Thanks to the shale drilling boom, the U.S. chemicals industry is now swimming in cheap feedstock to make more chemicals than ever before. The challenge: how to move all that product to market?
Chemical companies, ports and other industry players are facing massive challenges to ensure that an unprecedented rise in new plastics production volume can be exported overseas, mostly to China and other markets in Asia.
U.S. plastics production, comprised of mainly ethylene and propylene derivatives, is expected to soar in 2017-2018 from record plant expansions. But several logistical steps must be taken to export this excess capacity, such as adding packaging centers strategically located to prepare plastics for container shipment. Other moves include expanding mostly overburdened U.S. Gulf Coast ports that lag in capabilities and efficiency and making key route decisions for road improvements.
Complicating matters, there is no coordinated master plan for industry that sorts out all the logistics options. Each chemicals company is essentially on its own to place its bets, such as where to add packaging and handling centers that make the most economic sense, whether at selected ports or inland locations to take advantage of multiple port options via rail. Such a siloed approach is likely to cause duplication and add unnecessary costs.

Loading container ships at the Port of Houston. (AP Photo/David J. Phillip)
At the same time, U.S. ports, already strained by congestion and struggling to add necessary technology and expansion improvements, are facing increasing demand. That’s difficult enough, but U.S. container volume for trade with Northeast Asia alone is slated to more than triple by 2040, a two-year-old Department of Transportation study shows, exacerbating competition for ship cargo space.
Currently, about 70 percent of US polyethylene exports go through ports on the U.S. Gulf Coast, including the Port of Houston. That’s up from more than 50 percent in 2000, and things will get more interesting when the Panama Canal expansion is completed next year.
The deeper and wider canal will help ships to move much more cargo to and from U.S. ports with giant vessels carrying 13,000 standard containers called “20-foot equivalent unit” containers in industry parlance. That’s up from vessels that today carry 5,000 containers. This will require all kinds of infrastructure investment, including wider, deeper channels and larger cranes, such as those being installed as part of the Port of Houston’s ongoing major expansion to allow for container ship sizes up to approximately 8,000 standard containers.
On the positive side, the larger vessels likely will offer chemicals companies lower bulk rates and a more direct route to Asia. This would compete with rail service to alternative ports for export, on the East and West coasts.
For chemicals, the unprecedented coming production means that if all the announced chemical plant expansions were to produce plastics, and some will not be, as much as 200 additional shiploadings for ships carrying, say 5,000 standard containers, could be needed in the U.S. annually by 2020. For ethylene not converted to plastic, it will need to be moved in the form of other material, mainly as a liquid such as ethylene glycol, which would require additional parcel tanker loadings, instead.
Adding to the logistical complexity, railroads are competing for their share of moving chemicals to East Coast and West Coast ports. Rail lines are already offering lower long-haul rates to move Gulf Coast plastics to West Coast ports for Asian-bound cargo. However, there is no guarantee that lower rail rates today will remain in place, once chemicals companies install the packaging and handling facilities near railroad locations, such as Dallas, for example, and are locked into using rail.
It hasn’t always been this difficult.
In the past, incremental U.S. chemicals capacity increases were minimal and could easily be absorbed by the rail and shipping infrastructure in place.
But the US shale gas boom, which has fueled the construction of seven ethylene crackers and expansions, will drive up ethylene capacity by approximately one third, producing about nine million tons of that product a year. That doesn’t count several more cracker units under study, permitting or engineering work.
Because the U.S. market for plastics is not growing fast enough to handle this large increase, most additional plastics production will need to be exported, first to Latin America, then primarily to Asia, notably China.
So, what can chemical companies do to help secure success with future exports?
For starters, they should be working with shippers, railroads and ports, as well as governments, to ensure their next moves are supported by permits and investments in roads, packaging, handling, trucking and short rail line infrastructure.
Chemicals producers will undoubtedly also keep encouraging competition by logistics companies. They should maintain a close eye on the cost of shipping plastic pellets by rail to the U.S. West Coast and East Coast ports serving ships bound for Asia so they get the appropriate value for their cargo movements.
This competition between railroads, ports and carriers will create a new logistics flow over the next few years. It will be anything but easy with so many participants involved and the clock ticking on new plastics production on the horizon.
Success will be judged by the flow of material without disruption.