High prices for bunkers. Trade route disrupted. High shipping rates.
The impact of the Middle East war on global shipping has once again demonstrated how geopolitical shocks can dramatically impact operational planning – and why dealing with market volatility is essential to improving the commercial efficiency of voyages, according to StormGeo.
“Operators must expect the unexpected and be flexible in their thinking,” says Rolf Rechstein, head of commercial direction for StormGeo.
“In an environment characterized by fuel price volatility, freight market volatility, operational disruption and rising emissions costs, voyage planning can no longer remain static.
“Operational decisions – from routing and speed to timing of arrival – must increasingly respond to ever-changing economic conditions, in the same way that shipping must adapt to more extreme weather patterns caused by climate change,” he explains.
Rotating acceleration
Shipping markets have always experienced cycles, but they are becoming more frequent and volatile, driven by geopolitical influences, macroeconomic factors, energy market shifts, supply and demand, evolving regulation and critical inventories in key countries.
Optimization no longer depends solely on speed and fuel efficiency, but on various factors that reshape the economics of flight – making operational decision-making more complex than ever before.
StormGeo commercial direction by Rolf Rechstein. Photo: Storm Geo
“Instead of sailing smoothly from the Persian Gulf to India or China with crude oil, you may have to pick up cargo from West Africa, Brazil or the US Gulf,” says Reckstein. “The voyages are longer, the need for improvement is greater, and you have to link execution to market fluctuations more than before.”
The commercial outcome of the voyage is affected by the interplay of different economic variables – from fuel price fluctuations, fast-moving shipping markets and regulatory shifts that affect carbon costs to delays and trade disruption caused by port congestion, weather or regional conflict that can lead to direct costs and lost opportunities.
Impact of fuel price
As fuel is the largest variable in the cost of a flight, rising fuel prices can significantly impact profitability without consideration of the broader business picture, and this requires a dynamic approach to decision making to capture value across the flight cycle.
Operators may lose value or increase risk if decisions are made without updated economic insight based on changing market conditions.
An example of this is the recent Strait of Hormuz crisis which led to tanker rates and higher fuel prices, which the Transport and Environment lobby group estimates has cost shipping companies an additional €340 million a day in fossil fuel bills.
Challenges facing shipping companies include planning voyages without considering fuel price changes, making speed decisions that do not take into account port congestion or schedule changes, and having limited visibility into emissions cost exposure.
This requires constant economic awareness with real-time data insights into different variables to facilitate the shift from static to adaptive planning to avoid leaving value on the table, according to Reckstein.
“Market Monitoring”
“If you don’t have an eye on the markets and are only focused on the road, it can undermine the business outcome of the trip,” he says. “You may need to re-evaluate during the trip whether you want to adjust the speed, ETA or bunker strategy to best execute in relation to your trading objectives.”
The need for a more dynamic approach to voyage planning is driving the industry to adopt AI-based voyage intelligence — integrating real-time data on ocean and weather conditions, ship performance, market insights and emissions monitoring — to deliver predictive analytics backed by human expertise to guide adaptive decision-making, according to Reckstein.
This allows operators to evaluate multiple scenarios and adapt to changing conditions to protect journey margins even in volatile markets, such as seizing opportunities in the growing freight market.
“How your current voyage is done can be linked to what your next job will be. If the market is rising sharply, you want to set sail as quickly as possible to unload the ship and put it on the market at a higher price,” Reckstein explains.
The only source of truth
By combining operational, economic and sustainability data, Journey Intelligence fully integrates business awareness into the planning process. Furthermore, it provides a single source of truth with visibility across company departments to allow better coordination between different teams, avoiding potential blind spots in the decision-making process.
“A typical journey entails the interplay of a lot of different moving parts – this requires aligning KPIs across business and operations teams, which can be difficult in a fast-paced environment,” Reckstein says.
Flight information allows decision making based on both operational experience and evolving economic realities – such as meteorological conditions, fuel prices, charter requirements, freight market conditions, emissions and compliance obligations – to enable adaptive flight management compatible with the changing environment.
Uncertainty management
This means shippers can manage uncertainty more effectively to provide better cost control in volatile fuel markets, freight market visibility, reduced delay risk, improved schedule reliability, lower emissions and compliance risks – and stronger commercial margins.
“Profitability is the ultimate driver of decisions in shipping – and this is strongly influenced by market volatility,” Rechstein concludes. “But companies that are able to respond quickly to changing conditions can turn volatility into a competitive advantage.”
Source: Storm Geo
