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INSURANCE\\\ Growing chemical trade brings opportunity and risk


Issue 4 2014 - Freight Business Journal


As global chemical sales topped €3,127 billion in 2012, a 12.8% increase on 2011, we appear to be


witnessing the beginnings


of a shiſt in the market. While China remains the largest global producer, the Middle East is considered amongst the fastest growing markets and a future major competitor to the European manufacturers. Petrochemical


production


remains the main focus in the Middle East, but there is currently a transitional shiſt which is seeing producers diversify into production of intermediates and higher value products. Growing


technological


expertise and multi-billion dollar investments will facilitate large scale growth in the chemical industry in the coming years and drive export growth. China is anticipated to be the largest export market for products, and a major competitor to Europe for volume. The Middle East holds around 67% of global oil reserves and around 45% of all natural gas and its expanding chemical industry is set to benefit from this ready access to cheap raw materials, as well as its geographic position in relation to emerging markets such as the Indian sub- continent and South East Asia- as well as the support it receives from governments and local authorities. Such growth will undoubtedly


provide many opportunities for logistics operators as greater capacity,


particularly of tank


containers will be required to service the trade. However, as so oſten, opportunity does not come without risk. From the employment of new and potentially unfamiliar contractors


to entering contracts with what may be new shippers, operators will likely – and in some cases unwittingly – expose themselves to operational and commercial risks. As the market grows and it becomes viable to do so, many operators are also likely to open new autonomous depots in the region, which can also have potential risks in what may be an unfamiliar economic, business and legal environment. The TT Club recommends


that robust selection criteria are developed, particularly when it comes to the employment of subcontractors whether they be for haulage, tank cleaning and heating stations or repair facilities. Due diligence should verify the validity of the company, its


credentials and financial


viability. Insurance cover and where possible references to verify expertise should all be considered. Where appropriate and possible, training records should be requested and viewed to evidence expertise, especially in tank container usage and operation. Developing an approved contractor list should also be a priority to mitigate potential risks and maximising safety in the transport of tanks and chemicals in dry vans. It is also important to know


your customer. The Club has had experience of low grade chemicals


being mis-sold as


higher grade products, leading to the consignee rejecting the cargo as out of specification. While in essence a sales contract issue, the logistics operator can be exposed to significant storage costs while the dispute between seller and buyer is resolved,


frequently tying up large numbers of ISO


tanks for several months. In one instance this was compounded when, aſter several months, it was discovered that the low grade material had solidified and had begun to attack the integrity of the ISO tank, resulting in deep pitting to the steel shell and total loss of the tanks. When companies move into


unfamiliar sectors, it is essential that they fully appreciate prevailing market conditions, general business culture and expectations from local parties such as enforcement agencies. Since local economic and business ethics may differ, a local partner or agent could prove invaluable in providing assistance


and expertise. Such collaborations may also offer broader business opportunities and help operators establish themselves in a new region more rapidly. In the event of an incident


whether it be equipment damage, cargo contamination, cargo leakage or something more serious requiring immediate


local knowledge


21


Global freight transport insurer, TT Club’s Mike Yarwood looks at the risk and reward for transport operators associated with the expanding trade in chemical products.


action to mitigate loss, an agent with


and


expertise in the chemical sector will greatly assist. The benefit of a resource with regional acumen is not to be under estimated. It also goes without saying that the parties need appropriate insurance partners, with effective expertise and global reach.


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