Shipping has been an important part of history dating back to the Egyptian coastal sailships of 3200 B.C., predominantly in areas where prosperity has depended primarily on international and interregional trade.  The maritime shipping industry is responsible for moving over approximately 90% of the world’s traded goods.  Entire countries down to your local mom-and-pop stores rely heavily on the success of this industry.

With that said, the shipping industry is currently battling some very strong headwinds due to soaring bunker costs and sinking freight prices, among other things.

Today, we have seen bunker costs represent more than 50% of total costs. Not only have these costs reached record highs - they continually become extremely volatile due to widespread fluctuations in crude oil prices.  Companies must find a way to successfully manage bunker volatility, or they will not fare well in today’s stormy business environment.

A recent article by The Boston Consulting Group (BCG), “Fueling a Competitive Advantage: An End-to-End Approach to Cutting Bunker Costs,” proposes a holistic approach to managing bunker costs.  The article, aside from addressing a number of concerns around analytical and organizational complexities, details an important key to success--using real-time decision support tools.

Since all fuel price increases can't be passed through to customers, the shipping company that best manages price risk will gain competitive advantage. To succeed, shipping companies need enterprise-wide information transparency and fast access to actionable data.

Triple Point’s Softmar Chartering and VesselOps™ is a next generation shipping solution that delivers a complete picture of enterprise position and exposure, and analyzes any combination of cargoes, vessels, load, and discharge operations. It enables the commercial maritime community to protect profits, make more informed and proactive decisions, and streamline day-to-day operations by providing advanced, actionable business intelligence.  Learn more

It should come as no surprise that the commodity industry is predicting a continuation of 2012’s market volatility and slow economic growth for the balance of 2013.  Regional economies that were thought to be in recovery are now slipping back into recession. Major commodity price fluctuations are expected to persist, and global demand for oil is expected to rise only 0.8% to 90.4 million barrels per day this year.  Volatility will continue to be influenced by the euro-zone debt crisis, fluctuating demand in Asia, and continued political unrest in the Middle East. 

Commodity-consuming companies are challenged to respond to this volatility with supply chain strategies that drive top line performance while protecting the bottom line.  A strong pricing risk management strategy is essential to remain competitive.  However, it is not the only strategy that must be considered. The profitability advantages gained from insightful commodity purchasing and trading decisions can be obliterated by a poor volume management strategy that quickly erodes margins by causing costly mistakes such as expedited shipments, lost orders, missed sales opportunities, poor inventory staging, stock-outs and overruns.   

Global volatility only adds to the planning challenge. The importance of maintaining an accurate volume demand forecast, production schedule, distribution schedule, and inventory management strategy should not be lost on anyone.  

Triple Point’s Supply Chain Optimization (SCO) solutions help you address your risk mitigation strategy from a volume point of view.  Triple Point SCO integrates your data silos into a single planning database, allowing everyone to collaborate on one set of numbers to arrive at a highly accurate volume demand plan.  This plan then drives more efficient downstream production planning and scheduling decisions which translates to higher utilization, higher service levels and reduced inventory costs.  Learn more.

The energy industry and its associated supply chains are fast-changing and very complex. Just a few years back, several companies built LNG import terminals to meet the energy needs of the U.S. 

According to a NY Times articlethe billion-dollar terminals were obsolete even before the concrete was dry as an unexpected drilling boom in new shale fields from Pennsylvania to Texas produced a glut of cheap domestic natural gas. Now, the same companies that had such high hopes for imports are proposing to salvage those white elephants by spending billions more to convert them into terminals to export some of the nation’s extra gas to Asia and Europe, where gas is roughly triple the American price.”

Currently there are 25 LNG-importing countries in Europe, Asia, South America, Central America, North America and the Middle East, up from 17 importing countries in 2007. 

