Alexander Varvarenko, managing director of the bulk shipping company Varamar, is bringing digitalization to bulk shipping. The process is new and uncertain waters for a block and tackle industry that still uses words like ‘steamship lines’ to define its business. But is digitalization the next “Malcolm Maclean” moment in shipping history?
A few years back, Alexander Varvarenko, the founder and managing director of a Ukrainian bulk and project cargo ship company called Varamar, was getting increasingly frustrated at the deluge of email requests he was being inundated with: “One day I was going through the 10,000 emails that had come through my email box that day, out of which half are cargo requests I have to analyze,” Varvarenko said by telephone from Odessa, where he is based. “I thought to myself, look, this is going nowhere. The amount of information I’m getting is growing, [but] the time I have for analyzing that data is shrinking.”
Then he had an epiphany: “It has to be possible to teach a computer to do all the email reading and analysis and comparison and finding the right ship for the right cargo instantly.”
Varvarenko isn’t just a ship company owner; he’s a former software developer. His Eureka moment that day led to the founding in 2015 of ShipNext, a digitalized shipping marketplace. Its first offering, launched last October, is a subscription-based service that links non-containerized, ocean-going cargo with potential carriers and ports. To date, Varvarkeno said, ShipNext analyzes about 9,000 vessels for potential matches with a particular cargo that needs to move by ship from one port to another. “We have about five to seven cargo [requests] coming in every minute. There’s quite a lot of data matching every day,” he said, likening his service to an Uber-like solution. “We already have a lot of happy customers.”
ShipNext subscribers include brokers, freight forwarders, ports and carriers. A subscription runs $1,500 a year.
ShipNext is just one of the many startups attempting to digitalize a part of the supply chain that has been particularly resistant to change. Ocean-borne freight is the slowest kind of transport; booking that freight is also one of the most laborious and technologically backward and least efficient.
Global manufacturing is hurtling toward what pundits call Industry 4.0. In this stage of economic development, automation combines with the digitalization of all physical assets, that is, reducing them to digits in databases, where they can be checked and analyzed instantly, in real time and from any location. This is often referred to as part of “the Internet of Things.”
There are many aspects to this brave new world, including interoperability, where machines can talk to each other and to the people who monitor them, and machine learning, where computer systems can “learn” tasks through algorithms. In the transportation industry, a lot of the buzz is centered on the future of self-driving vehicles, while logistics is agog over fully automated ports and robots picking and transporting goods in warehouses.
One pillar of Industry 4.0 is the ability of systems to assist humans in making decisions. That’s where big data comes in.
For logistics, this means the real-time tracking and monitoring of everything from the position of a ship or truck to traffic jams or port congestion, from to the state of individual cargo to the temperature and humidity inside a container. Better information means faster and more accurate delivery, with far less errors and spoilage. Databases today monitor each of the tens of thousands of freight-carrying ships, their exact location and availability for hire.
Contrast all this with today’s ocean-vessel booking practices. This is a process that has barely changed from two decades back. A transport manager gets an order to move cargo from, say, Europe to the US. If on his own, that manager must weigh hundreds, if not thousands, of options: These include ship size, capability, reliability, and availability, port of loading, port of discharge, customs clearance, methods and duration of moving the cargo from the factory or warehouse to the port, moving the cargo from the ship to the recipient. All this takes time and usually involves dozens of email and telephone calls that must be responded to. By the time a decision is made, a ship might not be available or a port backed up.
“Even if you’re the best manager you can’t keep them all in your head, let alone the real-time changes that take place in those different circumstances,” said Varvarenko.
Shippers usually rely on trusted intermediaries, primarily freight forwarders to ease the way. But these intermediaries face the same hurdles and must deal with the same endless alternatives, more intermediaries and the same outmoded lines of communication. Many traditional freight forwarders are small and lack sophisticated technology. Their response is often to offer few alternatives and count on their own contacts. This entire process is both opaque and highly inefficient and could cost shippers a great deal of unnecessary time and expense.
“The level of complexity due to intermediaries is extremely high,” said one technologist who has studied the industry. And “you have six, seven, eight, nine ten companies touching your freight, and those are small companies… Intermediaries and fragmentation make it immensely complex to digitalize.”
Startups such as ShipNext attempt to overturn the old order.
“Connectivity solutions can enable the seamless flow of information and documents among all stakeholders, including shippers, carriers, terminals, forwarders, and port authorities,” wrote Boston Consulting Group, in a February paper that focused on a “digital imperative” in shipping. “An online booking platform that lets a customer receive instant quotes will soon be considered table stakes for competing in the industry.”
Money is being poured into this endeavor. The consultancy pointed out that “in the past six years, more than $3.3 billion has been invested in digital startups in the shipping and logistics sector.”
Varvarenko decided that ShipNext’s first offering would target bulk and project cargo.
In many ways, building a system to book containerized freight is a more simple and straightforward task than bulk or project cargo, since container ships tend to steam on established routes at regular intervals, while project cargo, for example, may involve hundreds of suppliers sending goods that are all different, and all must be shipped in a certain sequence.
No matter what the cargo, each piece has four critical components: length, width, height and weight. With the ShipNext service, said Varvarenko, “having that critical information, you can easily find the ship with the right hatch size, with the right height. You can easily check whether that port of discharge or loading has a crane and if it doesn’t have a crane big enough to handle that kind of cargo, you have to already start looking for a geared ship, you have to find a ship with the best matching cranes, sufficient safe working load, in a position to load this cargo on the dates when it’s reportedly ready for shipment.”
“There are a lot of calculations when it comes to doing it manually,” he said. “On ShipNext, it’s done in less than a second.”
Varvarenko uses this example: A shipper wants to send iron ore from Houston from Singapore. Through its machine-learning algorithm, ShipNext would read through and evaluate related email, store them in a file, assess the cargo’s weight and dimensions as well as any peculiarities, run through the calculations of what ship is required, scan the database of ships that are available globally, factor in port restrictions, appraise the capabilities of identified ships and give the shipper the best matches, all in about a second.
The bill of lading and other, related documents represent another aspect of the booking process that remains firmly planted in the previous century. ShipNext is now testing an electronic bill of lading that uses open source software, the first step in a so-called smart contract. A smart contract allows instant verification by various parties involved in the shipment – the shipper, the receiver, the carrier, the port – and could trigger payment and other activities, a so-called blockchain, where documents are linked through cryptography to parties in blocks.
“Everybody believes shipping could be more efficient and more secure and reliable,” said Varvarenko. “This is one of our tasks by creating a blockchain solution or just by digitalization in shipping in general.”
It’s not just the shippers and the vessels, either. While ports have invested millions of dollars in management systems, these are closed systems. A service such as ShipNext allows vessels to know the state of port congestion and take action, such as slowing down or even calling on another port along the way first.
These are early days for ocean-transport related digitalization. However, change could come quickly and those who aren’t prepared will pay the price. “We’re moving into this digital space very fast. I don’t think it’s a question of the future, it’s already happening, and while some companies aren’t ready for it, others are moving full steam,” said Varvarenko.