Top 100 Chemical Distributors: Chemical distributors prepare for recovery

Demand was strong until the fourth quarter with much of the year wracked by price hikes and product shortages. Now, distributors are working with buyers and suppliers to ensure there's enough product in the pipeline for when business picks up.

By Susan Avery -- Purchasing, 4/30/2009 2:00:00 AM EDT

Click here for the Top 100 Chemical Distributors.

While prices went up then down and supply was scarce then plentiful, 2008 could be described as a roller-coaster year for the chemical distribution industry. After a drop off in sales in the fourth quarter, both the suppliers and chemical buyers are awaiting an economic recovery.

Yet, when that recovery comes, if it's quick, there may be more thrills in store for both suppliers and buyers. In reaction to the economic downturn, some chemical producers have cut back capacity so much that they may not have time to ramp back up fast enough to meet demand, and there could be more supply tightness and price inflation ahead for buyers.

This is where chemical distributors step in. Executives at chemical distribution companies responding to Purchasing's 24th annual Top 100 survey say they are taking time during the recession to remove inefficiencies and costs from the supply chain. They're helping buyers with inventory management and providing some manufacturing, blending and reformulating services—and they're stepping up efforts to communicate market and pricing conditions.

For most of 2008, chemical distributors saw strong demand from customers. In fact, 88% of those responding to the survey say they had a good year. On average, sales rose 11.5%. The year before, 77% of chemical distributors reported sales increases that averaged 13.6%.

"For many of our members, 2008 was a record year," says Christopher L. Jahn, president of the National Association of Chemical Distributors in Arlington, Va. The chemical distributors NACD represent include approximately 80% of the companies on Purchasing's Top 100 list for 2009.

William A. Fidler, president and CEO at Brenntag North America in Reading, Pa., agrees. "We believe most chemical distributors enjoyed strong demand, volumes and margins in the midst of a highly volatile pricing environment that challenged suppliers and customers alike."

Prices of commodities like chemicals and plastics skyrocketed, beginning an ascent that began at the end of 2007 and did not stop until September 2008, according to purchasingdata.com. And, at the high point, oil prices topped $140/barrel.

In response to the volatility, the nation's largest chemical distributor, Univar "worked very hard to look at our operational efficiency and help control what we had to pass on to our customers," says Terry Hill, chief commercial officer at Univar in Bellevue, Wash.

The chemical distributor also helped customers get the products they needed when they needed them later in the year when there were shortages caused by hurricanes on the U.S. Gulf Coast.

"Then, once the economy slowed, we helped customers reduce inventory levels where necessary," says Hill. In addition to inventory management assistance, Univar also provided customers with blending and reformulation services.

Industries hardest hit as the economy slowed and that had an impact on chemical distribution were residential construction and automotive manufacturing. The downturn in these sectors impacted demand for such products as coatings, adhesives and sealants and elastomers, distributors say. Less affected are products chemical distributors sell to customers in the food processing, personal care and pharmaceutical industries, sectors that are for the most part recession-proof. Faring especially well were specialty chemicals.

"Towards the back half of the year, we even started seeing some of the chemicals we sell into those food, pharmaceuticals and personal care affected a bit as consumer buying patterns changed," Hill says.

Top of mind for chemical buyers is the economy, say 54% of the distributors responding to the Top 100 survey. Other buyer concerns chemical distributors cite are demand/lack of consumer spending (19%) and the credit market (19%).

Still, the overall sentiment for the remainder of the year is "cautious optimism," says Jahn at NACD. "Manufacturers are very lean right now and they are going to need distributors over the long term even more."

Univar's Hill explains: "Responding to global economics, producers have reduced operating rates and shut down plants. They are waiting for the economy to come back, but they can't swing that quick. It's really our job to help get through that."

Brenntag's Fidler agrees: "A small uptick in demand could create short-term but critical product shortages. We've directed some sales and marketing efforts to focus more on developing and communicating timely and accurate market information."

2009 and beyond

Looking ahead, distributors responding to the survey say they plan to put additional resources into improving relationships with customers (25%) and expanding product lines (23%) and service offerings (23%). They're also planning to invest in geographic expansion, including overseas (14%) and inventory management (14%) activities.

