Commodity Management Blog

Innovative Ideas and Thought Leadership for Volatile Commodity Marketplace

ShipShipping lanes remain the great conduits of commerce. Like the great empires of old, today’s modern trading enterprises are built on naval strength and maritime capabilities, and 90 per cent of the world’s traded goods are transported by sea.

But although the majority of raw materials and finished goods reach their destination by sailing the seven seas, the reality of commercial shipping is much more constricted than the old cliché implies. It may well face fewer logistic challenges than transporting goods across huge land-masses, but getting cargo from one point to another is far from straightforward, and there are still plenty of constraints on where and how goods can be transported.

Oil products and minerals are the most transported commodities, and the location of these resources determines many of the shipping lanes for bulks. The importance of large manufacturing regions and consumption markets also give structure to the most common maritime routes. Then there are the physical constraints: coasts, winds, marine currents, depth, reefs, and ice all play their part in determining where ships can and can’t be sent – as of course do political boundaries. There is a reason that today’s supertankers plough the same waves as the great tea clippers of the 19th century.

However, many of the maritime routes that traverse the rest of the globe are only a few kilometers wide, and a limited number of strategic ports to serve these congested shipping lanes. Even ships on the popular trans-Atlantic and trans-Pacific routes, which have a far greater choice of routes and ports, still tend to congregate around tried and tested ‘Great Circle’ paths and the ports that serve them.

So a ship cannot simply turn up in a strategic port and expect to discharge one cargo, pick up another and sail off into the sunset. One of the most critical elements in managing the profitability of any voyage, therefore, is assessing port availability, and to include that information when calculating voyage distances, bunker fuel requirements, and the type of cargo to be carried. A ship sitting idle while waiting for a berth in one of the world’s shipping choke points will be missing its laycans, possibly destroying its cargo and definitely losing business.  It is effectively throwing money overboard.

Port availability is also a critical factor in determining the level of risk of any given voyage. This is not simply the financial exposure to freight rate volatility and counterparty credit risk – although again an idle ship will have deleterious effects on both – but also the personal risk of piracy. Pirates off the Somali coast and in the Gulf of Aden have already caused shippers either to pay exorbitant war risk insurance premiums, or to re-route and add delays and extra fuel costs to the journey. UNCTAD’s 2009 Review of Maritime Transport found that, based on 2007 data, re-routing 33 per cent of cargo from the Suez Canal to the Cape of Good Hope because of piracy concerns would cost ship owners an additional $7.5 billion per annum.

So charterers, ship owners and operators need accurate, up-to-date and comprehensive information on all the ports on their routes. And not just whether there is room for them. Shipping firms need quick identification of port positions – individually, by country and by zone. They need pilot information and the restrictions on draft, length overall (LOA) and beam to make sure the port can take a given vessel. They need latitude and longitude values and the UNLOC code as well as distance and routes to other ports. Even information about GMT offset and Daylight Savings Time is essential if journeys are to be optimized and delays minimized.

All this however is static information. And when it comes to shipping, static no longer cuts it. Certainly navigators need an up-to-date, real-time picture of a port, its facilities and its availability – but they also need the ability to respond to that information. They need to be able to re-route their vessels mid-voyage. To do that they need accurate, detailed and up-to-date information on all the factors that determine a vessel’s route and its margins – and then integrate that information with cargo commitments and port information to ensure voyages remain profitable. Today, advanced software solutions interface with Google Maps® to provide shipping participants with the ability to track vessels along a route and gain satellite views of ports and berths with zoom capability.

The amount of information to take on board when planning a route is considerable. First there is distance between the 80 ocean zone exit and entry points, or connectors, and the common shipping routes they provide access to. These have traditionally been recorded in standard port, distance and route tables and form the basis for accurate analysis of cargoes, vessels, load, and discharge and thus for optimally planning routes. But they aren’t necessarily readily available for rapid decision-making.

They are also only one aspect of the factors to be taken into account when planning new or alternative routes. Shippers need to determine intermediate waypoints so that the route skirts land, reefs, shallow water, and other obstacles that may adversely affect the vessel’s operation, and then they have to calculate the distance between them as Great Circle legs to ensure the shortest distance is plotted between individual points.

Re-routing must also take into account the ship’s LOA and beam so that tankers larger than the prescribed Suezmax dimensions are not routed through the Suez Canal, for example, and Panamax ships are carefully timetabled to go through the Panama Canal’s Gaillard Cut during the day.

When re-routing voyages, ship controllers obviously need to avoid known areas of inclement weather, for example, weather routes in the Southern Ocean, as well as shallow areas such as the Torres Strait, north of Australia. They must incorporate information on all recommended traffic separation routes, dangerous ground and adverse currents, and work out viable, alternative routing to avoid Piracy Zones set by the Joint War Committee.

Sea captains also need tables that give distances from pilot-point to port and pilot-point to pilot-point, measured in both nautical miles and in voyage time. This is essential if a voyage includes a river leg. A pilot-point could easily be two hundred nautical miles up river from a port, which is roughly four days of sailing time. Accurately planning that time is critical to determine the vessel’s total hire cost and fuel consumption, and it can represent a huge saving in bunker fuel costs if the freight rate is high. So within their solution for ocean navigation, shippers, operators and charterers need the functionality to calculate the speed, consumption, and time on the river if tight control over P&L is to be maintained.

That is the critical factor after all. All of these elements impact upon the profitability of the voyage if they are not managed. And so all this information needs to be readily accessible and easy to manipulate. It needs to be integrated with cargo commitments round the world and, in the case of transporting commodities, with trading and risk management systems.

And that’s where the technological challenge comes in. Although much of this information is available in port, distance and routes tables in a diverse range of databases and manuals, it isn’t necessarily interconnected, and it isn’t always available in real time. It is time-consuming to dig out, it doesn’t point out the interconnections and knock-on effects of decisions made. It simply doesn’t function adequately in the incredibly dynamic shipping environment.

The shipping business is a complex one: far too complicated to be run from spreadsheets or paper logs. It needs a dedicated, specialist solution that can incorporate all this data and translate it into valuable, actionable information. It needs to provide complete transparency and visibility over each aspect of vessel operations, and draw out the relationships between diverse data elements and the activities they represent. Above all it needs to demonstrate where profits are made, where they are lost, and where they can be enhanced by improved decision-making.

Many of the traditional navigational tools of the professional seafarer have been deployed for centuries. But the pace of business, the levels of risk, the cost of fuel and the tightening of margins across the board have placed an added pressure on ship owners, operators and charterers that these traditional tools are simply incapable of meeting. In today’s shipping environment it is the ability to manage the dynamic world of shipping and vessel operations in real time that is the real route to success.

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