A Paradigm Shift : Supply Chain Collaboration and Competition in and between Europe’s Chemical Clusters Results of the EPCA Think Tank Sessions organized and sponsored by EPCA With contribution of the INSEAD team, Technology and Operations Management, Fontainebleau, France • Prof. Luk Van Wassenhove • Baptiste Lebreton • Paolo Letizia and the Editorial Committee Luk Van Wassenhove, INSEAD • Frank Andreesen, Bayer • Philip Browitt, Agility Logistics Solutions • Cathy Demeestere, EPCA • Fred du Plessis, European Chemical Site Promotion Platform • Paul Gooch, The Logical Group THE EUROPEAN PETROCHEMICAL ASSOCIATION August 2007 DISCLAIMER : All information contained in the report was collected from the participants and EPCA does not guarantee the accuracy thereof nor can it be held liable in case it is not. Participants have guaranteed that information relating to cases summarised in the report was in the public domain and did not consist in sensitive business information. EPCA did not check the individual compliance with competition rules of cases summarised nor can it be held liable if all or part thereof would violate competition rules. Competition law compliance is the individual responsibility of the individual companies concerned. 2 INDEX Note on Competition Law 6 1. Management Summary 9 2. Introduction 13 2.1 European Chemical Industry – A Major Force under Threat? 13 2.2 Clusters & Competitiveness 14 2.3 The EPCA Study 15 3. Presentation of the ARRR and Tarragona chemical clusters 17 3.1 Definition of chemical clusters 17 3.2 Presentation of the ARRR and Tarragona clusters 20 3.2.1 ARRR Cluster 20 3.2.1.1 Antwerp subcluster 22 3.2.1.2 Rotterdam subcluster 24 3.2.1.3 Rhine Ruhr subcluster 27 3.2.1.4 Rhine Main subcluster 30 3.2.2 Tarragona cluster 30 4. Interview results 35 4.1 ARRR 35 4.1.1 Advantages of the ARRR cluster 35 Caselet: The benefits of co-siting: the Rotterdam 36 chlorine case Caselet: MultiCore pipeline in the port of Rotterdam: 38 a common infrastructure to the benefit of all 3 4.1.2 Disadvantages of the ARRR cluster 39 Caselet: Asset pooling between LSPs in the Antwerp 41 cluster: the Oiltanking/Stolthaven collaboration Caselet: Benefit from cluster synergies via vertical 42 collaboration: the LBC/Ertisa case 4.1.3 Obstacles to overcoming cluster disadvantages 43 Caselet: Horizontal LSP collaboration in the Port of 44 Rotterdam - Pernis Combi Terminal 4.1.4 Opportunities for horizontal cluster collaboration 45 Caselet: ComLog – Common Logistics Procurement: 47 an example of both vertical and horizontal cooperation Caselet: The challenge of multi-company infrastructure 49 investments: the EPDC case 4.1.5 Opportunities for vertical cluster collaboration 52 Caselet: Joint consortium in the cluster: the CLA 54 initiative 4.1.6 Who should lead the development of the cluster? 55 Caselet: Proactive site leadership: the INEOS Ethylene 57 Oxide case 4.2 Tarragona 58 4.2.1 Advantages of the Tarragona cluster 58 Caselet: Dixquimics Pipe Rack 59 4.2.2 Disadvantages of the Tarragona cluster 60 Caselet: Multimodal Container Terminal 62 4.2.3 Obstacles to overcome cluster disadvantages 63 Caselet: Water supply in Tarragona 64 Caselet: Hazardous waste incinerator in Tarragona 65 Caselet: Treated Water Disposal 66 4 4.2.4 Opportunities for horizontal cluster collaboration 68 Caselet: Tradilo Multimodal Transport JV 69 Caselet: TAPP Mooring 70 4.2.5 Opportunities for vertical cluster collaboration 71 Caselet: Ammonia Logistics 72 4.2.6 Who should lead the development of the cluster? 73 5. Comparison between the clusters in Antwerp, Rotterdam, 77 the Rhine/Ruhr region, and Tarragona 5.1 Raw material and competitive feedstock 77 5.2 Exports 77 5.3 Logistics 80 5.4 Authorities 80 5.5 Land ownership 80 6. Conclusions & Recommendations 83 6.1 Manage cluster information to identify opportunities 83 6.2 Provide a platform to discuss cluster opportunities 84 6.3 Take common actions to exploit cluster opportunities 84 6.4 Long-term relationships are more profitable than short-term 85 benefits 7. Appendix 87 Organization of the study 87 Literature sources 89 Definitions 89 Acknowledgments 90 5 NOte ON COMpetitiON Law Competition law, both at national observed that the key objective level and at EC level, regulates – of rules against anticompetitive among other things – agreements agreements is that companies between companies that have the should act independently. This purpose or the effect of restricting of course does not mean that competition. any form of common action is excluded. It does, however, imply Whilst in itself cooperation that where cooperation is envis- between companies to enhance aged, the intention should not be supply chain efficiency and, more to dampen rivalry between firms. broadly, to develop