At Aceto Corp., which is coming off a strong 2008, Leonard Schwartz, president and CEO, is looking to the company's strengths in its three businesses—chemicals and colorants, pharmaceuticals and crop protection—to overcome economic challenges of 2009. One is its capability at sourcing products from low-cost countries like China and India. "Sourcing from these markets requires a tremendous amount of technical support," he says, adding that the company is opening a new office in Vietnam.

And while the pace of mergers of the recent past have nearly come to a halt due to the recession and credit crunch, some chemical distributors still are open to the idea of acquisitions. "We have the capital to move on something if it has the right value," says Gary Pruitt, CEO at Univar. "We have room to develop/expand our business and make acquisitions if we can find the right ones that will help our customers and our suppliers."

Brenntag completed 10 acquisitions that included the purchase of Rhodia's specialty distribution business in southeast Asia, India and Australia in 2008. "We continue to look at appropriate acquisitions that enhance our specialties business, fill in geographic white spots and build skill sets and services for our focused industries," says North American CEO Fidler.

Inside the Top 100

Eighty-eight percent of chemical distributors responding to Purchasing's 24th annual Top 100 survey report sales growth in 2008. Ten percent saw a decline, while the remaining 2% say sales were flat.

For the Top 100, sales averaged $267.4 million in 2008, up 11.5% from the $236.6 million reported for 2007.

For the Top 50, sales averaged $495.3 million in 2008, 11.2% over a $439.5 million figure of a year ago. Chemical distributors that make up the rest of the list had a better year. They saw sales grow 14.5% from $337 million in 2007 to $394 million in 2008.

Distributors with sales of $100 million or more had average sales of $658 million in 2008, up from $584 million in 2007, for an increase of 11.2%.

Mergers and acquisitions had little impact on the positions of the chemical distributors on the list for 2008. Positions of the top five remained the same as in 2008: Univar ($6.8 billion), Ashland Distribution ($4.4 billion), Brenntag North America ($3.7 billion), Helm America ($2.5 billion) and ICC Chemical Corp. ($1 billion).

As one company, the 15 independent chemical distributors that make up the Omni-Chem 136 alliance would fit between Helm America and ICC Chemical on the Top 100 list. Its sales were approximately $1.5 billion. Rather than list the companies together as an alliance, Purchasing chooses to list each individually.

Likewise for the Chemical Distribution Network (CDN). Together the 22 independent chemical distributors that belong to the CDN report sales of approximately $1.2 billion which would place the alliance ahead of ICC Chemical the Top 100 list. For more information on these alliances and their capabilities, please see the accompanying sidebars on pages 32C18 and 32C20.

There was some shifting to the remainder of the top 10 chemical distributors. In the number six spot this year with sales of $438 million is Harcros Chemical (Itochu Chemical, which held the spot last year declined to participate in the survey this year) followed by K.A. Steel Chemicals, which catapulted into the top 10 by doubling its sales to $400 million, helped by the company's purchase of the liquid caustic soda business of Old World Industries in August 2008. Hydrite ($397 million), Aceto ($359.6 million) and JLM Industries ($330 million) take the 8th, 9th and 10th spots this year.

The next 10 companies also saw some change in rank, but the players remain the same. Following JLM are: Premium Ingredients, Quadra, KODA, Canada Colors, EMCO, Interstate, L.V. Lomas, PVS Nolwood, Mays Chemical and Grupo Pochteca.

Profile of a chemical distributor

Purchasing's Top 100 chemical distributors report managing an average of 11.6 stocking locations at year-end 2008, the same as the previous year. Of chemical distributors that answered the survey question, 22% opened stocking locations in 2008. Again, this figure is the same as last year. Eleven percent closed them in 2008, up from 7% the year before. Twenty-one percent plan to open new locations in 2008, fewer than last year when 24% had similar intentions. Of those who say they will open new stocking locations this year, 3% plan to open more than one in the months ahead. Last year, this figure was 9%.

