The Digital Ship
e-chartering conference on October 18 included some interesting discussion
about where we are with e-chartering
Fixing ships online;
A diversion of views; The Baltic Indices
Lawrence Royston, Strategic
Software;
Mike Elsom,
Baltic Exchange;
The BalticExchange.com system
Carlo Rossi,
Agip Petroli
Harry Bird, Chartering
Solutions
Phil Parry, Spinnaker
Consulting
The Digital Ship
e-chartering conference, held in London on October 18, stimulated some very
interesting revelations and debate about how far the development of
e-chartering tools have come.
Bringing together the
main players LevelSeas, Strategic Software, BalticExchange.com, AXS Marine,
GoReefers, Shipping Direct and Chartering Solutions into the same room for the
first time led to some interesting results.
Probably the most
interesting discussion was about the future role of the broker. We have moved
on slightly from the tense standoff this time last year, when brokers were refusing
to have anything to do with e-chartering because they thought it would make it
easier for their principals to negotiate directly and cut the broker out of the
transaction.
Whilst the discussion
has moved on a bit, there are still many unanswered questions about what the
role of the broker will be.
Among the technology
companies, the Baltic Exchange is adamant that it is a tool for brokers;
Strategic says it will never do anything to upset the brokers, its core customer
base, and AXS says it is a tool developed by brokers. All of these companies
will be very careful not to do anything which could possibly jeapordise the
brokers’ position.
LevelSeas stands out
because while being extremely careful not to upset the brokers, (indeed broker
Clarksons is one of its most important member companies), it is certainly not
going to go out to protect the brokers position but expect them to adapt to the
new economy.
The argument about
what e-chartering does to destroy or improve the position of brokers is an
awkward one. Some people observe that the number of transactions taking place
directly between a charterer and shipowner (ie without a broker) is increasing
anyway, and this has nothing to do with e-commerce companies.
Other people observe
that the e-commerce companies desperately need the support of the broking
community to get started, but are unlikely to return this support later when
charterers discover they can use the site to deal directly with owners.
Possibly the cleanest
argument, expressed off the record by one e-chartering CEO, was that there will
always be a need for real human beings to sift through large amounts of market
information and generate deals, and brokers are in the best position to provide
that service. The attitude of treating shipbrokers as a tribe which need
protecting is an irrelevant one. Brokers need to accept these new market
conditions.
Alex Gray, head of
information technology with Clarksons, said that it is important to look at
things in terms of what e-business can do for shipbroking, not what shipbroking
can do for e-business.
A number of other
brokers pointed out that e-chartering is not being sold to them in the right
way. “There’s a lot of bad faith out there,” one said.
SUBHEAD
Another interesting
debate revolved around the Baltic Exchange’s decision to restrict access and
usage of its freight rate indices, a pillar of the shipping community for many
years.
The indices are
gathered from real transactions made by shipbrokers around the world who are
Baltic members. The indices are pooled together, to provide the most accurate
possible information about how much a vessel of a specific size is worth on a
specific route on a specific day.
The move is to protect
the status of shipbrokers. The indices provide a very useful basis for freight
rate transactions, particularly in futures transactions, because they have an
enormous amount of credibility and are based on large numbers of real fixtures.
The Baltic has argued
that the indices make it much easier for charterers to trade directly with
owners, cutting out the broker. They provide an accurate indication of how much
a vessel is worth and so make it much easier for the two principals to agree on
a price; getting the principals to agree on a price is normally one of the most
important services a broker provides. This means that the brokers which provide
the data are penalized because of it by losing business.
However if the Baltic
takes its indices away from free circulation, then the industry really loses.
The freight futures trading market, in particular, really needs a standard set
of freight rate indices which everybody trusts. They are particularly helpful
to the other e-chartering sites (rivals to the Baltic’s own one, Baltic
Exchange.com) and derivatives trading services such as Enron and IMAREX.
