Fragmented maritime impact

It is a popular opinion among the maritime industry that the one is fragmented and that is a problem.

But what really stands behind the word "Fragmented"? What is the problem here?

If we dive into the depth of the vessel operations part of industry business we will first find not a really big number of roles: fleet managers, fleet owners, charterers, brokers, crewing agencies, suppliers. Nothing outstanding - many markets have a much bigger diversity of internal operations.

On the next step of our diving process, we will find that inside each role we have a lot more business models, market niches, specializations, and ways of doing this transportation thing.

River transportation, LNG and tankers, containers, bulkers, feeders, long ocean runners, and more and more, are very unique verticals or cross segments inside the industry with their own operations. Inside these verticals, we also have internal segments of voyage planning and efficiency, maintenance planning, spare parts, and food supplies, crew safety, navigation safety, and emission control.

And we are talking about 91 000 commercial vessels, not about millions. It's a small number of big, slow, and heavy to manage objects interacting with the outside world.

One more popular phrase is "9 out 10 goods we use been transported by vessels", ok, let's take 60% of the cargo turnover as an example. How many of those interactions exist and how the world around the marine sector looks like?

I can give you some numbers:

39 000 000 trucks + there are also railroads

10 000 000 factories

120 000 000 supply chain management employees

are working on their side of the supply chain and in 6 out of 10 cases interacting with only 91 000 vessels. Isn't that a bottleneck?

So the whole shore structure of the land businesses is pushing their cargo flows through a really small number of the vessels and they adapt coping the chain specifics but on a smaller scale. It obviously couldn't be efficient in comparison to the truck market structure or railroads. It's a cost pressure of having a complex big size but niche assets with a small number of those assets. This is fragmentation on a small scale that lacks the advantages of the markets with a bigger number of standardized assets.

Moreover, the maritime market was not really able to find the balance in data sharing and communication standards, so every major has its own standard now. The logistics market that was initially developed to connect is internally disconnected.

This is fragmentation - hard to connect with each other and hard to share information efficiently. For hard disc drives, we have de-fragmentation.

Defragmentation, also known as "defrag" or "defragging", is the process of reorganizing the data stored on the hard drive so that related pieces of data are put back together, all lined up in a continuous fashion. Defragmentation increases computer performance.

A supply chain is all about managing the data and defragmenting lots of parts into a solid overview of the process. In the real world, it lacks the simplest information. The majority of the vessels, I think around 80+%, report their performance and events through manual input through email or excel. And even this information is restricted.

The era opened by the events of climate change - forest fires, hurricanes, extremely cold weather, and in addition to the covid pandemic affected the global economies and supply chains. We saw the port queues and delays in weeks, the rise of the last-mile delivery, and online communication tools, we also saw new green laws.

The last 2 years were filled with bad surprises of findings on how the supply chain, especially the marine part really works because all of the nonstandard situations always bring out the hidden problems.

Many business managers ask themselves - why my cargo hasn't arrived yet? How can we plan our supply chain if the marine part is unpredictable? Why was the cargo late for 5 days?!

As we can see from the graph above, the cargo transit time almost doubled within the last 2 years.

So what is the core impact of such fragmentation and the current state of integration within supply chain parts?

I guess it's 2 things:

1- Higher average cost of delivery, so the price on the shelf rises up.

2 - Higher negative ecological impact

The 1st one is obvious, but the second one is a consequence of the first. When you are not able to make good end-to-end planning you won't have efficient navigation - you will be speeding up the vessel to chase the ETA frame or arrive earlier and wait on anchorage burning fuel

Do you know how really inefficient is this planning today? I can say that it is not a miracle when good planning saves you 19% of the fuel cost. You can extrapolate.

Today voyage efficiency became not only a matter of fuel cost. Ocean pays back for the plastic pollution, sulfur oxide emissions, and for the harm we did over the last decades.

Ocean produces above 60% of the oxygen that we breathe and flora inside appears to be sensitive to such a polution. But who actually cares unless your forest is not burning out or the wind becomes so strong that you start googling why?