competitive It is therefore important that the industry clusters does not give rise efficiency or competition enhanc- to competition law concerns –and ing intent behind cooperation be may indeed help to reinvigorate clearly identified at the outset. competition– the existence and Moreover, the concrete effects on nature of such cooperation may be competition of cooperation should misinterpreted or not fully under- be carefully weighed up. Do the stood by competition authorities, increased efficiency, improved or indeed may be open to abuse. customer service and/or techno- logical advances promised by a For this reason it is important when certain cooperative strategy out- considering any form of coop- weigh the possible loss of rivalry eration to ensure (i) the compat- between firms working together on ibility of individual strategies with a project? competition law and (ii) that these strategies are described and com- Clearly, the compatibility of municated in a clear way that limits specific cooperative agreements any possible misunderstanding as with competition law ultimately to their nature and intent. requires a case by case approach. However, the following general ob- Broadly speaking, it can be servations can be made. Generally 6 speaking, competition authorities volved in cooperative agreements will be more concerned about: are important elements of evi- • “Horizontal” cooperation than dence in the event that breaches “vertical” cooperation; of competition law are alleged at a • Cooperation involving (even ex- later date. changes of information on) key parameters of competition such Finally, it is emphasized that – in as price or output; accordance with competition • Cooperation between players in law – the present report is not concentrated sectors or coop- intended as a “shopping list” or set eration involving many players in of recommendations to industry, a sector. but aims to identify the great efficiencies that can be derived In addition to assuring themselves from the development of effi- that a particular course of conduct cient supply chain management is indeed compatible with com- and strong economic clusters petition law, companies must also more generally. Ultimately, it is ensure that their assessments are up to each company to decide carefully documented. Rigorous individually upon its own best documentation and document business strategy. retention policies are therefore key. Clear records must be kept, for example, of the reasoning behind strategies adopted and any meetings concerning them, the assessment of the effects of those strategies and why the company considers them to be compatible with competition law. Paper trails clearly showing the good will and intentions of the companies in- 7 8 1. MANAGEMENT SUMMARY With the attention of the chemical indus- • Develop research connections with try focused on exploiting the low cost universities and institutions feedstocks in the Middle East and the • Continue with the working group growth markets of Brazil, Russia, India, activities where there are areas for China and South East Asia, this report further discussion and development provides a timely reminder to policy S TER makers, chemical companies and logis- As a consequence it was proposed that S tics service providers of the significant the successful Think Tank model be L CLU opportunities for improving business maintained, comprising senior stake- CA potential in Europe’s chemical clusters. holders and decision-makers, to study CHEMI Europe is still the largest, most sophisti- supply chain collaboration in chemical S e’ cated global market for chemical prod- clusters in Europe. During the first half P ucts, with a well developed, efficient, of 2007, under the sponsorship of the URO E highly productive asset base, sound EPCA Board, 53 senior representatives infrastructure, leading edge research and of chemical companies, logistics service development and significant purchasing providers, public authorities and institu- ND BETWEEN power. Provided these advantages are tions, together with researchers from IN- A sustained, including continued attention SEAD, engaged in this study. The Think to asset maintenance and operational Tank was chartered to test the conclu- ETITION IN and supply chain improvements, Europe sions from previous think tanks, identify P can remain a competitive force in the working examples of cooperation (suc- global market place, despite what the cesses as well as opportunities for ND COM A doom-mongers may say to the contrary. improvement and missed opportunities), TION develop ideas to overcome constraints A The EPCA Supply Chain Think Tank and stimulate future supply chain col- BOR reports of 2004 and 2005 concluded that laboration initiatives, using the examples