Digitalisation and Charter Parties

These COVID-19 days where we have been either forced to, or willingly embraced change will ultimately be viewed as significant in shaping transport for the next generation.

In the last article we discussed shipping’s apparent reluctance to adopt and adapt to new process and performance improvement opportunities using one aspect of charter parties related to just in time arrivals as an example. The widespread use of Letters of Indemnity and implementation of electronic Bills of Lading (link at the end of this article) highlighted some more charter party issues worth shining a digital spotlight on.

Charter parties have been with us for a very long time and like so much in shipping are deeply embedded in the way we do business. In previous days access to pro-forma contracts, amended by expensive cabled or telexed inserts and deletes were central to the commercial shipping contract process. Digitalisation will have an impact here as elsewhere and it is pretty certain the way freight markets operate will inevitably change, but it is not the intention of this article to discuss what that will look like, but to consider some potential benefits which would improve how business is conducted today.

Before dealing with any specifics it is worth considering contract generation in general and how it is accomplished. Sometimes it’s what appears to be a nice and easy “as per last done”, although on occasion no-one knows when or what that was, or where the market was when it was agreed. Others use what can be a lengthy “accept or except”. The resulting traditional recap of inserts, deletes, strikeouts and riders can resemble a 2000 piece jigsaw in a box without the benefit of a picture. This leaves operations to pick out their relevant pieces and execute the intended voyage and claims likewise. To be fair, most of the time they do just that, but does it have to be this clunky? Voyages put together like this have an increased risk of error, are difficult to deliver, generate conflict and inevitably delays realising the cash. They can also end up in the hands of lawyers who are sometimes the first people to actually put the whole contract together!

Looking at other industries and their processes can sometimes be helpful and informative. The development of the car assembly line has lessons not just for manufacturing but also the entire order fulfilment process of which the manufacturing is only a part. The sales, manufacturing and invoicing systems need to be connected for the process to be efficient. The automotive manufacturing process can deal with considerable complexity in terms of colour, trim, engine variant, etc, but only if the sale has correctly captured the customer requirement and the assembly line is properly set up. Provided these steps are properly fulfilled the cash from sale is realised without dispute. Do things go wrong? Of course they do, but the process is designed to provide the fewest opportunities for that to happen. Reliable repeatability levels have to be high in a competitive environment. Does shipping stack up well?

Substitute chartering, operations and claims in the automotive process and there is an invitation to consider whether your organisation has an auditable process which efficiently and comprehensively captures the voyage requirement at the point of sale in a clean contract, transmits it to operations to deliver and facilitates the claims process. How well does your “assembly line” perform?

With a distributed work force in this COVID19 impacted period the connectivity of systems and functions and the ability to consistently deliver voyages, commercially and technically, has never been under greater stress. Agile organisations will see these challenges as opportunities to critically review and improve their “assembly line” and connect with their workforce and customers. Digital solutions have a role to play whether your organisation needs large scale process and systems re-engineering or is focussed on the many incremental gains which can be made in the collection, fusion and analysis of data.

Delivery, not drama, should continue to be our objective in this exceptional environment, or any other. Once we have discovered new and better ways of adapting and optimising our businesses, it is extremely unlikely we will look back.

For an excellent article from Quadrant Chambers on the complications of Letter of Indemnity chains see this post.

Stay safe.

This article was originally posted on Linked In.

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