Chemical distributors on the Top 100 list have stocking locations mainly in the U.S. and Canada. Many also now have stocking locations in Mexico (10%) and Latin and South America (9%). Some have locations in Europe (9%), Asia (8%) and other regions (3%). These figures have changed little from those gathered in 2008.

At year-end 2008, Purchasing's Top 100 chemical distributors had an average of 3 million gal. of bulk storage capacity and an average 951,000 sq. ft. of warehouse space. This warehouse space figure is lower than the 1.2 million sq. ft. of space survey respondents reported last year. On average, survey respondents for 2009 have 51 trucks, 14 vans, 61 trailers, 45 tankers and 91 railcars in their vehicle fleets.

Chemical distributors have on average 205 employees. Average sales per employee is $1.4 million, a little less than the $1.5 million of one year ago.

In 2008, the Top 100 chemical distributors sold products to purchasing pros at companies in these industries: cosmetic/personal care products (85%), paints and coatings (85%), adhesives and sealants (83%), soaps and detergents (79%) and food and beverage (74%). Sixteen percent say they serve a niche market. Of those that responded to Purchasing's survey, 43% serve customers in more than 13 different markets, meaning they are fairly or very diversified. On average, the Top 100 today sell products into 12 different markets.

Chemical distributors on Purchasing's list provide customers in those markets with a variety of products. Of those responding to this year's survey, 46% offer 9–16 different kinds of products. On average, chemical distributors carry 14 different lines. Calling themselves specialized chemical distributors are 16% of the Top 100; they offer 1–8 product lines. The others provide more than 17 different types of products.

Products sold by chemical distributors are: surfactants (78%), amines (73%), inorganics (72%), alcohols (71%) and solvents (67%). The suppliers also sell: acids (64%), food additives (64%), chlor-alkali (61%), esters (60%) and glycol ethers (59%).

Forty percent of chemical distributors responding to Purchasing's survey say they import at least 15% of the products they sell.

Eighty-nine percent provide their customers with services; 27% offer five or more. Those offered are: blending (70%), contract packaging (53%), technical training (38%), manufacturing (37%) and customer product research (36%). The suppliers also offer: safety training (33%), hazardous waste removal (12%) and solvent reclamation services (9%).

Company	Rank
Aceto Corp.	9
Alchem Chemical	92
Alexander Chemical Corp.	71
Allchem Industries	36
Americhem Sales Corp.	99
Archway Sales Inc.	31
Ashland Distribution	2
Astro Chemicals Inc.	63
Barton Solvents Inc.	26
BHS Marketing	64
Brenntag North America Inc.	3
Buckley Oil Co.	90
Callahan Chemical Co.	32
Canada Colors & Chemicals	14
Charkit Chemical Corp.	49
Chemical Distributors Inc.	85
Chemicals Inc. (Chemgroup)	27
Chemisphere Corp.	72
Chem One	66
Chemroy Canada Inc.	61
Chemsolv Inc.	53
Coast Southwest Inc.	100
Cole Chemical & Distributing Inc.	44
Conchemco	47
CSD-Startex	28
Dar-Tech Inc.	74
DB Becker Co.	83
DeWolf Chemical Inc.	94
D.H. Litter Co. Inc.	50
Dorsett & Jackson Inc.	70
Durr Marketing Associates Inc.	46
EMCO Chemical Distributors Inc.	15
E.T. Horn Co.	25
E.W. Kaufmann and Co.	88
Fitz Chem Corp.	73
George S. Coyne Chemical Co.	43
Grupo Pochteca	20
G.S. Robins and Co.	38
Gulf Coast Chemical	89
Harcros Chemicals Inc.	6
Haviland Enterprises Inc.	40
Hawkins Inc.	22
HB Chemical	56
Helm America Corp.	4
H.M. Royal Inc.	34
Hubbard-Hall Inc.	65
Hydrite Chemical Co.	8
ICC Chemical Corp.	5
Ideal Chemical & Supply Co.	62
Independent Chemical Corp.	84
Industrial Chemicals Corp.	81
Industrial Chemicals Inc.	42
Interstate Chemical Co. Inc.	16
JLM Industries Inc.	10
John R. Hess & Co.	95
K.A. Steel Chemicals	7
KODA Distribution Group	13
Lintech International	59
L.V. Lomas	17
M Chemical Co.	86
Matteson-Ridolfi Inc.	80
Mays Chemical Co. Inc.	19
McCullough & Associates Distributors	60
The M.F. Cachat Co.	24
Miles Chemical Co.	77
Premium Ingredients International	11
Pride Solvents & Chemical Co.	29
PVS Nolwood Chemicals Inc.	18
Quadra Chemicals	12
Quaker City Chemicals	79
Rowell Chemical Corp.	37
SAL Chemical	87
Schibley Chemical	97
Sea-Land Chemical Co.	54
Seeler Industries	93
Skyhawk Chemicas, Inc.	51
Slack Chemical Co.	82
SolvChem Inc.	41
Superior Solvents & Chemicals	23
Sweetlake Chemical	96
Tanner Industries Inc.	33
Tarr	45
TCR Industries Inc.	52
The Chemical Co.	57
The Plaza Group	30
TH Hilson Co.	78
Tilley Chemical Co.	39
TransChemical Inc.	69
TRI International Inc.	55
United Mineral & Chemical Corp.	76
Univar, Inc.	1
Valudor Products Inc.	75
VanHorn, Metz & Co.	67
Veckridge Chemical Co.	91
Vivion Inc.	98
Walsh & Associates Inc.	58
Webb Chemical Service Corp.	68
Wego Chemical & Mineral Corp.	21
Westco Chemicals Inc.	48
Whitaker Oil Co.	35