Cheniere’s Sabine Pass LNG Terminal in Louisiana was the first to receive approval to export LNG. According to Steven Chu, the U.S. Energy Secretary, "Our long term economic strength depends on safely and responsibly harnessing America's domestic energy resources while developing new and innovative clean energy technologies.  This project reflects a broad, 'all of the above' approach that will put Americans to work producing the energy the world needs."

The open question is whether this a good investment, or is the market changing so rapidly that the investment in LNG export terminals will also be obsolete before the terminals are fully functional? The same NY Times article mentions, “countries around the world are importing drilling expertise and equipment in hopes of cracking open their own gas reserves through the same techniques of hydraulic fracturing and horizontal drilling that unleashed shale gas production in the United States. Demand for American gas — which would be shipped in a condensed form called liquefied natural gas, or LNG — could easily taper off by the time the new export terminals really get going, some energy specialists say.”

Whether it’s Crude, LNG, Natural Gas, Power, Biofuels or other energy commodities, the common denominator is volatility and complex supply chains. The combination of volatility and complexity is the reason Triple Point’s ETRM (energy trading and risk management) software has been in great demand over the last five years.  Energy companies that have not invested in sophisticated ETRM software have put their businesses at a competitive disadvantage.

Oil Trading SolutionThe gas in our cars, cleaning chemicals in our cabinets, and reusable cups from which we drink our coffee or tea all have ties to the crude oil industry. As feedstock for a wide array of goods, crude oil and crude products are among the most widely traded commodities in the world. The market attracts diverse participants; however, many of the challenges faced are universal.

CommodityPoint’s latest white paper, “Global Oil Markets- Increasing Uncertainty and Risk,” highlights several of these challenges and concludes that now is the time to invest in an advanced energy trading and risk management (ETRM) software solution to combat rising volatility.

This white paper discusses how the political unrest affecting many of the world’s crude-producing regions is having a direct effect on oil supply. Tensions in the Middle East threaten to shut down the busiest port in the region, which could interrupt the delivery of 17MMbbl/day. Should this situation come to fruition, market volatility will be further exacerbated, and those companies that are not properly equipped to manage it will suffer.

While the threat of a continued reduction in crude supply looms, crude demand continues to grow each year. CommodityPoint’s paper suggests the only way to effectively navigate the market fluctuations caused by scenarios such as this is to implement a sophisticated trading solution that can not only capture, manage, and value trades and hedge positions; but that can also model the entirety of the physical operations of market positions. Read the paper now and find out why it’s imperative to have an ETRM solution such as Commodity XL™ that provides an integrated, real-time view of physical and financial exposure alongside operational, credit and regulatory risk exposure.

Download the CommodityPoint white paper

WAM Supply Chain SolutionsI’m excited to share the news that Triple Point has acquired WAM Systems, the premier provider of supply chain planning and optimization solutions for the process industry.

WAM has an impressive presence in the chemical industry, and its solutions are also beginning to see adoption within other process industry segments including oil and gas, pharmaceuticals, CPG, and food and beverage. WAM’s worldwide customer base includes leading companies such as PTT Global Chemical, Saudi Aramco, Celanese Chemicals, LyondellBasell, Honam Petrochemical, Indian Oil, PetroChina, Sasol Oil, and Solvay.

Like Triple Point’s previous acquisitions, the WAM acquisition furthers Triple Point’s commitment to having the most comprehensive, advanced solutions for handling all the financial and physical aspects of Commodity Management. Softmar was acquired for its superior chartering and vessel operations solution, and QMASTOR for its exceptional coal and mineral supply chain solutions. Acquiring WAM – the premier provider of process industry supply chain solutions – made perfect sense as a next step.

The process industry is facing many challenges including extreme raw material price volatility and increasingly complex global supply chains. This business environment mandates that process manufacturing companies leverage advanced technology solutions to ensure efficient and profitable operations. With the acquisition of WAM, Triple Point now offers the only Commodity Management solution that optimizes all the physical and financial supply chain complexities that process manufacturing companies deal with on a daily basis.