“The Baltic information is an asset,” said Tom Mortensen, managing
director of IMAREX. “We’re willing to pay for them. But if the Baltic doesn’t
supply them then someone else will.”
“The Baltic is the premier shipping information house in the world,”
said Scott Moncrieff, director of liquid freight trading with Enron. “But if
they want to hide their rates there are dozens of people out there. That all
just fragment the business even more if we try to use all different types of
indices.”
SUBHEAD
Richard Hext, CEO of
e-chartering company LevelSeas, talked about how his company is developing.
The two men at the top
of LevelSeas are Mr Hext, as CEO, who has a background in shipping and spends
most of his time in liaison with investors. The other is Dr Kevin O’Connor,
previously global head of business to business technology and e-commerce with
Deutsche Bank, with a background in technology.
Dr O’Connor’s
investment banking IT experience is proving very useful to LevelSeas, he said.
“The banking industry has already been through some of the problems we’ve been
through in terms of providing security, service reliability and robustness.”
LevelSeas is very
pleased with its decision to write the software in house with its team of
ex-investment banking programmers, rather than outsource it, as it did
originally. It means that it is very easy to keep making changes to the
software, as requests come through from the end users.
In fact, there were
167 changes made to the original LSX system between the launch of LSX Version
2.0 on September 19 this year and LSX 2.1 on October 8. “There is a process of
continual adaption,” he said.
LevelSeas’ ambition is
to provide integrated information systems which manage data, extracted directly
from user companies’ systems over the internet. The main benefits are increased
efficiency, greater transparency, reductions in costs and reductions in errors,
he said.
The biggest barrier to
usage of LevelSeas, he said, is the offline world; people still need a lot of
convincing about why they should use it. One of the biggest accelerators to its
usage, however, is the gradual adoption of the internet in other areas of
people’s lives, particularly at home, he said, which leads to people being more
comfortable using it in the office.
The main argument to
encourage brokers to use the system, he said, was the fact that so many major
shipping companies and charterers are using it. “As a broker you can choose as
many platforms as you want, but I would suggest that you use the platform that
your customers are on,” he said.
Many brokers are
getting a bit fed up with e-commerce, he said, because lots of e-chartering
companies have gone bust after they spent the time looking at their systems.
There were 35 e-chartering companies this time last year, he said.
LevelSeas thought hard
about whether to charge by transaction fee or subscription. The advantage of a
transaction fee is that the maritime industry is comfortable with it, paying
for what they use. However the service being provided, essentially software
makes more sense being charged by subscription.
Mr Hext said he
thought that the business would grow in concentric circles. It has begun by
targeting the largest owners, charterers and brokers, but the circles will
gradually grow outward as more brokers, owners and charterers sign up to extend
the network already created.
LevelSeas is happy to
talk to any other company with regard to forming a partnership or developing a
common standard for communication, he said.
SUBHEAD
Lawrence Royston,
marketing director of Strategic Software (www.strategic.co.uk)
talked about its software and communications solutions for shipbrokers. The
biggest requirement brokers have at this point, he said, is for a good
messaging system which runs internally within their companies; Strategic has
been providing software to do this for many years.
With the gradual
acceptance of the internet, it is possible to bring lots of people together on
the same network; the downside (for Strategic at least) is that it makes
messaging free.
Instant messaging,
such as Microsoft Messenger and Yahoo, is proving very popular in the tanker
community, he said, although funnily enough, no brokers in dry cargo and sale
and purchase are using it. “One of two tanker brokers started using Yahoo and
it spread like wildfire,” he said.
Strategic is looking
for ways to help people do more with the messaging. “Bucketloads of messages
are sent through, you have overload with too much information being sent
through,” he said. “Until people can take advantage of the information there is
a waste.”
