Flexitank logistics have played a small part in the international trade of base oil and lubricants for many years, but with recent improvements in tank design, construction and operational procedures, their use has shown phenomenal growth – to where they now play a major role in international trade.
In just the past year there have been excellent articles about flexitanks in LubesnGreases and numerous conference presentations made at international forums. While these have primarily focused on safety and operational aspects of flexitank use, they have not detailed the extent of the impact this trade is having on the lubricants and base oil business in particular.
There is good reason for this. Flexitank operators exist in a largely unregulated industry where there is no central data collection on what products are being shipped and on what trade routes. Flexitanks are used across the globe and the subject is important enough to deserve a comprehensive study covering worldwide trade. For illustrative purposes though, this article will focus on just one relatively small but growing trade route: exports from the U.S. to Brazil.
The trade figures that appear in this article were derived by the author after interviews with shippers, receivers, flexitank operators and other participants in our industry of making, buying and shipping oil over the sea.
Flexitanks are similar in concept to bag-in-box packaging for liquids, only beefed up to industrial scale. A large, thick plastic bag is fitted inside a standard, 20-foot-equivalent shipping container, and held in place with a plastic or metal bulkhead. It then can be filled with the liquid product through a valve. Once the container doors are closed and sealed, the intermodal container can be lifted onto a truck or transferred to a container ship. After reaching port, the entire container can be trucked to the customer, who simply drains or pumps the fluid out.
How many flexitanks are being shipped, carrying what products, and how much of that is base oils and lubricants? The industry has no central agency collecting figures and only the individual flexitank operators know for sure what they each are carrying. In an intensely competitive environment there is little interchange of trade information, but there is a consensus that somewhere in the range of 600,000 flexitanks will be shipped worldwide in 2015. A flexitank typically carries 23,000 liters, so the total global carriage is 13.8 million cubic meters, or approximately 12 million metric tons of liquid cargoes.
There is no question that the growth of flexitank usage in the past 10 years has been astonishingly rapid. One flexitank supplier estimates that global shipments were 139,000 units in 2005 and are almost five times that now.
This growth can be attributed to technical improvements in the design and manufacture of the flexitanks; improvements in their ease of use; safety factors like the institution of bottom load/discharge and more secure bulkheads; and better management of flexitank loading and movements by specialized operators. All these refinements have brought about reduced manufacturing and operational incident rates and increased shippers and receivers confidence in the safety and reliability of this very low cost mode of transporting liquids.
More Lubes than Wine
Flexitank usage by all shippers gained momentum with the institution of single-use polyethylene bags in the late 1990s, and took off in 2005 to service the wine trade from France to China. The Chinese public took an enormous fancy to French wine, and the Chinese trade authorities, in an attempt to foster domestic wine production, raised the import duties on bottled wines. This prompted the merchants to switch to importing bulk wine in flexitanks and bottling it in China. Why transport heavy and damage-prone bottles across the sea? Technical innovations had made for an airtight, contamination-free and secure single-use tank that served the carriage of wine perfectly.
It turned out that flexitanks designed to carry liquids for human consumption also serve well to carry lubricant products that are sensitive to water and oxidation. In time the carriage of lubricants and base oils has far surpassed wine as the primary beneficiary of flexitank logistics.
Figure 1 shows the distribution of the kinds of liquid products typically carried in flexitanks. Key parameters for all of these are that the product must be non-hazardous, cannot be heated above 180 degrees F, and cannot be less than a full tankload of 23,000 liters. This is certainly true for lubricants, a broad category that contains base oils, process oils and finished lubricants.
Chemlube International estimates that some 35 to 45 percent of flexitank cargoes worldwide are in lubricants service. Available data does not differentiate between base oils and finished lubricants, and we believe that as the industry finds greater use for flexitank logistics there will inevitably be more and more transport of finished lubricants in bulk. Just as the Chinese wine industry discovered that ocean transport is best done in bulk and bottling best done at destination, so will the lubricants industry.
In 2015 there will be more than 600,000 flexitank shipments worldwide and with a lubricants share of 35 to 45 percent, we estimate that total worldwide trade of lubricants and base oils in flexitanks is in the range of 4.29 to 5.46 million metric tons.
Flexitank vs. Parcel Tanker
The international trade in base oils has always been dominated by shipments on bulk parcel tankers. Take as an example the U.S. trade of base oils to its largest export destination, Brazil: In 2014 there were 314,000 metric tons of base oils shipped in large bulk parcels in tankers going from U.S. ports to Brazil. These went almost exclusively to the port cities of Rio de Janeiro and Santos, where the oils were received, stored and distributed countrywide in tank trucks. The low ocean freight costs for shipping a large parcel of several thousand tons must be balanced against costs and losses incurred in this hub-and-spoke distribution, both in collecting and loading large quantities at the U.S. shipping hub and in storage and distribution at the receiving end in Brazil.
A flexitank shipment on the same route incurs high ocean freight cost, which includes the purchase and installation of a one-trip flexitank into a dry bulk 20-ft. container, the ocean carriage of the container, and the costs associated with container handling.
Parcel tanker economics call for a minimum cargo of 1,000 metric tons, typically stored in a tank of 1,500 m3 or larger. While the flexitank has a higher per-gallon cost of transport, its use negates the need for storage in the Brazilian port of entry and eliminates the cost and risk of financing excessive inventory that may take months to work off.
Very high volume product throughput favors large parcel tank cargoes; very low volume favors flexitank cargoes.
So what is the quantity break-even point at which numerous small shipments in flexitanks equals the cost of one large shipment in parcel tanker? In the case of shipments from the U.S. to Brazil, we calculate that break-even point to be 350 metric tons per month of throughput (Figures 2 and 3).
Global Supply-chain Implications
The lubricants industry is quickly discovering the advantages of flexitank logistics. U.S. base oil refiners are reacting by putting in flexitank loading facilities, which further reduce the handling costs on the shipping end. Meanwhile, buyers overseas are realizing that U.S. refiners can now more easily compete with their traditional domestic suppliers.
There are several implications for how this development will disrupt old trade patterns. It opens up a vast new choice of base oil supply for medium- to small-size international base oil buyers. A blender overseas who uses a few hundred tons per month of base oil is now freed from the need to buy through bulk distributors, or to carry and finance large bulk inventories in storage.
Also, it creates the prospect for a much greater expansion in the international trade of finished lubricants in bulk. Large, bulk-parcel tanker transport is problematic for finished lubricants and process oils, which are hyper-sensitive to moisture contamination. With the advent of contaminant-free flexitanks, it is now possible to easily deliver low-cost truckload lots of finished lubricants directly from a blending plant to overseas customers.
Why import base oils and additives in bulk for blending when one can import the finished product at low cost and do the packing on site? This is particularly applicable to the fast-growing market for synthetic engine oils. The difficulty of importing and maintaining segregated tankage for API Group III, polyalphaolefins and other synthetic components discourages smaller blenders from carrying synthetics. Importing fully formulated synthetics provides them a way to offer a full line of products.
Could small- and medium-size blenders and marketers be better served by becoming purely packagers and marketers? No doubt some are looking at flexitanks and thinking that the answer is yes.
With more than 30 years in the base oil business, including experience in setting up marketing operationsfor top-tier base oil products, Joe Rousmaniere is business development manager at Chemlube International, Harrison, N.Y. For information, e-mail him at jrousmaniere@chemlube.com or phone (914) 381-5800.