Read the press release

Uncertainty looms large in the European Gas and Power markets. What could cause the next big shock? Are you confident you are prepared for the next crisis? Policy developments and structural changes, such as the Electricity Market Reform (EMR) initiative in the UK, may drive extreme price volatility and uncertainty.

Triple Point recently hosted a webinar on
How to Survive and Thrive in Volatile European Gas and Power Markets.  One of Baringa's European Energy Market experts, Nick Tallantyre, shared the key issues driving volatility in the European Gas and Power Markets –– and how to protect against them. Triple Point's Mark Earthey provided an in-depth overview of Triple Point's European Gas and Power Solution.  


It was a very interesting event full of valuable ideas on how to gain clarity in today’s uncertain world. Attendees learned:

  • Key market implications arising from the structural and policy changes to the energy markets e.g. the Electricity Market Reform (EMR) programme in the UK
  • What European market participants must do to prepare for growing global market connectivity
  • Proven strategies to protect against market volatility
  • How to optimize portfolios and improve trading operations
  • How Commodity XL provides a real-time view of exposure, manages enterprise risk, and handles scheduling — all on an integrated platform
View the webinar on demand here.

In less than a decade the price of iron ore has risen tenfold, with China’s economic boom leading the increase in global demand.  However, last week iron ore prices hit their lowest level since November 2009; the commodity crashed 4.6%, closing at $94 from a 2012 peak of $149.

With several recent reports of profit slumps, the world’s largest mining companies are starting to struggle in this environment. According to Platts, most market participants remain bearish in their expectations for the iron ore market, with predictions that prices might extend their losing streak until next week and beyond.

Organisations that want to successfully weather this storm will need to transform their supply chains to ensure maximum efficiency throughout their operations. Only by reducing risk to penalties, demurrage and transportation costs and stockpiling where necessary will companies survive. This level of supply chain management can only be achieved successfully with sophisticated mining software solutions like QMASTOR Pit to Port

The US Midwest is suffering its worst drought in decades.  The US Department of Agriculture (USDA) recently dropped its corn yield forecast from 166 bushels per acre, made earlier this year, to 123 bushels per acre.  The expected shortage of corn is causing prices to surge.

Corn has multiple uses – it is used as fuel (ethanol), animal feed, or directly as food.  Roughly 40% of US corn production goes towards ethanol, 36% towards feed, and the rest towards food.

There are several concerned groups that believe the Environmental Protection Agency (EPA) should relax the ethanol requirement under the Federal Renewable Fuels Standard act, which states that there must be 13.2 billion gallons of corn starch-derived biofuel produced in 2012.  The UN has called for an immediate suspension of the US-mandated use of ethanol.  In addition, a coalition of beef, pork, and poultry producer associations have called for a cessation of the ethanol requirement.

Whether the EPA will ease the ethanol requirement is not the most important question – the real question is how do we plan to deal with rising agricultural commodity prices and volatility in the long term? The corn shortage might be a one season event, but volatile agriculture and softs prices are here for the long term. 

We have an expanding world population that is forecasted to grow from 7 billion to 10 billion in the next 35+ years.  As part of this population growth, there is a rapidly growing middle class across China, India, and other parts of Asia.  China and India alone are doubling their per capita incomes at approximately 10 times the rate and 200 times the scale achieved by Britain’s Industrial Revolution in the 1800s.   This growing middle class wants to eat higher on the protein scale (more meat which needs more animal feed).  And it appears we’ve hit a pattern of severe weather events including droughts, floods, extreme temperatures, etc.   These long term trends will drive acute commodity price swings – which is, as we’ve said before, the new normal.

All companies in the food supply chain, from upstream to downstream, should be putting plans and commodity risk management systems in place to handle price volatility.

Mobile Commodity ManagementIn just a few years, mobile technology has reshaped the landscape for businesses everywhere. The growing presence of smartphones and tablet devices in the workplace has forced companies to take a sharper look at the benefits mobile applications offer.

