Rising US chemical production spurs logistics, trucking, intermodal growth

Rising US chemical production spurs logistics, trucking, intermodal growth

A South African firm’s decision last month to build an $8.1 billion plant in Louisiana that will triple its chemical production capacity in the U.S. underscores widespread growth in U.S. chemicals manufacturing and in supporting logistics and transportation services.

Sasol on Oct. 27 made a final decision to build an ethane cracker and derivatives complex in Lake Charles, Louisiana, not far from the petrochemical powerhouse called Houston. The Sasol complex, which will include six chemical manufacturing plants, will convert the region’s abundant natural gas, in the form of ethane, into plastics and other chemical products.

When it’s up and running in 2018, the complex will produce 1.5 million tons of ethylene — a colorless gas used to make polyethylene, the most widely used plastic — a year.

“The U.S. Gulf Coast’s robust infrastructure for transporting and storing abundant, low-cost ethane was a key driver in our decision to invest in America,” said David Constable, president and CEO of Johannesburg-based Sasol, an $18 billion fuel and chemicals maker.

From the U.S. Gulf Coast to the West Coast and the Northeast, chemicals production is rising, spurred by low energy costs and higher manufacturing activity. The output of chemicals was up in all regions of the U.S. in September, rising 2.4 percent on average nationwide.

Growth was strongest in the Northeast, at 3.8 percent year-over-year, while the Ohio Valley, West Coast and Midwest expanded production 2.9, 2.6 and 2.4 percent, respectively.

The council’s U.S. Chemical Production Regional Index continued to expand, rising by 0.6 percent in September following an upwardly revised 0.6 percent gain in August.

Those steady gains mean more chemical shipments on highway, rail and by water. That in turns means more interest and investment by third-party logistics companies and transport operators in the lucrative chemicals business. Transplace, a $1.4 billion 3PL, this month acquired Logistics Management Solutions, a 3PL with a strong chemicals portfolio. In 2011, Transplace acquired SCO Logistics, another 3PL with chemicals customers.

Quality Distribution, the second-largest U.S. bulk trucking operator, increased chemical logistics revenue 10.9 percent in the third quarter to $174.2 million, thanks to higher volumes, price increases, an acquisition and the opening of several new terminal locations.

In the second quarter, the $930 million company’s chemical-related revenue rose 9.3 percent to $171.7 million. Chemicals revenue rose 4 percent even in the frigid first quarter. In 2013, Quality took in $618 million in chemical logistics revenue, a 3.6 percent increase.

Overall, Quality increased third-quarter revenue 9.7 percent from a year ago to $258.5 million, with net income climbing from $2.8 million in the year-ago period to $3.6 million.

The stronger chemicals growth in 2014 is in part attributable to the company’s expansion strategy, meant to get Quality in front of the queue as carriers line up to grab business from a wave of plant expansions and new production facilities across the U.S.

Importantly, Quality is attracting drivers to its chemical business at a time when most truckload operators are struggling to keep drivers. “Chemical driver counts are up 8.3 percent from December 2013, which is helping to support strong customer demand,” Joe Troy, CFO of the Tampa-based company, said in a Nov. 6 earnings conference call.

Quality launched a bulk intermodal rail service in September in response to tightening over-the-road capacity attributed to the driver shortage. “We anticipate this capacity crunch to become even more severe with the dramatic chemical industry expansion underway due to low-cost natural gas,” said Randy Strutz, president of subsidiary Quality Carriers. “Our new intermodal offering allows us to provide customers with greater shipping capacity while freeing up driver capacity to allow us to leverage our drivers in more efficient ways.”

The service initially is focused on major chemical corridors between the Gulf Coast and California and the Gulf Coast and Chicago, he said. “We expect to ramp up our market coverage to the East Coast, Canada and Mexico over the next few quarters,” Strutz said.

Even before the launch of the new service, Quality’s intermodal revenue rose 15.1 percent in the third quarter from a year ago, driven by strong international import volumes.

Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc.