Alok Sharman,Regional Director – South Asia and MD – India, Brenntag Ingredients India
The use of innovation and technology in the chemical supply chain operation has also given distributors the ability to harness their supply chain operations.
Key global and Indian trends in the Chemicals and Ingredient Distribution business in 2023?
The Indian chemical sector is projected to grow by 11-12% from 2021-2027 and by 7-10% from 2027-2040, thereby tripling its global market share by 2040. This phenomenal growth is fueled by a range of factors:
Rising domestic consumption: India is expected to account for more than 20% of incremental global consumption of chemicals over the next two decades. Domestic demand is expected to rise from US $170-US $180 billion in 2021 to US $850 billion - US $1 trillion by 2040.
Changing consumer preferences: The growing demand for bio-friendly products globally could benefit India, as it is among the leading producers of many chemicals that are used in such products.
Shifting supply chains: Triggered by the evolving geopolitical scenario and the trend to diversify from the existing core manufacturing markets, firms are seeking to make their supply chains more resilient. With its strong value proposition, India could be a preferred destination in the “China plus one policy” for many companies.
Over the past 5-7 years, India has made substantial improvements in its policy and regulatory environment, making it much easier for enterprises to establish themselves and flourish. India’s Ease of Doing Business Ranking jumped from number 143 in 2015 to number 63 in 2020, and its manufacturing foreign direct investment during FY16 to 20 exceeded the figure for the preceding five-year period by three times. On some parameters, however, India lags behind its peers. These include the ease of starting a business, registering property, paying taxes, and enforcing contracts. Getting timely environmental clearances (ECs) is also a major challenge in India.
With a net trade surplus, the specialty segment is the strongest pillar of India’s chemicals sector.
Agrochemicals: Agrochemicals in India is currently a US $5.5 billion market, growing at a CAGR of 8.3%. By 2040, it is expected to account for almost 40% of India’s overall chemical exports.
Food and feed ingredient chemicals: Constituting flavors and fragrances, food and feed additives, and nutraceuticals, this subsegment is a US $3 billion market in India, growing at a CAGR of 7-9%.
Inorganic Chemicals: As inorganic chemicals require little processing compared with other segments, this segment is predominantly dependent on feedstock availability. India, unfortunately, has a scarcity of raw materials for most chemicals in this segment. However, it has a high demand for many inorganic chemicals, making it an attractive market.
The chemical distribution market, on a global scale, is likely to grow steadily over the foreseeable future due to an increasing number of chemical manufacturing unit expansions among other major regions. High demand for various commodity chemicals from the industrial manufacturing sector coupled with growth in automotive and transportation is likely to boost market growth. In terms of revenue, Asia Pacific emerged as the largest market globally for chemical distribution, with a market share of 59% in 2021.
The specialty chemicals market is poised to reflect the fastest growth in terms of revenue, worldwide, due to increasing demand for coatings, adhesives, sealants, and elastomers (CASE), specialty polymers and resins and especially from construction, automotive, and industrial manufacturing sectors globally.
The chemical distribution market is highly competitive in nature with companies such as Brenntag leading the market as the world’s largest distributor of chemicals and ingredients. Distribution companies in this space have an exhaustive array of product offerings and leverage on their global presence to cater to customers’ needs.
The use of innovation and technology in the chemical supply chain operation has also given distributors the ability to harness their supply chain operations. These technologies include radio frequency identification (RFID), global positioning satellites (GPS), and Internet of things (IoT) to provide real-time data for timely and seamless order fulfillment.
In terms of key focus areas in chemical distribution in 2023, the following are some examples: Industry focus - specific industry, region, and product line expertise with the ability to meet customer and supplier needs on a global scale; Sustainability - sustainable, and safe practices that protect the planet, help grow business, and build a better tomorrow for future generations; Technical acumen - strong innovation expertise and the ability to deliver practical solutions that meet the latest trends and regulatory requirements; and Reliability - full-service distribution capabilities and a vast network that leverages the global supply chain at the local and regional levels.
Brenntag's performance during FY 2022-23 and update on the company's initiatives in the Essentials and Specialties Business Units during FY 2022-23? FY 2023-24 plans for Brenntag Specialties and Brenntag Essentials?
Our two divisions, “Brenntag Specialties (BSP)” and “Brenntag Essentials (BES)”, both contributed to the remarkable success by delivering an excellent performance and mostly organic growth in FY 2022. As forecasted, Brenntag Specialties grew at a stronger rate.
Our new growth strategy, including ambitious medium-term targets for 2026, is the next phase of our company’s transformation and builds consistently on the foundations laid by “Project Brenntag” and the achievements to date. The strategy involves individual growth plans for Brenntag Specialties and Brenntag Essentials. Applying these divisional strategies and leveraging our company’s global footprint and fundamental strengths, we will further develop the differentiated profiles of our two divisions (BSP and BES) and propel their growth above the market growth rate.
Our “Strategy to Win” also sets out a clear program for the company’s digital, data-driven transformation. We see “Digital.Data.Excellence” (DiDEX) as a key growth driver for our Group. We will drive efficiency at all levels of our organization and develop Brenntag into a data- and technology-driven business that uses its wealth of data to develop new business opportunities and smart, innovative solutions and thus generate further growth. We are evolving into an agile, flexible and, ultimately, the preferred business partner in the chemical and ingredients distribution ecosystem.
It is also expressed in our new global branding, which we presented together with the “Strategy to Win” in November 2022. Strategy, vision, and brand – together, they are a clear signal to our business partners, shareholders, and employees that we forge ahead as global market leader, assuming responsibility and setting standards. As the global market leader, we have undertaken to promote a sustainable future. In publishing our “Future Sustainable Brenntag” strategy and vision in April 2022, we set ourselves an ambitious ESG agenda. This includes achieving net-zero emissions by 2045, increasing the extent to which we use sustainability criteria to steer our product portfolio and driving sustainability in our supply chains.
To achieve our ambitious growth targets, Brenntag has always focused on both organic growth and growth through acquisitions as well. The global chemical distribution market remains highly fragmented and offers us exciting opportunities for consolidation. As part of “Strategy to Win”, we have therefore also increased the range for strategic M&A investments. The recent acquisitions in APAC of Aik Moh Group and Neuto Chemical Corp are just a few examples of how we have been expanding inorganically.
Progress of “Project Brenntag”, the first step in Brenntag’s comprehensive transformation journey establishing a new operating model with two global business divisions?
“Strategy to Win” represents the second phase in Brenntag’s transformation journey. The first phase, “Project Brenntag”, started more than two years ago and focused on implementing the new operating model with two global business divisions and clear customer segmentation, optimizing the site network, and on structurally addressing productivity improvements by 2023.
The ambitious Project Brenntag targets included an additional annualized operating EBITDA contribution of EUR 220 million. As intended, Project Brenntag has laid the foundation and enabled the company to achieve improved sustainable organic earnings growth.
Brenntag is the undisputed and resilient leader in an attractively growing and highly fragmented, indispensable market. We have now defined how to strengthen and expand this position.
Our aim is to foster growth in our global divisions with clear differentiated strategies. Moreover, we build a comprehensive digital and data framework and architecture to better serve our global customer base and achieve the next level of operational efficiency, growth, and excellence.
With our comprehensive and ambitious ‘Strategy to Win’ we aim to outpace the underlying market growth. Brenntag will play a crucial role in the ecosystem of sustainable global chemicals and ingredients distribution.
The company is also building a comprehensive digital and data architecture to better serve its global customer base and achieve the next level of operational efficiency, growth, and excellence. Steps taken in this regard?
Digital.Data.Excellence (DiDEX) is to be an engine of growth contributing to Brenntag’s fundamental transformation into a data and technology driven business and industry leader. Brenntag aspires to become the easiest business partner in the chemical distribution ecosystem, generate value from its data, modernize its digital business architecture and thus provide the most efficient and agile supply chain.
