Tianjin Explosion and the Implications for Chemical Shipments

This week, two major events occurred in China which may have opposite effects on the chemical sourcing and export business.

Firstly the devaluation of the Renminbi by the Chinese government on three consecutive days during the week saw USD:RMB exchange rate at about 6.4:1 level by the end of the week, having recently been stable at 6.2:1. This devaluation will lead to Chinese exports, including chemicals, becoming more competitive in the short term and we should an increase in Chinese chemical exports from China.

Meanwhile, the tragic loss of life and devastation seen in the aftermath of the Tianijn explosion at a chemical warehouse has brought chemical shipping and storage regulations in the public consciousness. The exact cause of the blast is still unclear although reports are saying that the explosions were the result of a fire which started at a warehouse where dangerous chemicals were stored. What is apparent is that this will lead to closer government scrutiny of chemical shipping and storage regulations.

When it comes to chemical shipping regulations, the requirements imposed by the Chinese government are already relatively strict with chemicals for export having to be tested by government approved laboratories for dangerous properties before being approved to gain a shipping safety certificate. However, as in order to obtain a shipping safety certificate there is a fee of around 500RMB for the testing to be conducted, it is common practice for many companies sending small samples by courier to re-use the same shipping safety certificate, unique to a particular chemical to send many different chemicals, thereby saving money. The risks of doing this were seen In 2007 a Chinese state company was order to pay compensation of $65million when oxalyl chloride labelled as hydroquinone leaked on a Malaysia airlines flight and lead to the plane being written off.

It is less common that chemicals exported by air freight and sea freight have their chemical names changed but it still happens. This practice is dangerous and it’s anticipated that the Tianjin explosion will lead to closer scrutiny of companies flouting these rules. The potential effects of mis-labelling are clear as it results in dangerous chemicals being handled inadequately and hampers emergency responses in the event of any spills.

The Tianjin explosion may lead to increased regulations and red-tape for Chinese companies involved in the Chinese chemical export chain, especially those companies involved with dangerous chemicals. The government has already ordered a nationwide check on dangerous chemicals. Increased regulation will mean increased red-tape and increased cost across the whole chemical sector, just as the devalued yuan was leading to decreased exports costs.

Whilst the logistical arrangements for the transport of certain goods can already be the most complex area of the supply chain, if any new regulations will help to avoid another disaster like the one in Tianjin, it will be worth it.