The most useful
service Strategic can provide, he said, is creating a data network which saves
brokers from all the manual retyping they have to do. This led to the creation
of Strategic IMX, a network for information sharing, with founder members
Banchero Costa, EA Gibson, Ispat Shipping, JC O’Keefe, Poten and Partners and
Torvald Klaveness Group.
StrategicIMX is not an
e-commerce tool, but a means of exchanging information about positions, orders
and fixtures, he said. Systems to help manage post fixtures will be available
by the end of the year.
Mr Royston stressed
that Strategic is not forcing anybody to share any more information, or even
putting any pressure on companies to share information, simply making it easier
for people to send information to people that they were sending it to anyway.
The Maritime Data
system, which provides information about vessel characteristics and owners, is
a useful supplement to Strategic IMX, because it provides updated information
which supplements the information about potential deals, straight into brokers
databases.
Mr Royston stressed
that Strategic will never do anything which damages the importance of brokers
in the transaction, because they have been Strategic’s customers for the last
18 years. However Strategic IMX will allow principal-to-principal
communications. “The reality of the market place is that a proportion of
business has always been done without brokers,” he said.
It is very important
to move broking communication tools onto the internet at the same speed that
people are ready to use the systems, he said. “You can’t go too fast for
people. You have to go at the speed your clients want you to go at. Industry
speed is all about taking small steps.”
Strategic has the
benefit of already having customer relationships with a large proportion of the
shipbroker community, which puts it in a very good position to develop
e-chartering tools for them.
Mr Royston says he
thinks that there will probably be two final survivors out of all the
e-chartering companies. Strategic has always been willing to talk to other
companies about possible integration between different platforms, he said.
SUBHEAD
Mike Elsom, project
manager of the Baltic Exchange, talked about the Baltic’s continuing relevance
to shipbroking, through its unique system of self-regulation.
“Shipbroking is not
regulated by any national or international legislation,” he said. “The barriers
to entry are very low. But the Baltic is regulated. We have our own Baltic
code.”
Members of the Baltic
are brokers, owners, with a lessor number of charterers and some related
services, he said. There are about 700 corporate members in total, with a
growing number of individuals signed on as members.
The most useful
service the Baltic provides, he said, is resolving disputes and complaints.
“We’re recovering about $4m a year from that service,” he said.
The secondary most
important service is publishing indices of freight rates, based on the fixture
information it receives from brokers.
Mr Elsom admitted that
the Baltic is currently at a crossroads. Its physical building in the City of
London is quite possibly declining in relevance, from its role many years ago
when it was the main place brokers met to share information. It has been
largely superseded by the telephone and e-mail. “This space is used by about
100 shipbrokers on a Monday for about an hour only,” he said.
However the Baltic
hopes that its BalticExchange.com online system will replace the online trading
floor as the place where brokers meet to discuss fixtures.
The main argument to
brokers to use the system, he said, was the reputation of the Baltic Exchange.
“Brokers want to use a platform supplied by a trusted operator that’s going to
be around for a very long time,” he said.
“As we all know, this
web development thing has got quite a way to go,” he said. “There are a number
of issues people need to get over, and probably some kind of educational
process. But that will come in time.”
An emphasis is on
making sure that the system does not threaten the role of the broker, he said.
There will never be any functionality built to enable deals to be actually
completed (ie principal to principal direct transactions).
SUBHEAD
BalticExchange.com is
a means for brokers (and also owners and charterers) to share information about
ships and cargoes, being extremely specific about who they would like to be
able to view their information. There is a searchable database of all fixtures
made.
Although there is no
“click to trade” button, already a number of fixtures have been made as a
result of brokers using the system, the Baltic has been told.
There is also a
freight derivatives trading system, which is currently under testing. Only
brokers are allowed to trade on the system, although principals are able to
view the market.
The system will be
gradually developed with the addition of voice over internet communications and
post fixture tools. “We are looking carefully at how to deliver this extra
functionality,” said Mr Elsom.