Previously, it was impossible for certain jobs to be performed away from a workstation. The mobile revolution has changed those rules. With the arrival of powerful mobile devices and sophisticated mobile applications, it is now possible for employees to perform tasks, previously restricted to their desktops, from any location at any time. And therein lies the value that mobile technology can offer: the ability to untether employees from their workspaces while increasing productivity. For this reason alone, companies are exploring ways to adopt new mobile solutions into their infrastructure in order to maintain an edge over the competition.

Software vendors across all industries are looking for ways to establish themselves in the mobile frontier. The challenge facing these vendors is to find a way to deliver solutions that make sense in a mobile world. The first temptation is to simply repackage existing desktop software and offer it on mobile platforms. This tactic fails, however, to recognize that a mobile solution cannot comfortably accommodate the same movements and actions that might be found in standard computer software. Vendors must accept that the answer lies in preserving functionality while promoting simplicity.

This fundamental concept has helped distinguish the visionaries in mobile technology from the rest of the competition. As software industries saturated with players hum with promises of new mobile initiatives, only a handful of companies actually deliver on such promises. This is especially true of the Commodity Management world. For almost two decades, Triple Point Technology has outpaced its competitors in this industry by producing unmatched Energy and Commodity Trading and Risk Management (CTRM) solutions. When it comes to mobility, Triple Point is the only Commodity Management company today that has managed to bring mobile CTRM products to market. In just under a year, Triple Point has already managed to produce four distinct mobile applications capable of transforming the way companies manage commodities by empowering staff to perform key operations anytime, anywhere.

To read more about Triple Point’s mobile commodity management solutions, click here

There have been several recent announcements from Delta Airlines related to jet fuel and oil trading.

According to Reuters, Delta Air Lines Inc. reported a second quarter loss because it took $561 million in charges for fuel hedges.  Part of the loss was taken for mark-to-market adjustments on open hedge contracts. 

It appears that Delta has chosen not to apply FAS commodity hedge accounting treatment.  Many of the news reports called these derivative purchases “bets” when in fact they are hedges that reduce risk. 

If Delta used hedge accounting it would match the loss of open fuel derivative contracts against future jet fuel purchases and not show the loss in the current period. Hedge accounting is extremely complex, and an advanced, auditable software system is required to support the adoption of these procedures.

Separately but related to managing fuel cost and risk, Delta announced that it completed its acquisition of the Trainer Refinery in Pennsylvania through its Monroe Energy subsidiary.  Delta will move jet fuel from the refinery to its hub airports in the Northeast.  Additional refined products such as gasoline and diesel fuels will be traded for jet fuel in other parts of the country. Delta spent about $12 billion on jet fuel in 2011 and expects to serve 80% of its domestic jet fuel needs from the Trainer refinery and related deals.

Delta is the first airline to own refining capacity. It will be interesting to observe if other airlines follow suit and move to vertically integrate their energy supply chains. 

Supplying a refinery with crude oil and trading products requires sophisticated energy trading and risk management (ETRM) software.  With volatility seemingly increasing daily in the commodity and crude oil markets, it seems prudent for Delta to invest in a hedge accounting and oil trading and risk management platform.

Four years ago Triple Point acquired INSSINC, the leading commodity hedge accounting software solution, and integrated it into its energy trading and risk management (ETRM) software solution.  At that time, Triple Point recognized the need for an integrated commodity management platform that seamlessly integrates all key risk areas.

The new volatility reality demands that all industries with exposure to commodities and energy review their current risk systems to ensure they are appropriately protected. 

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Events

Procemin 10th International Mineral Processing Conference

October 15-18, 2013 | Chile

XXV Brazilian National Meeting of Mineral Treatment and Extractive Metallurgy (ENTMME)

October 20-24, 2013 | Brazil



Opinions expressed on this blog are those of its individual contributors, and do not necessarily reflect the views of Triple Point Technology, Inc.