In the course of this next step in its transformation, Brenntag will make targeted investments in its Digital.Data.Excellence (DiDEX) capabilities. As an omnichannel partner, Brenntag is further developing virtual platforms such as Brenntag Connect and offering new, fully digital services such as Track & Trace. The Brenntag Excellence initiative is aimed at building a stable, efficient, and streamlined organization in combination with dynamic and fast processes. The initiative supports the implementation of the new business model and digitalization, and thus enables further growth, greater customer- and supplier centricity, and more agility.
Leveraging the potential of data with the help of special tools and business intelligence, Brenntag will make more effective use of its unique global market, customer and supply chain expertise as well as available data so as to better serve customers, better manage processes and create added value.
Creating a scalable information technology platform Brenntag is working together with leading technology companies to build a comprehensive, scalable and modular global platform. This global platform will offer an improved digital environment and a better IT infrastructure for the company’s various functions and business units across the supply chain.
Brenntag will play a crucial role in the ecosystem of sustainable chemicals and ingredients distribution, globally. How are you ensuring its safe distribution?
BEST (Brenntag Enhanced Safety Thinking) is a global Brenntag initiative to improve the safety behaviour and the safety culture in the whole company. Brenntag India is a member of Responsible Care? (RC) which is a global chemical industry's initiative that drives continuous improvement in health, safety and environment (HSE). We are committed to promote sustainability, demonstrate product stewardship, make plants and surrounding communities safe as well as to constantly improve occupational health and safety and environmental protection. In March 2023, Brenntag India organized a full day training session for our transporters on the safe delivery of chemicals with a deep dive into safe transportation guidelines and application. This session was well appreciated by our transporters and have requested and are looking forward to more training sessions.
Strategies to address the complex challenges within the supply chain resulting from geo-political situations?
It is reported that 32% of CEOs surveyed by PWC said geopolitical conflict was a key danger to growth, and 71% said it may hinder sales. Global or regional disruptions can cost, complicate, and inefficient supply systems. Tariffs, sanctions, and other measures disrupt critical goods, providers, and markets and increase regulatory burdens. Political or military emergencies may force companies to pursue new shipping routes.
In Brenntag, we embrace the following four-step strategy: Watch: Monitoring geopolitical events that may affect key supply regions and industries; Identify and Reviews: Identify risk exposure and conduct regular reviews by mapping known supply chain nodes; Assess: Evaluate how easily each node can be disrupted, as well as how likely an event is to happen, how bad it could be, and how well your company can handle or reduce each risk; and Plan: Plan to adapt corporate strategy and operations to changing global or regional conditions with little notice and insufficient information. Balance inventory between efficient just-in-time and shock-resilient just-in-case solutions for contingency planning.
Growth opportunities in India and company's plans to augment India operations in FY 2023-24?
India is one of the focus countries of growth for Brenntag in the Asia Pacific, having achieved the highest country sales growth in Brenntag Specialties for FY22. Brenntag Essentials in India has also recently brought on board a dedicated commercial director to lead the business growth in India. Brenntag India is also at present focusing on augmenting our supply chain in terms of warehousing, production and expanding application development centers to serve our customers and suppliers.
How is the company striking a balance between sustainability and business priorities? Key initiatives with respect to global and Indian context?
In Brenntag, sustainability and business go together. Brenntag India, along with its Lubricants Business Unit endorses and supports sustainability through the circular economy.
Like last year, in May this year Brenntag India will be sponsoring and participating in the Rosefield Conference on Circular Economy in Used Oil.
Currently India is facing challenges in used oil re-refining such as re-refining technologies to deliver the OEM-required RRBO (re-refined base oils) specifications, reverse logistics of used oil at source at fair prices, the availability of used oil for re-refining vis-a-vis other competing end uses. Brenntag is working towards being a part of the group to generate workable ideas and solutions to address these challenges by technology upgradation, collaborative efforts, segregation, and collection of used oils and to ensure used oils flows back to re-refiners efficiently.
