Count e-commerce in the chemical industry among the flops of the dot-com boom and bust.
Not that the major chemical companies didn’t make a go of it, individually and in partnerships, in the early 2000s. But efforts to launch Amazon-like web catalogs for buying and selling chemicals petered out quickly; the companies that remained in business pivoted to developing online logistics tools and other services. It seemed that trade in chemicals—more involved than selling books and consumer items—was too complex an undertaking for the shiny new thing called a web portal.
Nowadays, however, people buy Porsches online. Businesses are thoroughly acclimated to cloud computing, and web services have matured to the point at which once-complex transactions are routine.
So chemical purveyors are trying again. In recent months, several web platforms have emerged for selling chemicals via online catalogs. This time, executives maintain, the chemical industry is ready to make e-commerce work.
Two of the companies pursuing e-commerce are based in Germany, where many chemical makers have embraced the idea of digitizing their businesses.
Lanxess recently spun off Cologne-based CheMondis, an e-business venture for chemicals, and Evonik Industries has entered the field with OneTwoChem. Although both companies are chemical makers in their own right, their platforms are intended for use by multiple buyers and sellers. Other major chemical companies are said to be studying options for setting up similar trading platforms.
Entrepreneurs are trying their hands as well. Pinpools, an e-business portal, launched in 2017 to serve the paint and coatings market in Europe. In the US, Knowde began hosting transactions last year.
“Times have changed in many ways over the last 15 to 20 years,” says Sebastian Brenner, managing director of CheMondis. “If you look at business-to-business or consumer-to-consumer, people are 100% convinced that e-commerce platforms are now more convenient and customer friendly than the classical shopping experience.”
The concept has already gained traction in China, Brenner notes. Alibaba, China’s answer to Amazon, set up a chemical e-commerce portal called 1688.com. Another Chinese portal is called Molbase.
“These are multibillion dollar platforms that are already three or four years old,” Brenner says. “If consumer behavior has changed so much, and there are highly successful platforms in China, why can’t we get it to work in the Western world?
“There are 22,500 chemical companies in Europe alone,” he adds. “And you still have a lot of companies sending text messages to order products. This is not the medium you should use in the 21st century.”
Like other new entrants, CheMondis seeks to take advantage of digitalization, the movement of business functions into computing and information management architectures that support the data exchange necessary for an e-chemical portal to function.
CheMondis began by studying 20 test customers, gauging their buying and selling processes. CheMondis has since expanded to support 350 customers on the platform. About 60% of them are buyers trading in basic chemicals and intermediates.
“Specialties are tricky,” Brenner says. “We need to find out how to make technical information available.” For now, transactions are limited to Europe, where the Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) regulation provides a standard for product validation. CheMondis also has chemists on staff vetting products traded on the network for regulatory compliance. Recently, the firm began a pilot with customers in India.
Evonik’s OneTwoChem is moving more slowly with a similar approach. Operated by Evonik Digital, the company’s digital services subsidiary, the platform has begun test runs with a select number of “friendly” users, according to Evonik Digital CEO Henrik Hahn.
New companies are pursuing e-commerce for chemicals.
“OneTwoChem is first of all an information exchange platform offered to the European market,” Hahn says. “The platform is intended to connect several suppliers with several buyers in the market at the same time, thus avoiding the time-consuming process of contacting individual companies through conventional channels.”
The platform aims to help reduce the uncertainty associated with short-term fluctuations in demand and possible shortages, “a universal issue in the chemical industry,” Hahn says. The test market is working with basic products, such as caustic soda, hydrochloric acid, and antioxidants from a number of vendors serving the biodiesel market.
Entrepreneurial sites, on the other hand, have taken on specialties. Pinpools, launched by brothers Alexander and Heribert-Josef Lakemeyer, who previously ran a plastics extrusion company, has broadened its coverage beyond coatings to include water treatment chemicals, essential oils, fragrances, and terpenes. It is facilitating 100 sellers and 200 buyers of specialty products, according to Taru Sirkiä, marketing development manager.
Knowde, based in San Jose, California, focuses on personal and home care markets, selling both specialties and commodities, according to CEO Ali Amin-Javaheri. The platform, he claims, has hosted 75,000 buyers and 600 sellers in North America and Europe.
Amin-Javaheri has firsthand knowledge of the previous demise of e-commerce portals for chemicals, having worked for a company, ChemPoint, that jumped in early. To survive, ChemPoint dropped its online portal scheme, Amin-Javaheri recalls, and became an outsourced marketing, sales, and distribution company for chemical makers. “It grew from nothing to $400 million in revenue, but we never became that online e-commerce company,” he says.
Another survivor from those days, Elemica eschewed the portal and instead developed a cloud-based networking hub for linking companies’ enterprise resource planning (ERP) software.
“We provide the back-end infrastructure behind what would be e-commerce,” says Brad Delizia, Elemica’s senior vice president of corporate development. After a sale is made—be it online or with a handshake—the network routes complex data, tracks orders and payments, and provides online visibility of supply-chain logistics.
Elemica manages up to 1 million transactions a day, with about $600 billion of commerce between chemical companies coursing through the cloud-based network annually, according to Delizia.
None of the new entrants offer ERP connection as a standard service to back up their portals. Several are already working with Elemica or looking for another networking partner.
Specialty chemical industry consultant Dayton Horvath, a principal at NewCap Partners, says the chemical market is ripe for another shot at e-commerce. The challenge for new entrants will be to supply buyers with technical service. They will need channels for consulting on formulation and for managing the transmission of scientific and business-related data.
Amin-Javaheri agrees. Knowde wants to facilitate dialogue between buyer and seller, beginning with a chat function, he says. Other electronic channels, including video, can be employed to replicate in-person interaction. “Buyers can order samples and request documentation, all the things they usually do,” Amin-Javaheri says. “We have focused on moving that part of the buying journey—discovery research, comparing ingredients, initial interactions—all online.”
But the hook is the purchasing portal. “What buyers love is how big the catalog is,” Amin-Javaheri says. “Not only are they able to come in and see a very large catalog, but they can use our filters and facets to get down to the right ingredients very quickly.”
Customers have requested ERP-integration support, Amin-Javaheri says, and Knowde expects to offer it as a service by the end of this year. He notes, however, that large chemical companies tend to have their own integrators, and Knowde is not going to develop a comprehensive “many to many” hub like Elemica on its own.
CheMondis is considering developing full network connectivity for its platform. In the interim, it is weighing a partnership with Elemica, according to Brenner. “It makes sense to combine these services,” he says, noting that ERP data entry, still preponderantly manual, is a function ripe for automation.
CheMondis is also examining the challenge of expanding into specialty chemicals. It took a first step earlier this month with the introduction of a function called Online Product Selector that navigates plasticizers on the portal.
“The purchasing process for specialties just requires a lot more time and information,” Brenner says. “We need to think about how to make technical information available. The lack of transparency is a big issue. There are hundreds of thousands of products.”
Brenner is aware of past failures in e-commerce, but he says the technology is in place and the users are now sophisticated enough to move it forward.
“In the future we want to get smarter,” he says. “We want to predict certain behavior. We want to be able to predict supply-and-demand shifts. We want to work with machine learning in understanding how such commercial conversations go.”