15% of the worldwide sulfur oxide is made by vessels + CO2 + NOx + microparticles. and these are not emissions above the highway layer, this complex meal directly goes to the ocean for breakfast, lunch, and dinner. You should be familiar with the fact that these big vessels are powered with engines 25 meters in length and they are not fueled with green eco gasoline, they are fueled with sulfur fuel oil. 50 tonnes per day and 10 million litters per year is a normal burn rate for a commercial vessel.

A very small share of the vessels around the globe are eco-friendly. I won't mistake if I say below 15% worldwide. To upgrade such a vessel you need to pay, but who are these lucky guys that will cover the upgrade parade?

In the long term, it's us, through the cost of the end products on the shelves, through the taxes.

But if we go back to the fragmented structure of the market, it's the fleet owner as he owns the asset. But he won't pay - it's not efficient to change the engine, it's expensive. He never interacts with the client itself, there is a fleet manager for that. But he is not the owner, he only operates, so he is also a wrong person.

The cargo owner who pays the fuel check can say: we would like to hire your vessel only if you are at least not heavily dirty. And you will be surprised, last year they really did...

Because of the government regulations - ESG + Emission trading system + IMO made it move that way in 2021. It's exactly what happens right now.

There's also a legal obligation to report and manage your supply chain impact now. To calculate, report and act.

But let's ask ourselves how it is possible to manage the impact which has no good data basis? Making assumptions?

Manual reporting lost his trust even inside the maritime industry.

• Human factor

• Average numbers for the last 24 days and for some business models like feeders they are irrelevant

• Data fraud (it exist)

• People onboard the vessels are overloaded with the old-style operations and have no understanding of how the new reports will make their life better, so they won't fill it out properly

• over 70% of the fleet worldwide are analog vessels, like the car from the 80s and having 91k commercial vessels every year only 2,5k been newly built

Does the replacement of paper or email or excel reports with digital CRM save us? Well, at least it's digital and you don't need to type it 4 times to fill 4 different reports. But the data is still manually inserted into the system.

You can say: Hey! We have satellites and there are plenty of services tracking the vessel.

And moreover, they are brilliantly good within their niche of tracking. Sadly the emission could only be controlled when you have engine data otherwise its accuracy of 60%. Would you like your health issues to be predicted with an accuracy of 60%?

Going into the depth of the industry with my team, we became more and more convinced that the only way of solving this problem is to apply at least several technologies:

• ML algorithms for the satellite data - to have a worldwide coverage of all vessels and have the basic necessary data set.

• Wireless noninvasive hardware to capture the data from the vessel with an intraday installation. Otherwise, it won't be scaled globally. Also, it should be cheap, not to overload the industry with new pain of costs that they won't accept.

• Deep industry expertise on voyage optimization and emission control.

This is a basic package to have if you are willing to make a real impact within your supply chain.

More and more voices in the ESG market repeat that it is better to measure 10 parameters instead of 100 but accurate and smart. Confronting the climate issues is not about Chemical Factory reporting that they use every piece of paper with both sides with 50 pages per day. It's about the measurements made by experts and based on the sensor or any other trusted data. And impact actions reducing the real harm.

ESG approach at its core requires first of all detailed and trusted industrial data and smart analytics of such data. It will be a big mistake to assume that ESG reporting itself or IMO reporting itself solves the problem or motivates corporates to make smart actions reducing carbon footprint.

The numbers on the paper and theoretical calculations in the templates might be good-looking, but what actually can you measure in the right way having no industry expertise and some average aggregated numbers.

The newly arrived innovation cycle is about the defragmentation of the data in the chain. And in Marine Digital we believe - only by connecting together the most complex and trusted data set you are really able to acquire you can start filling out the ESG reporting forms. Instead of filling your reports with assumptions or just having a blind eye for dirty data with a huge amount of mistakes made with manual input you should first be aware what is this data.

Today it is a matter of multi-industry cooperation to change the way we ship our parcels. And logistics has already become an industry demanding a space tech level of innovation.

Will be glad to add more info in the next article.

Thanks for your time and looking forward to hearing from you.

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Аdvantage of Fuel Optimization System from Marine Digital:

Marine Digital FOS can be integrated with other system and third-party's solutions through the API. To implement vessel performance monitoring for any vessel, we are using mathematical algorithms, machine learning and the same equipment as in FOS. The more data we collect from vessels, the more precise reports and recommendations our system will perform according to your individual requirements in fleet management.

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