The blending process may be at the heart of the lubricant industry, yet there are aspects of it that some lube suppliers find undesirable. That creates opportunities for toll blenders – companies that offer to conduct those activities on behalf of others. But building a successful business around such service isnt easy.
According to a Belgium-based toll blender, being successful requires taking on tasks that lubricant suppliers prefer to relinquish and executing them efficiently. Since different suppliers have different needs at different times, toll blenders need a variety of equipment and need to offer a range of services.
A toll blender must have the needed equipment and capacity, VLS-Group Chief Executive Officer Sandrine Montsma said in November at RPIs Lubricants Russia conference in Moscow. In addition, it has pilot blending capabilities and lab facilities. It also offers an integrated supply chain concept with raw materials storage, production, packaging, finished goods storage, transportation and waste management.
Manufacturing for Hire
Put most simply, toll blending refers to arrangements where one company blends anothers products in exchange for a toll, or fee.
Independent toll manufacturing service is an arrangement where an independent toll blender with specialized equipment processes raw materials into intermediate or finished products for a fee, Montsma said. The toll blender does not take ownership of the product; it is not a distributor but a service provider.
According to Montsma, the
London-based consultancy Pims Associates Ltd. estimated that the volume of lubricants and additives on the European market in 2010 amounted to 6 million metric tons. Out of this, around 692,000 tons were outsourced for blending.
Germany contributes 49 percent of this number, while the Benelux countries contribute 27 percent, Montsma said. Sixteen percent is equally split between the United Kingdom and Spain, and the remaining 8 percent comes from other countries. VLS-Group is responsible for 37 percent of the lubricants and additives toll blended in the Benelux countries, she added.
VLS-Group has positioned itself as a logistics services provider for the lubricants and other chemical industries. It owns over 200,000 square meters of warehouse storage facilities in Germany, Belgium and the Netherlands and 100,000 cubic meters of terminal tank capacity in Belgium. With 20 automated filling lines and a big blending plant, the company is confident in calling itself Europes oldest independent toll manufacturing and blending service provider.
The companys main facility is located on a 250,000-square-meter site in Belgiums Port of Ghent. The terminal offers liquid storage, warehousing, tolling, processing, blending and filling, as well as other value-added services.
VLS-Group is a subsidiary of Gadot Group, an international company for shipping, storing, and distribution of chemical components, headquartered in Israel and Europe. Officials said that lubricants is one of several markets that demand contract manufacturing services.
Toll blending opportunities in Europe are related to the following market segments: petrochemical products such as lubricants, additives and greases; specialty chemical products; fine chemicals in the sphere of nanotechnology; pharmaceutical products; and food-grade products, Montsma said.
VLS-Groups Ghent facility has been toll blending for more than 40 years and is serving many big producers of lubes and additives, Montsma told LubesnGreases. Officials declined to identify them, however, explaining that confidentiality is part of the business. We have signed secrecy agreements with our customers, Sales Manager Martine Union said. I can just say that we produce for the top five additives and lubricants manufacturers in the industry.
Lubricant marketers may want to turn to contract blending for various situations, so toll blenders need flexibility to establish short-, medium- or long-term agreements.
We do both long-term and short-term agreements, Union said. Long-term agreements could even last 10 to 30 years. She explained that marketers sometimes prefer to contract the blending of new products while they are still in pilot production or while volumes are being scaled up. Once the product is launched on the market the customer takes over the production or it stays with us.
Marketers may turn to contract blenders in order to reduce the burden of ensuring that capital such as a production plant is fully utilized. The contract blender, however, needs to maximize utilization in order to be successful. VLS blends around 65,000 tons per year of finished lubes and lube additives. Blending capacity is between 80,000 and 100,000 t/y, so the company recently opened another filling line for flammable liquids. It also blends diesel and additives for fuel.
VLS fills packages ranging from one to 60 liters, 200-liter drums and intermediate bulk containers [IBCs], which can hold 800 liters or more. It also operates patented drum-on-the-run filling units, equipment that can be transported to customer sites for external filling projects.
We go with a fully equipped truck and two employees to the premises of the customer to execute drumming activities, Union explained. The truck driver becomes a forklift driver and the operator is doing the [filling]. With just-in-time supply of the empty drums, IBCs or box-containers, the whole operation can be cleared in a few hours.
VLS-Group said several factors play a key role for a successful toll manufacturing business. Availability is the first factor, Montsma said. Most big producers do not produce for others, and location of the producer is not always ideal for the finished products. The second factor is cost. Toll blenders do not create fixed payroll costs and dont use the same payroll classifications [as their customers]. They also have low capital expense, and infrastructure costs are shared with others. In addition, toll manufacturers have good cash flow management.
The Art of Flexibility
Flexibility is especially important with products for which it is difficult to forecast demand and for seasonal products, according to Montsma. It is also good for trial batches in the pre-stages of launching a new product to the market, and, finally, for the products that have a high complexity and costs, she said.
Toll blenders need to have a good track record of compliance with occupational safety and health, environmental safety and quality management systems and with Europes REACH regulation for chemical safety. Other important factors are that toll blenders do not take ownership of products and, in many instances, they do not have their own production. They also need a good portfolio of product range references. Furthermore, they should have financial stability and capability to invest. Finally, as it is with our case, location of the facilities is crucial.
Montsma said toll blenders face many challenges, especially now, in the midst of the European financial crisis. These include high up-front investment costs and introduction of new technologies like bio-diesel. Other challenges include changing regulations and long lead times for permit changes. A particular problem is the difficulty of securing long-term commitments from the customers.
In order to better cope with the market challenges and the complex economic situation in Europe, VLS-Group made a few changes to its organizational structure in January 2012, reducing the number of its departments from four to three.
Montsma said demand for toll blending services appears to be increasing as the lubricants industry follows a trend seen elsewhere.
Outsourcing is growing and is expected to grow even further, while the new trends for toll blending in Europe gravitate toward integrated concepts – [a combination of] full logistics and supply chain assistance, she said.
An integrated concept offers one-stop shopping, Union added. Everything can be handled by us, starting from the call for the raw materials, to blending, filling, intermediate storage and logistics. It also includes delivery of the finished product to the final destination of the customer, or to his customer, all over the world by combining all different types of transport – air, waterways, railways and road.