The cost structure is
that Baltic Exchange.com will be free until April 1 2002, and then Baltic
members will be charged £500 a year to use it, with an additional £100 per year
for additional users in the company. Non members must pay £2000 a year to use it,
with additional £250 per year for other users in the same company.
SUBHEAD
Fabrice Demichel, CEO
of e-chartering site AXS Marine, said that the climate has changed a great deal
over the last year. “One year back, the main question was whether there would
be online principal to principal fixing without the broker,” he said. However,
the climate has now changed with more discussion about the benefits to brokers.
“A question which keep
coming back is are you brokers’ friends or brokers’ foes,” he said. “We say
that brokers have a role to play. A top broker said to me, the brokers who
disappear because of AXS Marine deserve it. Most brokers who have seen the
system see it very much as an opportunity.”
A major focus is
trying to help brokers refine the information they receive, including the piles
of tonnage lists, which are far too complex for anyone to manage without a
computer system, he said. Another focus is helping brokers fill out vessel
questionnaires.
The charging structure
depends on how the system is used. If a broker uses the system, then no charge
will be made directly to the principals, but the brokers will pay for it.
However if two principals negotiate directly over the system, then AXS
considers itself to be taking the role of a broker and will charge commission
accordingly at 0.75 to 1 per cent of the transaction.
30 companies are
currently using AXS Marine, about equal numbers of brokers, owners and
charterers, he said. The system is likely to win favour among brokers because
it was actually designed by brokers, he said.
The financial position
of AXS, he said, is that it can last for 12 months with no income at all. “We
need 60-70 subscribers to break even and our expectations are to have 30 signed
up by the end of November this year,” he said. “We ran through very difficult
times over this year and almost ran out of cash.”
AXS Marine is unlikely
to consider merging, forming partnerships or sharing data with any other
e-chartering company, he said. “Its very difficult integration. We all have
different cultures and our ways of getting there are different. I find it very
difficult to say one plus one equals three.”
SUBHEAD
Carlo Rossi, manager of online
chartering, crude oil and products chartering division, with Italian oil company Agip Petroli,
talked about Agip’s venture, ShippingMed, to streamline its communications
about vessel requirements, both within the company and externally. It is focused on tanker shipping in the
Meditteranean.
The ambition is to help Agip make decisions, improve information flow
within the company and avoid the possibilities of mistakes, he said. It should
improve logistical planning, market efficiency, transaction and operating
costs.
Agip has originally
been in talks with ShipDesk, an e-chartering venture which went out of business
in early 2001; it had also talked to ShipIQ, an e-chartering venture based in
Boston, USA, but talks failed after ShipIQ ruled out the possibility of the two
companies working in a joint venture. This led to Agip going on its own.
Improved transparency
about Agip’s requirements as a charterer was to the benefit of everyone, he
said. “Every owner knows all the opportunities that he can have,” he said. “The
operating costs can be cut as well as the transaction costs.”
Brokers will be
encouraged to use the system on behalf of their shipowners. “My feeling is that
nobody will cut the broker out of it,” he said.
There are plans to
develop a freight futures system in the Meditteranean area, with the first
cargos posted in mid November this year.
SUBHEAD
Mario Ghiggino,
marketing director of refrigerated cargo management site GoReefers, talked
about what his company, offering a range of different services to manage
refrigerated cargo, making it more like a freight forwarder than a shipbroker.
However chartering entire vessels is something the company does.
GoReefers already has
four offices in Africa, offices in New Zealand and Rotterdam, with
representative offices in South America. It earns revenues through a mixture of
subscription services to the website and offline services, arranging actual
logistics.
“We are a new animal,”
he said.
SUBHEAD
Shipping Direct is
about to launch an e-chartering system working with a specific short sea
charterer on the first of January next year, said CEO Jorge D’almeida. The
platform will make it easy to transport data, simplifying and automating a lot
of systems. It will include an instant messaging tool.