Brenntag India is also developing sustainable warehousing which takes into consideration various issues such as reducing operational and energy costs, minimizing land usage, reducing waste, innovative use of natural lighting, automatic lights, and other renewable energy options, water optimization sources like water flow reduction mechanisms and rainwater harvesting system, minimizing carbon footprint through solar panels and the use of biodegradable products ,eco-friendly packaging materials, recyclable shipping pallets, with furniture and fixtures being made from recyclable materials.
Brenntag India is also a member of RSPO (Roundtable on Sustainable Palm Oil). RSPO is a global, not-for-profit organization that brings together stakeholders from across the palm oil supply chain to develop and implement global sustainable palm oil.
CSR projects undertaken in FY 2022-23 and plans for FY 2023-24?
Brenntag India has an employee-led CSR committee who spearheads our CSR initiatives, supporting NGOs engaged in various areas like: Education – upgrading rural primary School near Thane Area (Mumbai); Highway safety awareness near Thane (Mumbai); Tree plantations; Care of the aged; Upliftment of rural woman; Special and underprivileged children; Leprosy patient care, etc.
With its “Future Sustainable Brenntag” program, the company has set itself an ambitious ESG agenda to become the leader in responsible distribution of sustainable chemicals and ingredients. Elaborate ESG agenda?
Sustainability has been an integral part of Brenntag’s corporate strategy for many years now. Being a global market leader means bearing responsibility worldwide. Brenntag is aware of this responsibility and over the past few years has continuously expanded its sustainability organization and activities. It has established a global sustainability program and comprehensive governance structures with a view to driving the integration of numerous ESG matters into its business processes. Responsible and sustainable chemical and ingredients distribution is a fundamental element of Brenntag’s strategy; it provides the basis for Brenntag’s future as a global leader. Through its new ESG strategy, Brenntag is paving the way to achieve its long-term sustainability vision Future Sustainable Brenntag.
The strategy comprises the following 6 focus areas: Management structures for business ethics; Portfolio and investment steering; Fair and safe employer; Responsible partner for suppliers and communities; Climate protection and reduction of emissions; and Resource efficiency and circular economy.
All actions are guided by the United Nations Sustainable Development Goals (SDGs). Brenntag has identified eight SDGs that are of most relevance to the company and to which it can make the greatest contribution. These eight SDGs are: Good health and well-being; Gender equality; Affordable and clean energy; Decent work and economic growth; Industry, innovation and infrastructure; Reduced inequalities; Responsible consumption and production; and climate action.
Safety is one of Brenntag’s cultural pillars and a top priority. Steps taken to reduce TRIR (Total Recordable Injury Rate – number of work-related accidents requiring medical treatment beyond first aid per one million hours worked)?
Our aim by 2030 is to achieve a TRIR of less than 2.0 and prevent serious accidents completely. We operate in accordance with the “Safety First” 0 principle, relying strongly on personal commitment and responsibility. In order to raise employee awareness of occupational health and safety, Brenntag continuously addresses the topic through various different channels. Every year we celebrate “Safety Day” in Brenntag India. All our employees actively participate in this event by sharing Near miss reports, best safety culture practices. Brenntag has also established the “Safety First Moments”, where at the beginning of meetings employees talk about all kinds of safety issues arising in everyday professional or private life. Once a year, Brenntag presents the Global Safety Awards in two categories: Safety Excellence Award for the best safety record and Safety Phoenix Award for the strongest improvement in terms of safety.
In addition to the strong organic growth, Brenntag also pushed ahead with four successful acquisitions strengthening its product and service portfolio and its presence in key focus industries and geographies. How will this help India and South Asia geographies for Brenntag India?
To strengthen organic growth, Brenntag plans to drive market consolidation through M&A activity that creates value. While maintaining financial discipline, Brenntag’s focus is on expanding our position in emerging markets in both divisions, improving strategic capabilities and market positions, augmenting the existing portfolio, and improving technical capabilities. As part of the “Strategy to Win”, we have therefore also increased the range for strategic M&A investment. We are constantly on the lookout for best fit M&A opportunities, which includes India and South Asia as a growth focus region.
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