Every business wants to be efficient. It might be the optimization of operations, processes, expenditure, energy, or resources; whatever the area of focus, few organizations will tolerate wastage for too long.
In the interconnected world of logistics, efficiency is the north star. Efficient ship operations mean efficient fuel use; efficient supply chains mean efficient use of resources.
Yet wanting to be efficient and achieving it are different. For instance, many vessels arrive at a port, only to end up waiting for a berth to be discharged. More often than not, they leave ports of origin at high speeds, only to slow down before their destination and end up sitting idle, increasing energy consumption and greenhouse gas emissions while incurring mounting fuel costs.
There are reasons why they do this: the risk of incurring contractual penalties for being late creates a conservatism within the industry, with vessel masters choosing to ensure they are early and avoid sanctions. When a vessel arrives early, it increases the potential for the operator to generate demurrage revenue, as cargo owners may not have their intermodal logistics in place to accommodate the earlier arrival time.
But is there a way where shipowners and operators could still avoid arriving late without increasing fuel consumption and therefore aid decarbonization?
Potentially, if the shipping sector adopts just-in-time (JIT) arrival.
What is just-in-time arrival in the shipping industry?
JIT isn’t a new concept – it’s been used in manufacturing for many years. In that context, it’s a production model in which items are created to meet demand, not in surplus or in case they’re needed.
Benefits to this model include eliminating waste, guaranteeing that everything worked on is used and thereby boosting productivity, and minimizing storage and associated costs. Disadvantages include challenges in forecasting and responding to unexpected increases in demand and being vulnerable to crises affecting supply chains.
In logistics, JIT means shipments arrive when required, cutting down the need for warehousing and the time capital is tied up in cargo.
Other modes of transportation already use JIT. Air is often used for time-sensitive, high-value shipments, with airlines, forwarders, and ground handling companies collaborating closely to eliminate unnecessary delays and disruption. Road haulage, often providing last-mile services, is also heavily involved in JIT, as are railways.
How does that model apply to global shipping and arrival times? As noted in an International Maritime Organization (IMO) publication, “[JIT] allows a ship to maintain the optimal ship operating speed to arrive at the Pilot Boarding Place when the availability of: 1. berth; 2. fairway; and 3. nautical services (pilots, tugs and linesmen) is ensured.” In doing so, the IMO says JIT can “minimize and preferably eliminate waiting time and enable sailing at a speed which gives reduced fuel consumption per mile steamed.”
In other words, ships arrive on time to be met by relevant port services, cargo is efficiently discharged and loaded, and the vessel continues to its next destination.
When deployed correctly, JIT arrival enables the optimization of vessel speeds during voyages. Rather than hurrying up before waiting, vessels receive regular updates on the Requested Time of Arrival at the Pilot Boarding Place (RTA PBP) and adjust speeds accordingly. In doing so, operators can better manage fuel consumption and significantly reduce greenhouse gas emissions (GHG). It is estimated that adjusting how quickly vessels reach their destination could eliminate 15-20% of shipping emissions without affecting fleet capacity.
Of course, just as JIT in manufacturing has drawbacks, so JIT in the shipping industry has limitations. When deployed in over-exposed, lean supply chains with little resilience, JIT arrivals can be disrupted, an issue highlighted during the pandemic.
Why has the shipping industry not yet adopted just-in-time arrival?
But why is a recognized means of reducing emissions not yet reaching mainstream adoption for the shipping industry when it is under ongoing regulatory and commercial pressure to improve energy efficiency?
Many of the challenges lie in how contracts are written. For example, in many instances, a certain amount of laytime is permitted on each voyage. Once that limit is surpassed, demurrage is can often be charged at a much higher rate than originally defined in the voyage charter was originally based on.
It’s no wonder that demurrage remains a significant revenue source for owners. As such, it often incentivizes running the vessel in a so called “hurry-up-and-wait” or “sail-fast-then-wait” (SFTW) model to arrive as early as possible, no matter whether a berth is available. This allows the operator to tender notice of readiness (NOR) and maximize demurrage potential.
There are also operational complexities in deploying JIT. It requires a coordinated collaboration between port authorities, terminal operators, cargo owners, intermodal providers, and other stakeholders involved in the port call to succeed. That’s not to say that other parties don’t stand to benefit; it’s just that getting everyone on the same page, particularly when there can be competing commercial priorities, has long been a challenge in shipping. For instance, vessel speed optimization requires ongoing communication of RTA PBP. Yet, while this is supposed to begin days in advance, in reality, many are not communicated until 48 hours before arrival.
But when you combine these two issues with the penalties mentioned above that can be incurred by arriving late, it is no wonder that there is currently a lack of incentive to apply JIT.
How can the shipping industry adopt just-in-time arrival?
Does this mean that attempting to apply JIT to shipping is a lost cause? Not necessarily. New approaches must consider the bottom line and bring clear, tangible economic benefits.
Yet implementing JIT is not a zero-sum game; shipping companies do not need to sacrifice demurrage revenue, for example, for the greater good of contributing to GHG emission reduction. If anything, JIT has the potential to generate new financial opportunities. Optimizing vessel speed would result in better use of fuel, the savings from which could be shared between owners and other relevant parties.
Then there’s the impact of regulations. As my colleague Todd highlighted, the Energy Efficiency Existing Ship Index (EEXI) and carbon intensity indicator (CII) are helping owners and charterers rethink their relationships. An owner may wish for a vessel’s CII rating, for instance, to remain at a certain level, forcing the operator to optimize vessel speeds accordingly.
But it’s not just about using a stick to change behaviors. Introducing new technologies can make it easier for agreements to reflect reality rather than cling to theoretical estimates that protect parties but don’t incentivize them to collaborate.
For instance, using sensors to transmit high-frequency sensor data (HFD) can help accurately predict speeds and routes when combined with machine learning. HFD is used to create digital twins, virtual replicas of physical assets, that can model the impact of arriving at different times on areas such as fuel consumption and emissions. That can then be fed into charter party agreements that are more dynamic, promote collaborative commercial success, and support compliance with GHG emissions regulations.
This does mean reconsidering charter party frameworks. Any agreement needs to be structured to reflect regulations and revenue opportunities, helping maximize income while minimizing CO2 emissions.
How just-in-time arrival reduces the maritime industry’s carbon footprint
As shipping seeks to improve fuel efficiency measures, JIT arrival offers one solution that could optimize operations while reducing carbon emissions. Helping the industry move away from hurry-up-and-wait behavior could create new financial opportunities that would incentivize the adoption of this new approach.
For this to happen, however, existing charter party frameworks must be transformed from static contracts to dynamic agreements that align both owner and charterer commercial and regulatory objectives. Using technologies such as sensors could enable insights that help build accurate predictions of speed and routes.
To learn more about the benefits of JIT arrivals, look at our whitepaper with BIMCO. Or, if you want to read about deploying more dynamic charter agreements, look at our Green Charter. It transforms static charter parties into collaborative relationships, supporting approaches like JIT arrival to drive better economic and environmental outcomes.