The popularity of chemical management services has grown quickly over the past four years, according to a recent survey by an organization promoting the practice. The same organization also said the practice has only begun to realize its potential.
The Chemical Strategies Partnership announced Sept. 15 that businesses spent $1.22 billion on chemical management services in 2003, up from approximately $800,000 in 1999. The group also estimated that the market has the potential to grow to between $17 billion and $19.5 billion.
Get alerts when new Sustainability Blog articles are available.
The growth in CMS has been strong, especially compared to overall trends for the chemical industry, Executive Director Jill Kauffman Johnson said. We do believe that it is still just the tip of the iceberg,
The San Francisco-based nonprofit organization also found that CMS offers attractive profits to provider companies. It added that opportunities for growth lay largely with smaller customers and outside the United States.
Part of a larger business trend toward outsourcing, CMS is a practice by which chemical suppliers or service companies take over all aspects of a customers chemical use, from procurement to disposal. Chemical management was introduced to the U.S. metalworking fluid industry by General Motors approximately 15 years ago and is increasingly common today in the industrial lubricants arena. The Chemical Strategies Partnership is a project of the Trust for Conservation Innovation and was founded in 1996 as part of the trusts effort to reduce chemical use.
The new report, Chemical Management Services Industry Report 2004, comes four years after the partnerships first survey on the market. The group found that 11 industries now use chemical management services, compared to five in 2000. Sectors such as energy and utilities, food and beverage, and steel have joined the earlier ranks, which included automakers, electronics and airlines.
Survey respondents said they help customers reduce chemical-related expenses by 5 percent to 20 percent during their first year of service, and further lower costs by 6 percent to 10 percent a year in following years. The partnership said these savings translated into profits for providers, with half of those responding to the survey stating that their CMS revenues grew more than 10 percent per year over the past two years.
Only a few providers divulged information on profits, but those that did reported margins ranging from 5 percent to 25 percent in 2003. The partnership said these respondents also projected profits will grow at annual rates between 5 percent and 10 percent through 2006.
Such findings contrast with comments heard the past few years from some CMS providers, which have complained that the practice is less than cracked up to be. Such providers say it is difficult to generate savings on an ongoing basis and that profits dry up after they find low-lying fruit.
Kauffman Johnson said experiences like those are not necessarily inconsistent with the survey.
The fact a market is growing does not mean that every business in that market is going to grow, she said. The other thing is that just because it may not be as wonderful as some people thought it was going to be does not mean its not a good business. Especially for chemical companies, CMS seems to be more profitable than their standard business.
Forum officials said they do not expect CMS to penetrate many more industries.
Im not sure how many more sectors there are yet to be tapped, Kauffman Johnson said, adding that paper and pulp manufacturing and pharmaceuticals are two prospective fields. Instead, the partnership predicted providers will find more customers from within the sectors they already serve, with much of the new business coming from smaller customers.
The group acknowledged this may require adaptation by providers. For example, it suggested they may have to accept customers that have lower chemical-related expenses. It also said that there is significant growth potential outside of the United States, but added that providers must overcome cultural, informational and financial barriers to take advantage of it.
[CMS] is going to have a different look in the future, Kauffman Johnson said. Maybe you need to look at clustering several small customers where you have companies in a particular industry that are located in the same area. Or, if you have a customer with a smaller IT [information technology] base, maybe you dont put as many people on the ground. Or maybe you send someone in there once a week or once every two weeks instead of having them stationed there full-time.
The 67-page Chemical Management Services Industry Report 2004 is available free online or by mail. For information, visitwww.chemicalstrategies.org.