Fascinating times ahead for distribution - The chemical industry is expected to play a major role in the next industrial revolution, which will be the "sustainable" one. Rafael Cayuela, global product and marketing director at Styron (part of Dow Chemical until 2010) and book author describes in his book "The Future of the Chemical Industry by 2050" what opportunities lie ahead for chemical manufacturers. For CHEManager Distribution and Logistics, Michael Reubold asked him about the impact this will have on the chemical distribution industry.

CHEManager: In your book "The Future of the Chemical Industry by 2050," you explain what challenges and opportunities lie ahead of the chemical industry. In brief, what will the future for our industry look like?

R. Cayuela: The chemical industry - as our world - is in the midst of one of the most important transformations in modern times. Already large "tectonic shifts," such as the shale gas revolution in North America, the emergence of China as the largest chemical market in the world, or the consolidation of the Middle East as the single largest petrochemical hub, might appear minor compared with what is currently unfolding.

The imperative need for our world to reduce CO₂ emissions drastically will create massive technological challenges. It will also create the single largest business opportunity in human history of up to $80 trillion - at $10 per ton of C0₂. At the same time the chemical industry will have the potential to triple or quadruple during the next decades, from $3 trillion in 2010 to $14 trillion by 2050. During this transition new companies and industries will flourish, while others will disappear. But certainly the chemical industry is expected to play a major role in the next industrial revolution, the "sustainable" one.

What will be the major factors influencing the future direction our industry is taking?

R. Cayuela: From a "quantitative" point, massive growth in population, economics and urbanization rates, as well as changing demographics around the world would play a critical role. From a "qualitative" and margin point of view, the large impact of climate change and energy and feedstock change are expected to become crucial for our industry. We already experienced the large impacts of some of these transformations with the recent discovery of shale gas in the U.S., while more transformations will come very soon. Finally, computational progress and technological convergence are expected to accelerate all other trends, creating even bigger opportunities and challenges for our industry.

Do you think the industry - or most industry players - are prepared for this future?

R. Cayuela: The chemical industry is extremely well-positioned to capitalize on the upcoming challenges and business opportunities. Europe is especially well-positioned here, with high levels of integration, long-standing focus on innovation and very powerful technology/industry clusters.

However, some parts of our industry as well as many players will need to be transformed. The winners and losers of the future will be determined by their capacity to think strategically, master change and remain flexible, and ultimately by their ability to capitalize on the upcoming challenges and opportunities. Chemical producers able to provide superior solutions, while enabling energy and emissions reductions, will be the winners of the future.

What do you see as the biggest challenges that lie ahead and will have to be mastered by the chemical industry?

R. Cayuela: To some extent, the largest challenge for the chemical industry has become the industry itself. The chemical industry, after decades of enormous growth and success, has become more complacent with itself and more inwardly focused, especially when addressing technology and stakeholders' relationships.

After the Second World War and most recently with China's entrance into the world economy in 1990, the chemical industry experienced a period of massive growth. Indeed the chemical industry more than quadrupled between 1970 and 2010, while China's industry quadrupled from 2000 to 2012.

This remarkable growth in chemical demand has triggered massive changes in the chemical industry, such as the reshuffle of the leading chemical markets and trade flows - with China already the largest chemical market in the world. Perhaps even more important: it changed the whole focus of the industry.

From a technology point of view, the industry has become more focused on incremental technologies and operational efficiencies, rather than on pure technology and innovation.

From a stakeholder's perspective, the industry has become more inwardly focused. The industry has a reactive stand toward society and legislators rather than a proactive one; after all, the industry has been growing significantly in the last decades.

However, the imperative need of our world to address massive growth, emissions and energy reductions will stretch the industry to levels never observed before. The fact that one single product, technology or even industry could not solve some of the upcoming challenges will require producers to work, collaborate and innovate across the value chain, including governments and regulators. In other words, the industry will be forced to change its perspective from an inward to an outward one; putting innovation and technology back at the forefront of the industry and technological collaboration at the core of the industry.

In terms of the supply chain, what role will chemical distributors play or have to play in the future?

R. Cayuela: As chemical companies stretch themselves - addressing simultaneously "quantitative" and "qualitative" growth - the role of distributors will become still more critical than today.

Massive growth into emerging economies will create huge distribution opportunities, supporting the already stretched chemical companies in the advanced economies to succeed in the growing areas. However, distributors from the advanced economies need to rush and work decisively in this area, as local contenders are becoming not only more experienced and professional but also much bigger.

On the other hand, the imperative need to reduce energy and emissions around the world, especially in the advanced economies, will force chemical producers to refocus themselves on innovation and technology. Distributors, as a key part of the industry with direct access to a large part of the customer base, will play a critical role in understanding and communicating the customers' needs and aspirations.

Distributors will be forced to become even more technologically knowledgeable and to work even more closely across the value chain. In a world oriented more and more toward sustainable solutions, technology understanding will become critical, collaboration and flexibility invaluable. Additionally, the clear need of the industry to focus on both massive growth and pure innovation will open the door to distributors for more vertical and horizontal integration. More and more, the joint distribution of monomers and polymers will present higher opportunities, while the mastering of global arbitrages will become vital. Vertical and horizontal integration also implies and requires larger sizes and even stronger financial health but also larger opportunities. Fascinating times ahead for distribution!

How will the chemical distribution industry have to adapt in order to participate in the future growth opportunities of their principals?

R. Cayuela: Long-term strategic alignment with their principals and markets will remain essential. Vertical and horizontal integration present enormous business opportunities and huge synergies, too. That is why, in a world full of opportunities, the clear understanding of where to focus would be as essential as possessing the right set of skills.

The upcoming decades will present an enormous array of business opportunities but also enormous risks. That is why rigorous and regular strategic and long-term assessments would become more and more critical, especially as principals will embark on dramatic and long-term strategic changes.

On the other hand, emissions and energy reductions would also present a large opportunity and challenge for the distribution industry. As an industry fully exposed to massive movements of chemicals, the emissions related to the transportation and handling of goods might present large opportunities for differentiation. Indeed, distribution should become fully informed and aware of all the upcoming legislative and market trends but also should be keen and strong to let its voice be heard.

Is there one chemical distributor business model that will guarantee success or will the markets call for various or flexible distribution models?

R. Cayuela: Fortunately, I don't think there is a universal business model to guarantee success, as that will make the whole industry and its players very vulnerable. Different areas, markets and products will require different business models, however some special attributes and competencies could be observed in the winners of the future.

Chemical companies - principals - able to support emissions and energy reductions will be the winners of the future. Distributors able to choose the right partners, but also to think strategically and act accordingly, collaborate globally but closely across the whole value chain, will be the winners in the next decades. Together, principals and distributors could create formidable winning teams, outperforming competition while delivering sustainable business models for an industry in need of the best technologies and products. In a world expected to grow massively in commodities and specialties, the most strategic and flexible players will enjoy the rewards of the largest business opportunity in human history.