CHINA MARKET ANALYSIS AND FUTURE OUTLOOK WITH KARL HUDSON – REGIONAL DIRECTOR

Join Karl Hudson, Regional Director North Asia to delve into the intricate dynamics of the chemical logistics market in China. With a rich background spanning decades in logistics, particularly in the transportation of chemicals, Karl provides valuable insights into the current landscape, emerging trends, and the strategic responses Suttons is taking to navigate through the challenges and capitalise on opportunities in the ever-evolving market.

Can you tell us about your background in the chemical industry and logistics?

I have been in the logistics industry since the age of 17. In 1985, I started driving a van delivering food to supermarkets during college holidays. After that, I worked at a general haulier in the NE of England in the warehouse, paint shop, and delivering steel around the UK as a driver’s mate. When I left University in 1990, I joined United Transport Logistics on their graduate training scheme.

In 1992, I joined Linkman Tankers and set up their contract with Enichem in Southampton, delivering Latex around the UK and Europe. At other points in my career, I have managed bulk liquid tank farms and a network of Tanker cleaning stations in the UK. I’ve pretty much delivered most things in tanks from 30-year-old single malt from Scotland, chocolate through to high hazard chemicals such as LPG & Petrol. I also had my own Tanker Company with 2 partners that we built up and sold.

I currently head up Suttons International China division and have been permanently located in Shanghai for over 5 years.

What current factors are impacting the chemical logistics market in China?

The Chinese chemical manufacturing capability is the largest in the world now at c. 43% of global capacity; it will be 50% by 2030. Many companies from Europe such as BASF continue to invest significantly in China, betting on growth in the middle classes of roughly 200m people to drive demand as well as bolster the local economy. There is also a strong element of regionalisation going on as the days of easy and accessible global free trade seem to be behind us for the moment.

Capacity in China is the main challenge now. Traditionally the construction industry has accounted for 30% of GDP; this is scheduled to drop to less than 20% which has a big impact on the steel and cement industries and the associated construction companies who are big users of chemicals.

Consumer sentiment is also weak in China as people tend to save money rather than spend it; the policy of “zero Covid” is also in the back of people’s minds, which means many are still cautious about spending.

The headline outlook for China’s economy is predicting growth of c. 5% per annum; this is well below the 8% percentiles that we have been used to, this is an indication of the switch from a fast-growing developing economy to a developed economy. However, the Chinese economy is c. $18.5 trillion per annum so 5% growth is huge, for comparison the UK economy is c. $3.2 trillion.

What I do see in the current market is many of the characteristics of the European Chemical Tanker market 20 – 25 years ago, i.e., the market needs more professionalism and more innovative approaches that add value to customers’ supply chains, rather than a purely price-driven approach.

How do you foresee these factors impacting the China market throughout the next year and beyond?

2024 will be a year of consolidation, acquisitions, and mergers to buy scale and reduce overcapacity in our customers’ markets and ours. During 2024, there will continue to be significant margin pressure and supply chain disruption caused by the expanding conflict in the Middle East. I predict the weaker companies in the ISO tank market will start to run short of cash, forcing them to look for buyers or partners to keep them sustainable. I also predict that 2024 will be the year that one of the shipping lines will purchase an ISO tank company.

We will continue to see the shift to Asia as manufacturing costs here are cheaper than in Europe, and it is possible a trade war between China and Europe could occur, particularly over the EV market.

I see the above as an opportunity if we can be agile and demonstrate to our customers that we are here for the long term. We may have to adjust our thinking too with an increased focus on the Intra-Asia market plus the growing links between China and the Global South.

A key area for us in China is the growth in the domestic tanker market hence why we have invested in Shanghai Xunguang giving us a Dangerous Goods license, hence we can now move all hazard classes in China (exc. class 1 & 7).

How are Suttons reacting to these impacts?

At the strategic level, we recognised at the end of 2022 that we needed more focus on the Domestic China market as growth in this sector is not dependent on the number of imported tanks we have coming to China. Hence the reason we invested in Shanghai Xunguang., having our own DG Company offers us the ability to offer a broader service to our customers, plus our high QSHE standards can be applied to our own fleet reassuring many of our existing clients and potential customers that we are the trucking company of choice.

We have also started working with tactical partners so that we can offer our service in related but different markets such as the road tanker market, where we have recently secured business with one of the world’s premier manufacturers of Glycols.

In these Volatile Uncertain Complex Ambiguous times, it’s important to stay close to our customers too, understanding what their challenges are and how we can help them overcome these issues. Unfortunately, I believe the world over the next 10 years will be more VUCA as Global Politics become closely entwined with business at a level not seen since the Second World War.

What can customers expect from Suttons in response to these impacts.

In the current marketplace, many of our customers are under severe pressure to reduce costs which are reflected in the tender pricing we have seen recently. In this type of market, we must be on top of our game all the time to remind our key contacts of how good our service is and why they choose Suttons.

In a commoditised marketplace such as ours, it’s essential that we remain able to differentiate ourselves while at the same time support our customers during market downturns. At Suttons we are still investing in China, where many Western MNC’s have reduced their commitment here. China is and will remain the factory of the world. Our goal is to broaden our services & penetrate deeper into our customers’ supply chains, relationships at every level are the key to achieving this.