The company is now
specifically focused on the short sea broking, which accounts for about 60 per
cent of all chartering transactions, the company says. “There are a much
greater number of small brokers in the short sea market,” he said. “Information
is also much harder to come by.”
SUBHEAD
Harry Bird, CEO of
Chartering Solutions, based in Connecticut, USA, talked about his internet
based chartering system. Chartering Solutions does not handle any messaging,
but is a collaborative working tool for charterers, brokers and owners to work
together to produce the charter party document, charging a fee of 0.1 per cent
of the transaction.
The company is “well
on the road” to patenting its system, he says, which could lead to
repercussions for other e-commerce companies trying to put systems together.
Most of the potential
customers for the system are currently waiting to see what happens in the
market before making any big decisions of who to go for, he said. Mr Bird said
he would be willing to selling the system at the right price, but hopes that
eventually the platform will earn money itself.
There is a
sophisticated colour coded system, where a charterer can see which aspects of
the charter party are still up for negotiation and which have been agreed.
SUBHEAD
Neville Smith, manager
of Lloyds List.com, talked about the importance of journalism in the maritime
industry, and how this can work on the internet. “Journalists have a role,
spending their time digging up leads that companies don’t want you to know
about,” he said.
A major problem is the
difficulty of charging for content. In some countries, such as Bulgaria, there
are now laws against taking content from a website and republish it on a
different website; this makes charging for content very difficult. For example,
Lloyds List can charge money for access to content on its own site, but cannot
stop a company from republishing it free of charge.
A problem is that many
people still expect information on the internet to be free of charge, but somebody
has to pay the journalists.
SUBHEAD
There was an
interesting debate about trading shipping futures and derivatives, involving
Baltic Exchange, which operates a forward freight agreement (FFA) trading
platform, Enron, which trades freight futures with charterers and shipping
companies, IMAREX, which operates an online exchange for trading futures and
Simpson Spence and Young, a shipbrokers with a futures division.
The service is geared
around the fact that the price of shipping is very volatile, because it reacts
very sensitively to supply and demand. Rather than have the potential success
of their deal at the whim of the market, they can hedge the risk with a company
like Enron, agreeing to pay a specific price for the future freight.
If the actual price is
lower than the agreed price, then the counterparty makes money; if it is higher
than the agreed price, the counterparty loses money. While it all sounds like a
bit of a gamble, there are real market benefits, because companies can take a
lot of the risk out of their transactions by hedging them. “Its a way of
smoothing out the cashflows,” said Enron’s Scott Moncrieff. “They can manage
long term company finance.”
Tom Mortensen, manager
of IMAREX, said that the system opens for live trading on November 2, 2001.
IMAREX does not provide counterparty risk itself; other parties do.
“We are a market
concept for freight derivatives, not a software company or internet company,”
he said. “We are a new market concept. We believe there is a good growth
potential.”
Scott Moncrieff,
director of liquid freight trading and shipping with Enron, talked about what
is company is doing to offer services to help charterers and shipping companies
hedge their risk.
“I think [the
development of futures trading] will be a slow, gradual process,” Mr Moncrieff
said. “It will take time to become a fully operational marketplace. The
obstacle is the failure of a lot of companies to see the benefits of hedging
the risk. Shipping companies have traditionally been big risk takers
themselves.”
Commodity traders
rarely trade without some kind of hedge, he said, and it is strange that people
are comfortable trading shipping services without hedging against price
fluctuations at all.
There was some
discussion that maybe charterers do not hedge against shipping because the cost
of shipping is negligible compared to the cost of the oil being carried, and
charterers will pay the cost of the shipping whatever it is at that day.
“Shell lost $80m by
not hedging freight,” commented John Banaszkiewicz, futures trader with brokers
Simpson, Spence and Young. “It sounds like a lot of money to me.”
