Bulk Cargo Logistics and Solving the Commodity Conundrum
The long-established processes and practices associated with bulk commodity shipping present distinct challenges. For cargo owners, they mean a lack of transparency – leading to significant inefficiency and waste. OceanSMART Managing Director Bryan Phillips explains how new technologies that digitize these methods are poised to change the entire industry.
The movement of cargoes from source to destination involves so much more than a seller-buyer relationship: there are multiple players – and multiple complexities – at work in the bulk commodity cargo logistics arena.
Commodity traders may sell on the owner’s behalf, brokers are used to make vessel arrangements and advise on contract terms and port agents will quote on costs at both loading and discharging locations.
There are further variables, for example, the nature of the vessel agreement – sourcing an asset from the spot market, perhaps, or agreeing to a time-limited charter – as well as the potential involvement of several different shippers and receivers in an individual movement.
Underpinning these processes are inherent billing and revenue-sharing mechanisms that give rise to many of the transparency issues. The result: it’s difficult for cargo owners to fully understand costs and ascertain value, and there’s little incentive for some in the supply chain to eliminate inefficiency.
These processes have become embedded and there’s a prevailing sense that this is just the way things are. But simply maintaining the status quo generates conflicts of interest, misinformation, and financial waste, while creating delays, unnecessary risk, and negative environmental impacts.
Examples of primary areas of waste in the supply chain are idle time and commissions. Primarily related to the loading and discharging of cargoes in port, these idle time and commissions are seen simply as a cost of doing business. But if optimized, these interlinked factors can help businesses save significant money.
- Understanding waste
In one analysis of idle time, conducted on behalf of a client with significant cargo volumes, we found that more than 45% of time attributable to port calls was inactive in terms of cargo discharge activities. Using our advanced algorithms, we were able to process source documents that record time in port and presented our client with a detailed breakdown of the idle time. We identified that most of the idle time was spent sitting at anchorage awaiting a berth. Other factors included weather delays and waiting for inspections, as well as tide, cargo and piloting issues. The client had no way to understand or measure this waste in real-time.
The impact of idle time is extensive, both financially and environmentally. There are additional costs associated with fuel, demurrage, port services and crew. And don’t forget the higher cost of capital. The bills run into the hundreds of millions of dollars.
Then there’s loss of revenue: if asset utilization were more effective, significant quantities of additional cargo could be sold and delivered.
Business pricing represents another – little understood – way of realizing savings. Inefficiencies relating to idle time increase the level of commissions or rebate being earned in both demurrage and port costs.
To cite one scenario: the cargo owner uses a broker to source the vessel, who is paid freight and demurrage commissions by the ship owner. The port agent – who sources the individual vendors to provide services in port – frequently adds their own undisclosed amount to these services and then receives a commission or rebate from the port vendors. Then the charterer adds an address commission, a percentage on top of the freight cost.
When assessing these issues and the consequent extent of potential waste – we need to bear in mind the sheer scale of the industry: bulk commodities account for around 60% of all seaborne commodity movements globally.
- Technology: a critical enabler
We’ve developed OceanSMART, under the Oceaneering banner, as a specialist business focused on applying technology to help customers eliminate waste and enhance efficiency by exposing key market data – in effect, digitizing the process to empower cargo owners.
Over the past two decades, technological advances have given cargo owners better visibility of data related to areas such as port costs, vessel locations, and weather. However, the continued use of manual, paper-based systems – and the practice of ringfencing data – still compromises transparency. Cargo owners, to a significant extent, remain out of the loop.
Several external factors are driving change, such as the widening adoption of anti-fraud and corruption legislation, International Maritime Organization (IMO) regulations on fuel efficiency and a growth in external investment into the maritime bulk space. That in turn is creating an environment that embraces technological advances, with many investors seeing the digital transformation of the marine sector as a major business opportunity.
Our goal has been to create transparency around waste and conflicts of interest, and then to help implement the solutions that deliver clarity and efficiencies. There is scope for parties across the bulk logistics supply chain to use our technological solutions, but they’re primarily designed to inform cargo owners and shift the control back to them.
OceanSMART takes the form of a suite of new products and services in three interlinked categories: software, resourcing, and optimization.
Our software proposition comprises specialist SaaS (software as a solution) products, designed to complement the existing systems environment within an organization. They enable us to work with customers to address system gaps, and the barriers to entry are low – from an implementation standpoint, they’re plug-and-play solutions that deliver quick and tangible results.
In resourcing terms, we provide technical expertise and experience to help customers realize operational improvements, while the optimization dimension features a set of data science tools that analyze raw port data and produce detailed insights on areas of inefficiency. The optimization offering is equally focused on results; it not only provides new, near real-time visibility of waste, it generates actionable data and recommendations on how it can be reduced. We also provide a change management process to support implementation of our recommendations.
The investment support of Oceaneering – and the opportunity to build on the organization’s existing software and maritime capabilities – has been central to the development of these solutions. The leadership of Oceaneering is actively supporting our growth, which we believe is pivotal. In fact, the company’s independence from the maritime sector adds a new level of transparency and rigor to our offering. In addition, we believe the industry knowledge of those at the OceanSMART helm collectively, decades of experience, including in C-level executive roles, drives our success.
- Tapping into new knowledge
As organizations aim to be leaner and more efficient, capitalizing on opportunities to save costs and reduce carbon footprint, the introduction of technology-led systems and processes is part-and-parcel of the process. Solutions are even more pertinent when they are targeted directly at reducing waste and inefficiencies. They equip businesses to understand and pursue material benefits – that which can be derived from previously untapped knowledge.
Reducing waste is more than a motivation for us. It’s a mission. There’s a business driver, of course, but ultimately there are wider benefits: with inefficiencies eliminated, assets can be used more effectively, greenhouse gas emissions are lowered, and commodities become less expensive.
Our ambitions extend beyond simply designing and introducing a range of software tools. We have developed a comprehensive ecosystem, backed by experts, that offers software, data science tools and the industry knowledge to empower real industry change. Our goal is to transform the sector – one cargo at a time.
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