Fluor changes approach to energy, chemicals EPC contracts ; A&R increases rates; ACC supports Congress approval of Save Our Seas Act; Shell plans layoffs; Vehicle sales down in Sept.

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Covid-19 has led to increases in rates for supply-chain services for petrochemical products. Image courtesy of Pexels/Pixabay

Fluor changes approach to energy, chemical contracts citing disproportionate risk

Fluor Corp. officials announced on Sept. 25 it is changing the way it enters into energy and chemicals construction contracts, as well as for infrastructure, explaining contractors have increasingly had to assume disproportionate risks in recent years.

“Effective immediately, energy & chemicals will only pursue reimbursable or open book lump-sum conversion EPC projects,” said Carlos Hernandez, CEO of the Texas-based company.

“Many knowledgeable clients understand that their best capital program results come when there is a balanced allocation of risk and where both parties work collaboratively to reduce overall risk,” he added. Comments came as he discussed 2019 earnings, according to a Motley Fool transcript of the call dated Sept. 25, 2020.

Competition on lump-sum projects drives a number of unintended consequences and creates a transactional market. In the past several years, this transactional process has disproportionately moved risk to the contractors' side of the equation, Fluor said.

As for infrastructure, the company had already exited that businesses in Europe and Australia, but continued in some selected U.S. markets.

Now Fluor will “no longer pursue large-scale projects for clients where there is a history of onerous contractual terms” in future infrastructure contracting.

The move comes after Moody’s rating services downgraded in June Fluor’s debt to a non-investment credit rating following a “significant deterioration in its operating results.”

Experts discussed during a summer 2020 Reuters Events conference the impact of a broken model in which contractors assume most risk.

A&R rises rates after Covid supply-chain disruption hikes costs

A&R Logistics, which provides supply chain services for the chemical industry, said on Oct. 5 it has increased by 10% all non-contract rates, and will also increment ancillary services prices, because of the Covid-19 impact on costs.

"We’ve witnessed unprecedented disruptions in the supply chain for the chemical industry during 2020,” said CEO Mark Holden.

A&R has already cut overall spending, including through personnel reduction, he added.

"As we and our customers have rebounded from this volatile period, areas of our business have remained stressed. We’re seeing severe capacity shortages despite running our fleet at 110%,” Holden added.

“The industry's chronic driver shortage has become increasingly acute, and we’re seeing cost pressure across many other areas,” Holden said.

A&R ships, stores and packages chemicals such as plastic resins.

ACC supports Save Our Seas Act approval in Congress, environmentalist oppose it

The American Chemistry Council (ACC), which groups chemicals producers including those of plastic resin, said it supported the Oct. 1 approval by the U.S. House of Representatives of the Save Our Seas 2.0 Act because it will “help accelerate progress toward a circular economy for plastics.”

The bill aims to create “a revolving fund to strengthen domestic plastic recycling infrastructure,” the ACC said.

The bill supports studies to “re-purpose” used plastics in roads and bridges projects. In addition, the Environmental Protection Agency will conduct a study on minimizing plastic waste generation, the ACC added.

The ACC reiterated its commitment to make plastic packaging in the U.S. reusable, recyclable or recoverable by 2030.

Separately, The Intercept, a news organization that analyzes developments including those that affect the environment and legislation, reported on Oct. 7 that the act won’t do much for the environment.

“There’s a reason the plastics industry likes this. It’s because they don’t really have to do anything,” Brett Hartl, government affairs director at the Center for Biological Diversity, told The Intercept.

The center is one of 40 environmental organizations that had sent a letter to the Speaker of the House Nancy Pelosi in opposition to the bill, The Intercept added in an Oct. 7 report.

The act was passed “on suspension” which is a procedure typically used for non-controversial bills. There weren’t any dissenting views raised during a 15-minute debate, The Intercept report said.

The bill will soon become law because President Donald Trump is likely to sign it, and the Senate approved it earlier this year, the report added.

Efforts to clean and prevent plastic pollution that ends up in rivers and oceans have gained notoriety in recent years.

On Aug. 25 the U.S. Plastics Pact, which does not include resin producers but groups plastic users such as beverage and retail companies including Walmart and soft-drink producers, said members aim for 100% plastic recyclability by 2025. This is five years sooner than the goal of resin producers grouped under the ACC.

The U.S. Plastics Pact works in partnership with the Ellen MacArthur Foundation.

Shell announces up to 9,000 job cuts; chemical utilization at about 80%

Royal Dutch Shell said on Sept. 30 it plans to cut operating costs with actions that would include up to 9,000 job reductions by the end of 2020.

Shell is seeking a cost reduction of up to $4 billion by the first quarter 2021, it said.

The announcement comes as the company has faced reduced demand and lower prices since the start of the Covid-19 pandemic, forcing it to cut running rates.

The company’s current chemical plant utilization is between 79% and 83%, higher than its refinery utilization that is between 64% and 68%, it said.

Shell is building one of the biggest petrochemical complexes in the Americas, which is an ethylene-polyethylene plant in a location near Pittsburgh, Pennsylvania. The estimated construction cost is over $6 billion with completion estimated in the early 2020s.

U.S. new vehicle sales to see 12% on-year decline in September

Total new vehicle sales in the U.S. will reach 1.2 million units in Sept. 2020, a 12% on-year decline marked by sharp drops in fleet sales, according to projections by True Car Inc., an automotive retail information provider.

New vehicle retail sales have seen a recovery from April lows. They are up 27% in the third quarter from the previous three-month period, it added in a Sept. 25 press release.

Fleet sales for September 2020 are likely to see a 45% on-year drop but remain flat from August. They are and up only 0.2% from the previous month when adjusted for the same number of selling days, True Car added.

By Reuters Events