How to save millions on your demurrage bill

How to save millions on your demurrage bill

Simon Shore from Cirrus Logistics summarises a recent white paper.

In supply chains that involve the chartering of vessels, demurrage is seen by many organisations as an inevitability of moving cargos. Billions of dollars of demurrage charges are levied each year across the bulk shipping sector. In today’s world however, with the advent of new technologies and vessel planning techniques, this no longer needs to be the accepted norm. This article introduces a white paper by Cirrus Logistics which demonstrates a new approach to vessel scheduling that can return significant demurrage savings of between 19 to 23 %.

Demurrage occurs when the charterer remains in possession of the vessel after the time allowed for loading or unloading the vessel, the laytime. The cause of demurrage ultimately comes down to the excess time a vessel must wait to be serviced or the extended time taken to service the vessel when it is at berth. Demurrage bills can run into millions of dollars and so any percentage savings that can be made offer significant financial benefits.

Whilst waiting time is ultimately responsible for demurrage a number of different factors can be attributed to causing the waiting time, some of which can be controlled and improved. At first glance the problem may seem easy to fix with good communication. However, closer analysis shows that there are a number of competing objectives that may override any demurrage consideration.

1) Supply chain planning; there are many points along the supply chain that are planned independently, without consideration for the vessel capacity at the terminal, thereby potentially increasing vessel congestion.

2) Weather; the maritime supply chain is subject to weather disruptions which cannot easily be mitigated without adding voyage contingency time, contributing to continual ETA revisions and vessel congestion.

3) Commodity price; A trader’s objectives will be driven on commodity price rather than any congestion or demurrage implications further down the supply chain. The profitability of the cargo and the importance of keeping the refinery supplied with feedstock may override any demurrage consideration.

4) Vessel Planning; bulk commodity supply chains which rely upon the charting of vessels have, in our research, been shown to lack the proper technical tools to manage terminal congestion and allow the prioritising of cargo movements.

In summary, the schedule of vessel movements is not sufficiently evaluated for feasibility and the vessel planner at the terminal lacks the technical tools needed to manage the inevitable changes to the plan. Furthermore, planning and scheduling tools need to be effective over a number of different planning horizons and scheduling tools need to be capable of evaluating many options and determining the next best vessel move as the vessel approaches the terminal.

Fortunately, with the continual advancement of technology, Applied Modelling Algorithms are now able to include a financial focus to maritime supply chain planning. These algorithms are intelligent applications designed to find the best scheduling options across different planning horizons. The white paper shows how these algorithms can be applied to the reduction of vessel waiting times allowing schedulers and planners to plan and make the next best vessel move.

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