Glossary of Terms: Chemical Distribution
Who‘s involved in the chemical distribution industry?
The wide variety of organisations involved in the distribution & value chain between chemical producing companies and the industries using 'chemical substances'.
So the chemical distribution industry not only includes chemical manufacturers and their distributors, but also chemical traders, agents, export/import houses and a number of other suppliers providing these companies with added value products or services e.g. warehousing, logistics, plant & equipment.
The term ‘chemical substance’ was deliberately used in the above description. REACH (see ‘What is REACH?’) defines a chemical substance as “... a chemical element and its compounds in the natural state or obtained by any manufacturing process... ”.
This wide definition of a ‘chemical’ obviously includes substances derived from natural sources as well processed minerals. We believe this is wholly appropriate as this more fully describes the activities of many chemical distributors who also supply minerals (e.g. pigments, fillers, thickeners) or plant-derived chemicals (to the same end use markets).
What is a chemical distributor?
There is no universally agreed definition of what a chemical distributor is because of the wide variety of functions performed by distributors and confusion with other types of trading in the industry.
Generally speaking, chemical distributors buy and sell chemicals from producers. They take title to the goods, responsibility for stocking and warehousing, before selling the products on to their customers in their own name. There is often a formal, long-term agreement between the distributor and the chemical manufacturer (the ‘Principal’) whom they represent.
Most agreements are based on regional and or industry sector (e.g. coatings, plastics) preferences.
A distributor is not an agent. Agents do not take title to or stock goods, but receive a commission for their contribution in helping a manufacturer complete a sale.
“Chemical trader” is another term that is sometimes incorrectly used to describe chemical distributors. Traders sometimes act as distributors (in the sense of taking title to goods) and sometimes they turn out to be agents! But usually they are involved with the purchase and resale of commodities and buy from the producer or supplier offering them the best deal at the time. There is no close, long-term relationship with the manufacturer and most rely on their suppliers’ logistics to serve their customers.
What different types of chemical distributor are there?
Chemical distributors are usually classified or segmented in terms of the type of operation or function they perform or by their geographical or market coverage. The main types are:
- Commodity chemical distributors buy chemicals in bulk (sometimes from several suppliers like traders), then process, blend and repack to customer requirements - often selling under their 'own-label'. Their operations are geared around breaking up bulk and logistics. Typically they have a high investment in tank storage, drumming, blending and formulation capabilities - as a result there are relatively few commodity distributors.
- Specialty chemical distributors purchase pre-packaged (bag or drum) and sell on a technical basis, usually under a manufacturer's own brand. Operations are built on sales and marketing skills - as opposed to logistical know-how. They rarely have any involvement with the breaking of bulk and generally outsource their logistical requirements. The key differentiators are industry expertise and the quality of product/supplier portfolios. Many small and large distributors are involved in this segment.
- Full range chemical distributor is a term sometimes used to describe the very small number of distributors globally who cover both the commodity and speciality distribution segments e.g. Brenntag, Univar.
- Multi-national distributors are usually specialty chemical distributors covering many industrial sectors across national boundaries (many countries). They typically offer their Principals a wider geographical coverage for the industry sectors they serve than traditional, national distributors. They have local sales teams and offices but many manage industry sectors on a multinational basis. European specialty distributors include Azelis, BTC, Caldic, Helm, IMCD and Omya Distribution.
- Regional or national distributors are chemical distribution companies whose activities are restricted to a specific region, country or state (e.g. USA). Typically offer multi-market industry or single industry coverage. In North America there are a number of distributors that offer coverage of a group of states with some offering coast to coast coverage of the US market e.g Univar, Brenntag, Chemcentral, Ashland Distribution.
What is a ‘Principal’?
A “Principal” is term used by to describe a chemical manufacturer who has a long-term agreement with a chemical distributor who represents them. The term has evolved to highlight the difference in the nature of this relationship from a traditional buy-sell arrangement.
What is ‘REACH’?
REACH is an acronym for the Registration, Evaluation and Authorisation of Chemicals. It is one of the most significant and controversial pieces of EU legislation to impact the chemical industry.
REACH puts the onus on business to show that the chemicals it uses are safe. It is also meant to encourage the replacement of hazardous chemicals with safer alternatives and to spur the chemicals sector into researching and developing more new products.
Any chemical produced or imported in significant quantities has to be tested and qualified, unless sufficient safety information already exists. The cost will have to be born by the producer or the importer.