefit the chemical manufacturing industry’s productivity. The UAE, Oman, and Qatar are also prioritizing development of their chemical production base. Capacity expansion plans of regional companies are expected to increase production level to 210 million tons by 2030. As a result, demand for chemical logistics will rise in line with capacity expansion and export growth.

Complexity of chemical supply chain

The fragmented nature of logistics operations along the value chain and difficulty in integration of numerous carriers along the different modes of transport between upstream and downstream operations, make chemical logistics more complex compared to other manufacturing industries. Sources of complexities arise from establishment of supply chain management system comprising of a network of sources for raw materials, fuel, collaborating with logistics service providers for transportation of dangerous goods and distribution of final products to end users across the globe. Furthermore, managing transportation between different suppliers of product groups is complicated as it encompasses adhering to regulatory compliances (environmental and safety), hiring skilled workers for chemical logistics, and tracking and tracing products for inventory management, visibility, and overall efficiency. Challenges also arise when regulatory compliance at the national level differ from international standards, especially in the case of dangerous/hazardous goods, which have very stringent regulations in Europe and North America. Along the supply chain, increasing level of digitalization and alignment with the industrial shifts, such as closed loop products, are major factors in managing the supply chain of the chemical industry. Uncertainties in the global market and disruptions can result in sudden unanticipated changes which can add to the complexity of the chemical value chain. More importantly, greenhouse gas (GHG) emissions from chemical manufacturing and distribution have emerged as a key issue that companies are currently focusing on. This falls in alignment with the compliance requirement of national emissions goals on a global level.

Emissions from chemical logistics value chain

The chemical manufacturing industry is one of the highest energy users, since primary energy sources are used for both feedstock, and fuel for manufacturing. Procurement of feedstock and processing contribute to significant level of scope 1 and 2 emissions. Scope 3 emissions stemming from downstream sectors (including transportation and storage services which includes usage and processing of sold products by the end-user sectors) are also major GHG emission contributors. Globally, transportation and logistics constitute around 11% of total GHG emissions, while freight transportation alone accounts for 8% of total greenhouse emissions. About 69% of total carbon dioxide (CO2) emissions come from road freight, while rail accounts for 5% of transport emissions. Under business-as-usual scenario, the amount of CO2 emissions is predicted to double by 2050. Hence, high priority is given by chemical companies to reduce emissions and achieve national emissions targets. The global push for sustainability across the chemical manufacturing industry is forcing companies to invest in research and development related to emissions control using technologies and sustainable transportation and distribution solutions.

Green supply chain practices gaining prominence

The chemical industry in the GCC, is currently aiming for a green transition through supply chain management systems and environmentally friendly initiatives embedded in every aspect of the supply chain activities (encompassing sourcing, product design and development, manufacturing, transportation, packaging, storage, retrieval, disposal, and post-sales services including end-of-product life management). A greener supply chain involves reformation in operations through alignment with the four major aspects of the supply chain – identification of the target product group by the company; establishing a strong network of suppliers and distributors; digital operations; and regulatory compliance related to safety, packaging, environment, and distribution.

Intermodal chemical logistics: The GCC region is also aiming to redirect more than 90% of road freight through the modes of rail and short sea, which will utilize clean energy and have low emissions. While the GCC rail network is being constructed, chemical giant SABIC is planning to leverage Saudi Arabia’s rail freight for improving its accessibility across the region. SABIC also shifted transportation used in China from road to short-sea inter-modal transportation. The addition of rail in intermodal transportation is expected to significantly improve logistics operations by integrating and connecting ports and making container movement seamless. Lower carbon emission is an additional benefit of an efficient and integrated intermodal freight transportation.

Investments in sustainable chemical packaging: Packaging is an important aspect of chemical logistics. Chemical companies need to ensure service providers comply with safety regulations to avoid spillage during transit. Next generation packaging solutions such as SABIC and Cabka’s CabCube and Intermediate Bulk Containers (IBCs) by Hoyer Group are expected to establish a strong presence of sustainable chemical packaging in the GCC. While CabCube is made of a completely recyclable polymer material, IBCs offer reusable and sustainable steel containers in place of plastic drums and tank containers for transporting chemicals in liquid form. Innovations in packaging and the adoption of circular economy are key for reducing packaging related carbon footprint in the chemical logistics industry.

Resource efficiency and circular economy: Recycling is at the forefront of green manufacturing in the chemical industry. KSA’s largest chemical manufacturing player, SABIC, is focusing on creating a circular carbon economy with solutions such as  TRUCIRCLE™. The solution is expected to offer closed-loop services for recycling polymer products and ocean-bound plastics as well as bio-based goods from second and third-generation renewable feedstock. ‘Circularise Plastic’, a collaborative project between Covestro, Circularise, and DOMO Chemicals, enables tracing of every raw material, intermediates, and finished products involved across the supply chain of plastics and re-using or re-cycling them. This project has opened new opportunities in the domain of circular economy in the chemical industry.

Technologies transforming green logistics solutions: National governments have given high priority for digitalization, strengthening digital infrastructure, and encouraged adoption of digital tools to improve efficiency, monitor regulatory compliance, and reduce carbon emissions. The GCC region is expected to bring about digital transformation through technologies such as sensors, Internet of Things (IOT) devices, blockchain, and Digital Twins, which will play a significant role in controlling transportation related emissions. Also, digital solutions are employed more in logistics process related applications such as document clearance. For example, SABIC has introduced a paperless booking system for customers in the Asian region. Technologies are also used in tracking time sensitive consignments with real-time monitoring solutions. Solvay and ChemChain have collaborated to develop blockchain applications for traceability of plastics across the value chain. Blockchain is used by logistics service providers to monitor compliance with distribution guidelines by value chain participants.

Alternate fuels in road freight transportation: Carbon emissions are also being controlled by replacing heavy fuel oil or marine diesel with low-carbon alternatives such as liquefied natural gas (LNG), biofuels, neutral fuels, and methanol. While oil prices are surging in the GCC, these alternate fuels have opened new opportunities by being cleaner and less expensive than diesel.

Net zero targets to push innovations in green supply chain solutions

Climate neutral logistics operations have a long way to go with numerous steps and actions to be taken through the adoption of technological solutions and improvement of the overall logistics infrastructure. As chemical companies across the globe continue to strive towards sustainability with efficient logistics operations using digital technologies, supply chain management has highlighted the importance of a secure supply flow, regulatory compliance, and proper risk management. As a result of capacity expansion, the chemical supply chain is expected to undergo transformational changes driven by digitalization, leading to an increased demand for innovative chemical logistics and supply chain solutions in the region. As there is no unique pathway to make the transition towards a sustainable chemicals sector, chemical companies are expected to transform their business models with focus on sustainability. This is expected to open opportunities for more innovations in greener supply chain solutions.

As 2030 approaches, countries are pushing towards sustainability and net zero emissions goals are expected to compel chemical supply chain participants to take measures for lowering GHG emissions. Some of the measures that will help the value chain participants in achieving their emissions target includes shifting to alternate transportation fuel, use of low emission maritime vessels, sourcing clean energy for warehouse operations, increasing the use of environmentally friendly storage devices for hazardous chemicals, building infrastructure for inventory management of dangerous goods and improving reverse logistics solutions for disposal wastes and reusable products. To reach the government’s net zero targets, chemical companies in the GCC countries must accelerate investments for a sustainable chemical supply chain, even if it comes at a higher price, since its long-term benefits and returns will be steps towards success in the future.