Click here for the Top 100 Chemical Distributors.

Source: Purchasing
In addition to the U.S. and Canada, the Top 100 chemical distributors have stocking locations in the following regions:
Europe	9%
Mexico	10%
Asia	8%
Latin/South America	9%
Other areas:	3%

Source: Purchasing
Average bulk storage capacity:	3.0 million gal
Average warehouse space:	951,000 sq ft
Average delivery fleet size:	167 vehicles
Of those who say they have	% that have one or more
Trucks:	51%
Vans:	14%
Trailers:	61%
Tankers	45%
Railcars:	91%
Other vehicles:	7%

Source: Purchasing
Economy/recession	54%
Lack of demand	19%
Credit markets	19%
Business survival/bankruptcies	14%
Pricing stability	12%
Cash flow management	12%

Source: Purchasing
Grow customer relationships	25%
Expand product lines	23%
Expand services offered	17%
Expand geographically	14%
Better manage inventory	14%
Build customer base	8%

Service	%
Source: Purchasing
Blending	70%
Contract packaging	53%
Technical training	38%
Manufacturing	37%
Customer product research	36%
Safety training	33%
Hazardous waste removal	12%
Solvent reclamation	9%
Other	20%
No extra services offered	11%

Product line	%
Source: Purchasing
Surfactants	78%
Amines	73%
Inorganics	72%
Alcohols	71%
Solvents	67%
Acids	64%
Food additives	64%
Chlor-alkali	61%
Esters	60%
Glycol ethers	59%
Thickening agents	59%
Ketones	56%
Chelating agents	53%
Resins	52%
Lubricants	51%
Chlorinated solvents	50%
Polyglycols	47%
Fatty chemicals	45%
Plasticizers	43%
Hydrogen peroxide	42%
Pigments	42%
Specialty quats	37%
Flavors and fragrances	35%
Catalysts	32%
Adhesives and sealants	25%
Aldehydes	25%
Institutional maintenance	14%
Industrial gases	13%
Other	36%

Source: Purchasing
Average number of employees in 2008:	205.3
Average sales per employee:	$1.4 million

Market	%
Source: Purchasing
Cosmetic/personal care	85%
Paints and coatings	85%
Adhesives and sealants	83%
Soaps and detergents	79%
Food and beverage	74%
Plastics	71%
Primary chemical processing	68%
Pharmaceuticals	68%
Automotive	65%
Pulp and paper	58%
Agriculture	58%
Electronics	57%
Metals	53%
Municipal	51%
Tires and rubber	46%
Petroleum refining	45%
Textiles	44%
Glass and refractory	30%
Appliances	14%
Other	19%