Lessons in Shipping Logistics and Efficiency from the Suez Canal
We caught up with Boston-based FreightFlows CEO Matt Morgan to discuss the ripple effects of the recent incident in the Suez Canal and how tech and data analytics can mitigate impact from disasters, while streamlining normal operations.
Taylor Witkin, SeaAhead: Freight Flows is a startup that uses data to increase the efficiency of maritime fleets. Tell us a bit more about your company.
Matt Morgan, FreightFlows: At FreightFlows, we provide predictive analytics for global trade. We’re tracking all the ships in the world, in real time, and figuring out what they’re doing now and what they’re going to do next. We’re helping traders, ship charterers, ship owners and operators, and maritime services companies make better and more informed decisions that are going to have significant impacts on their bottom line, through better decision making that increases efficiency.
Let’s get our cargos there faster, or let’s charter that ship at the right time so that we’re not overpaying. There are all of these bottom-line pieces that really contribute to the overall profitability of commercial trade. And without a source of independent trusted commercial trade data, people often make these multi-million decisions with their gut. We’re facilitating data supported decision making instead.
TW: Global shipping recently dominated headlines around the world. Can you give us a quick explanation of what happened in the Suez Canal? What was happening while the Ever Given was stuck?
MM: This has certainly been a pretty big event in our sector. The Suez Canal is one of world’s major trade arteries. It’s famously narrow – there are only certain sized ships that can fit through it, but really the history of groundings dates back to the 1800s. There was even a grounding on its inaugural day! Even in the last few years there have been groundings, just none that have lasted this long. And as we encounter longer delays, the effect reverberates globally and grows exponentially.
About four percent of global cargo volume flows through the Canal each day, and as it’s been widely reported, nearly 100 billion dollars’ worth of cargo. This is also happening at a time when there is a global capacity squeeze, which is why we’re going to feel its effects much more acutely. It does not resolve itself immediately and will take a significant amount of time for the situation in the Suez Canal to fully resolve. We’re going to be feeling the effects at all the other ports and regions for months.
TW: What are some of the negative externalities of inefficiencies in global shipping? Both from well-covered incidents like this and normal operating practices that go largely unnoticed?
MM: So, the Suez Canal saves 1 to 2 weeks of transit time for an incredible amount of cargo that moves between Europe and Asia. There are a lot of additional costs that get hit when that closes down. The cost of fuel, the cost of actually moving the cargo, honoring the contracts, these are all going to be felt down the line, and there’s going to be some significant insurance claims as a result of it as well.
Air pollution is another huge, existential impact from incidents like this. Maritime transportation already accounts for nearly four percent of all global climate change emissions. Even when a ship is idling, it’s using nearly two and a half tons of bunker fuel a day. So, we peaked at somewhere around 450 ships that were waiting in the Suez Canal. 1,000 tons of bunker fuel a day! We’re now contending with all those additional carbon emissions.
Another area where we’re really going to feel the impact is in the rates for cargo. This delay is causing many ships to group together, much like if somebody accidentally hits their brake on the freeway and you get a traffic jam. Especially at this next port of call, we’re going to see extremely high or extremely low freight rates to transport those cargos, and at a time when there has been a squeeze of capacity, we’re going to see overall the costs to freight across the board tick up fairly significantly these next few months, when planning for holiday cargo deliveries is beginning. If the planning is happening now, the costs across the board for the global economy are really going to feel the impact of this delay. How do ports manage sequencing of ships when they’ve announced totally incorrect arrival times?
For example, if you’re moving a large ship full of grain, you’re moving it to a market where you believe there’s going to be a certain price. With this impact, you might see that that buyer has moved elsewhere or have to sell your cargo at a significant loss. When people charter a ship to move a cargo like that, they are taking into account what their profit’s going to be and obviously trying not to run a voyage that has a negative net profit.
TW: How could your technology have mitigated some of the impacts of the Suez Canal incident?
MM: Well, there’s little that a company like us could do to plan or predict when something like this is going to happen. But it’s this time period between when the major event begins and when things return to normal where you’re going to have your most significant loss of revenue or opportunities to gain revenue. This is the time in which you need to be as proactive as possible to make decisions. That’s our area of expertise. That near-term operational decision-making time period is where our data helps support our customers the most. We can offer operators and cargo owners, who don’t know the future, different options for how they’re going to transport cargo. The visibility we provide gives them the ability to potentially change routes, change destinations, change speeds – anything that they need to have more coordination. Tools to alleviate a lot of those significant costs.
TW: Can you talk about some of the impact that you’ve had for some of your pilot customers?
MM: One of the biggest areas that we focus on is around vessel availability. We’re going to predict when and where ships are available and viable to transport cargo. If we can predict the total number of ships that would compete for a cargo – in the dry and wet bulk trading world where entire ships are chartered at once – we’re effectively determining what the market dynamics would be and what the prices would be for moving that freight. So, our pilot customers have been able to see a significant savings in total freight cost by better coordination and expanding the amount of competitiveness that they have for their cargo by knowing all the potential candidates for transporting their goods. All of this helps create more consistency for what freight costs would be. For our initial pilot customers, we’ve been able to demonstrate significant overall cost savings for them for their freight, and predictability for when to secure that freight contract as well.
TW: Are there any lessons that you’ve taken away from the Suez Canal incident, or anything that you’re going to do differently or focus on moving forward?
MM: For us, it’s really about focusing on how to mitigate impacts from the biggest event. All the little decisions add up to something significant, but those huge events have outsized impacts, and we want to get better a also highlighting the anomalistic events that are happening, whether they be geopolitical or something like the Suez Canal, so that our customers can immediately take action, with urgency. We want to give them much better options for either saving their bottom line by actually giving them measured options so that they can make more informed choices.