SUBHEAD
There was some debate
about how commoditised shipping actually is, and so how suitable it is for futures
trading. Carlo Rossi, e-chartering manager from oil company Agip Petroli,
commented that he did not see shipping as a commodity, because of all the
vetting procedures which oil companies make any ships they use go through.
Ships which have passed the vetting procedures get a much higher price than
ships which haven’t, he said.
Mr Moncrieff from
Enron pointed out that all of the freight rates used to make the Baltic indices
assume that the ships have all the necessary approvals, which are specified
exactly.
SUBHEAD
Phil Parry, managing
director of maritime recruitment consultancy Spinnaker, gave his perspective on
how much shipbrokers are worth in the new economy and where they can best find
employment.
For shipbrokers in general, the outlook is very poor for the next few years in
just about every sector, he said. “We have a lot of unemployed shipbrokers on
our books.”
Shipbroking is
becoming a much more dog eat dog business, he said, with people being motivated
by fear of losing their jobs as much as anything else. “Its highly stressful,”
he said. “You’ve got to be able to produce and do it quickly.”
“Good brokers succeed
through a mixture of greed and fear,” he said. “Its amazing what the fear
factor can do. The key element is that people are really quite fearful for
their jobs. They know they’ve got to perform very well to survive.”
There are differences
between small companies and large companies, he said. Small firms are more
likely to expect their brokers to take a bigger risk, with more of their pay
tied up in bonus structures. Larger companies are more likely to take a
structured salary approach.
“People are not given
the length of time to produce as they would have been in the past,” he said.
“Graduates on trainee positions don’t get more than a year or two if they can’t
produce.”
Companies can keep
their costs and risk low by having a heavier emphasis on the bonus rather than
the salary, he said. “The higher salary you are on, the greater risk you are
at,” he said.
Current salaries are
£15,000-£16,000 for trainee brokers, which can rise to £30,000-£35,000 within a
couple of years for precocious people. Senior brokers can be on a £30-£70,000
basic, whilst directors can be on £50-85,000 basic with a possible 60 per cent
bonus.
Good brokers continue
to be well paid though, he said. A star broker can leave a company and take all
of his business relationships with him, so companies are very keen that this
doesn’t happen. “Individuals who are very good tend to have very good
packages,” he said.
When considering your
next move, it is very important to consider how interested you are in
developing a career, how much you need job security and whether you are willing
to relocate in order to get tax breaks, he said.
It is also important
to get a sensible idea about how good you actually are, he said. “A lot of
people think they’re good shipbrokers but most people are not,” he said. “Most
people think they understand the needs of the industry but they don’t.” Most
people are not interested in your qualifications but just your track record, he
said.
SUBHEAD
The attitude people
have to working for e-commerce companies has undergone a great deal of change,
he said. “In 2000 everybody was clamouring to work for the e-commerce
companies. It was quite incredible. Once we got to October, November last year,
people were saying, don’t you dare put me near an e-commerce employer.”
Since then, the
attitude to e-commerce has changed again, as people have come to realize that
e-commerce almost certainly has a solid future, so long as you get in with the
right players and get the right position in the company.
Most of the demand
from e-commerce companies is for sales people, he said, not for people with
specific skills in developing companies. A secondary need is for academics,
people capable of analysing business and structuring marketing programs, he
said.
“We’ve gone beyond the strategic advisory
element. Most people know where they’re going now,” he said.
The benefit structures
are very different now to last year, with e-commerce companies starting to
bring in benefit structures and long-term benefits, rather than just a system of
cash bonuses.
The marketing director
of an e-commerce company can expect to earn between £45,000 and £75,000 at this
point, he said, with a potential bonus if the business is successful. The CEO’s
salary has gone down a great deal from the £ 150,000-£250,000
it was on last year. But the lower salary expectations have been replaced by an
increased job security.
To work for an
e-commerce company, it is very important to be technically literate and
understand the shipping business much more than just being able to fix ships.
“If you’re missing something then do something about it, don’t just put in a CV
and hope for the best,” he said.