Technological innovation in the shipping domain has historically focused on the needs of the maritime industry’s end-users, with little attention given to the customers (charterers), according to Jochem Donkers, Maritime Technology Specialist and Principal Consultant at Skysail Advisors and Doncqueurs. In this article, Donkers explores how this is changing and provides examples of digital innovations that are relevant for commodity traders and producers.
From freight RFQ to charter party
In bulk shipping, freight brokers play an essential role in matching shipment demand (cargoes) with tonnage supply (ships). There are, and have been, some efforts to replace the brokers by digital marketplaces like we have seen in many other industries. The chances of these digital marketplaces succeeding are limited in bulk shipping, due to the role of personal relationships, vessel types that are not easily standardised, and local knowledge of a trade. Nonetheless it will force broker houses to explore ways that they can digitalise and innovate.
A more fundamental challenge in the shipping workflow is the fragmentation of information. For example, the information of the whole process from a freight RFQ to an actual charter party may be scattered over multiple e-mails, chats (SMS, Skype, WhatsApp, ICE etc.) or even handwritten notes. Eventually, a lot of this is consolidated in yet another e-mail or spreadsheet because the available ERP is not geared to facilitate this workflow.
This fragmented workflow has very little governance, lack of compliance, no audit trail and it provides very little visibility over the decision-making process. Especially for larger charterers, this process is something that they wish could be better controlled and eventually be optimised.
There are several technology vendors addressing the challenges that charterers have in the freight RFQ to charter party process. An example of this is the Sea/ platform – a spin-out of major broker house Clarksons – which helps stakeholders handle the process from RFQ to charter party in a digital manner through various modules. Chinsay is another vendor that facilitates the digital solution for the contract workflow. For the pure marketplace solution there are several start-ups, although currently none of them have taken a clear lead when compared with other organisations.
Other interesting applications of technology in the pre-fixture domain are tools that can help charterers to vet their counterparties and their vessels. For example, WindWard can help to ensure the vessels you intend to use have not been involved with any illegal or suspicious activities, like trading with sanctioned countries such as Iran and Venezuela.
Commodity traders and producers can explore these new tools and services to streamline and better document their freight procurement workflows.
The bulk commodity shipment
The execution of a maritime contract involves many stakeholders, including brokers, agents, surveyors, charterers, and shipowners. Most of the communication is done via chat, phone, and email distribution lists – with many people on cc and reply all messages. Again, the information in the process is fragmented and unstructured, which makes it difficult to get an up-to-date status overview of the shipments and enforce the effective mitigation of potential issues that may arise during the process.
Moreover, many of the ERP solutions, for example, commodity/energy trading risk management (C/ETRM), are not designed for supporting the operational nuances of the maritime transportation lifecycle and therefore organisations fall back on spreadsheets or manually inserting certain parts into the standard ERP system. Spreadsheets have their own set of organisational risks associated with them. They can be easily modified and manipulated, and they lack internal control.
Over the past few years, several technology companies have been emerging to address the collaborative workflow problem. Voyager Portal facilitates the real-time collaboration between all stakeholders involved in a shipment. This includes anything from the charterers, agents, owners, and surveyors. Everything is done digitally, data is stored in their database and made available to stakeholders that need access to certain pieces of information. The core benefit is that the fragmented information is now all shared in one platform and therefore the e-mails involved in handling shipments is marginalised. People across the trade chain can focus on using their time on value adding tasks and finally high-quality data is captured, providing an excellent basis for embarking analytics efforts to further improve the marine operations.
Another solution that has been gaining momentum is the collaborative and smart e-mail solutions, with SEDNA leading the way. Though they are not focusing on eliminating emails, they do help staff focus on what matters to their work by solving inbox-related challenges and removing the disruption that irrelevant messages can cause. It also helps organisations to ensure – through tracking – that all messages have been properly handled.
A critical review of the shipment execution workflows will help traders and producers to better understand how and where they can optimise their workflows and assess what solutions may be helpful.
Demurrage is probably the most important post fixture challenge that traders and producers get involved in. Demurrage costs typically average around ten percent of the total freight costs. However, the cost to the organisation – in terms of human capital required to manage the demurrage process, working capital tied up in unsettled claims, and the administration associated with tracking and managing demurrage P&L long after a trade is completed – is considerably higher.
For calculating demurrage, many organisations rely on in-house developed Excel sheets while others use specialised laytime systems. In certain cases, the calculations are simple, while in other circumstances they can get very complicated, such as claims involving multiple load or discharge ports, disputed events or contract terms, or demurrage cost allocation across stakeholders in the trade chain.
Especially for more advanced laytime calculations, Excel may turn out to be expensive when mistakes start to materialise. In those cases, it is better to use solutions that have been through a quality assurance/testing process. These solutions enable you to perform a quick sanity check of the calculations you receive from counterparties. This avoids unnecessary costs and ensures rebillable costs are not overlooked. We see that larger organisations adopt voyage management systems such as the Veson IMOS Platform, while others opt for specialised tools such as Burmester and Vogel in the dry bulk industry, or HubSE in the tanker market.
Another exciting development in this domain is the rise of demurrage analytics. Here the goal is to better understand the sources of demurrage in certain circumstances. This will enhance the charterer’s information position which can be used to anticipate future situations during the negotiation of new charter parties and spend less time on demurrage.
For charterers it is worth revisiting the business processes that impact demurrage and identify how this can be improved. I am genuinely concerned about the wide and systemic use of Excel in organisations so I would advise paying attention to this in the review. Once you have an overview, it is worth exploring with internal or external technology experts to see how the adoption of technology may help you to address your risks.