Part 2: The Rise of the New Chemical Marketplace

In my last blog, we talked about how Chemical Companies are taking advantage of marketplaces to sell their products.

So the questions I now raise are:

  • What will the future landscape of this industry look like?
  • Is it all start-up’s or are the Silicon Valley giants in the game?
  • How much of the $4 - $5 trillion of chemicals and related products in the industry will be bought through these e-channels?  

In today’s business economy we see Chemical Companies taking different approaches to generating marketplace revenue. From the industry itself you have solutions built by the Chemical industry, which are Chemondis, OneTwoChem and Covestro Select. There is also a group that has either come from chemical distribution or saw a gap in the market and created a company to address it. These include companies like GoBuyChem and Pinpools. Agnostic platforms such as Alibaba and Amazon are also growing share in this marketplace. Recently, we have also seen interest from eBay, which already has a very successful B2B Marketplace operating for the Aviation Industry.

So what will the future landscape look like? My initial thought is that if certain players want to win, they will. I think if eBay wanted to establish themselves in this space, we will see them grow in conjunction with Amazon and Alibaba in years to come. As for the others, I would expect some consolidation. A buyer of chemicals will not want to go on 5 different sites to buy products, and a seller of chemicals may not want to put their product on the platform of a competitor.

Does this mean that neutral marketplaces will win? Even if seed money to create the marketplace was a chemical giant? If a neutral marketplace can pull this off, great, but having industry knowledge may help them grow quicker.

Equally, I would expect models that offer services that enhance the core purchase to grow even more exponentially. I have seen different models that focus on lowering prices, on delivery to the door, on credit worthiness and speed of purchase. Either buyers will vote with their mouse, or the software will become homogenous.

How much of the $4 - $5 trillion of chemicals and related products in the industry will be bought through these e-channels? There will always be a huge percentage that is bought in an ERP to ERP (B2B) manner through multi-year monolithic contract methods.

It is the non-ERP-to-ERP orders that are up for grabs, which are the companies who are ad hoc buyers, or buy chemicals on the spot market, or just don’t have contracts in place. Some of this business is with distributors, but a large amount is still ordered directly from the producers. This means that Marketplaces will cut into the distributor revenues, but the distributors provide enough other services that companies will want to keep them in the supply chain. Today’s buyers want to order in a B2C way, where they know where their order is at all times and when and where and what time it will be delivered. This could be 10 - 15% of the industry revenue within the next decade; having more than $400 billion going through chemical marketplaces is an achievable possibility.

So, what should you do if you are a chemical producer? Talk to and more importantly listen to your customers. Are they more used to working within a marketplace? Do they want different channels into your company, such as regional channels?

Regardless of the channel, Elemica is positioned to support you by capturing the digital ordering, buying and selling records from any external source. On top of this we can support a touchless order journey to complement the incoming orders. We will discuss this in a future blog.

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