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.
“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 customer’s 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 trust’s
effort to reduce chemical use.
The new report, “Chemical Management Services
Industry Report 2004,” comes four years after the partnership’s
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
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
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 it’s 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.
“I’m 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 don’t 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,