Demurrage & Dispatch
A Conversation with Simon Francis
Good morning, Simon, and welcome to Commodity Conversations. Could you tell me a little about your career journey so far?
I have spent all my career in dry cargo with intermittent ventures into the digital world. I set up my previous company, G-ports, in 2003 after working for Levelseas back in the Dotcom 1.0 days. G-ports was eventually acquired by Marcura in 2017.
I started with the UK's oldest shipping company, Stephenson Clarke Shipping, founded in 1730. I spent three years with them as a trainee in operations and chartering before moving up to Panamax and Capesize vessels working for Mosvold.
During my career, I've worked with all ship sizes in the dry cargo sector, from coasters up to capes. Within this sector, I've worked for owners and charterers in their operations and chartering departments, including six years at Peabody Coaltrade, where I helped set up the freight desk. Interspersed amongst those periods was my time spent setting up and growing G-ports.
You founded G-ports. Where did the idea come from?
A chartering person must constantly ring up port agents to determine port costs and port restrictions to enable accurate voyage calculations. It's a cumbersome process. In 2003, I set up a database of over 1,000 ports containing proforma port costs and restrictions. Users could obtain the information they required at the touch of a button now. G-ports then expanded into congestion indices and commodity flows.
Marcura acquired the company in 2017. I stayed with them for two years before moving to Swire Bulk, where I worked with their business innovation team, assisting them with digital transformation projects.
And what about SHINC?
The idea behind SHINC's laytime management platform was borne from being both a frustrated user 'on the ground' and having sat in management positions where the visibility of our laytime and demurrage positions was hidden in emails, attachments, and Excel sheets. I launched it briefly in 2015 but then mothballed it as I didn't think the sector was ready. I've since rejuvenated it as people now recognise the role digitalisation can play in their business.
We'll return to SHINC shortly, but let's stick to chartering and freight now. What's the most significant change you've seen in freight in the 30 years you have been in the sector?
The way we do our work. Thirty years ago, we would handwrite a telex on a piece of paper, which we would pass to a secretary, who would type it up and send it via the only telex machine in the office.
The process moved to a mix of fax and email in the mid to late 90s, but a lot of it was still paper-based - printing off, giving copies to colleagues, filing, all that sort of thing.
Email helped because you could do it digitally, but you still had to go through a lot of emails. Now, you're in a world where the email is read for you, automatically filed, and tagged.
There have been other changes. In my early days, we would do voyage calculations on the back of a cigarette packet and measure distances on the map with compass points. It is now all done electronically.
So, from a chartering point of view, the process of putting together a piece of business now can be done much quicker and more accurately than in the past.
Is the current trend to move from emails to platforms?
It is, but email is still the backbone of it all. Counterparties still communicate via email. A freight broker sends everything via email to his principals. Principals send everything to the ships via email, and so it goes on.
Platforms facilitate the information held within the organisation. The collaboration of the information after that is still a work in progress. Companies like Sedna exist because everyone is still using email.
At SHINC, we enable counterparts to collaborate digitally on the platform, but they still receive an email notification when a laytime claim is sent to them.
You mentioned that the emails are now read electronically. Does that use artificial intelligence? Can you see a prominent role of AI – Artificial Intelligence - within that email flow or platforms?
It's a mixture of OCR – Optical Character Recognition - and AI.
Some services - AXS Marine, for instance - have been using OCR, the precursor to AI, to read emails for years. Sedna uses AI to read emails. It then extracts the relevant information and inserts it into the shipping companies' platforms or accounting systems. It makes workflows more efficient.
In the case of SHINC, people spend a lot of time manually inputting information on the laytime and demurrage side, for example, extracting data from a statement of facts document into a laytime calculator. AI and machine learning will get us to the stage of automating much of this process. The user will then be the person who monitors the laytime process and makes decisions in a proactive rather than a reactive manner.
I like to compare it to an airline pilot. In the old days, pilots would fly a plane for 12 hours from London to Singapore. Nowadays, they pilot it for about 90 seconds. The rest is automated, but you still need the pilot to control, monitor and make proactive decisions when required.
Let's move on to SHINC. What does SHINC stand for?
It's an abbreviation that the shipping world uses in Charter Parties for laytime working days. It stands for Sundays and Holidays Included. I could have called it SHEX, which would have been Sundays and Holidays Excluded.
You're at a shipping conference and in an elevator with a potential customer. You've got two minutes to pitch the company. What do you say?
I'm still practising this, so let's see how it goes.
SHINC digitalises the laytime workflow vertical, making it a proactive rather than a reactive process, enabling commercial decisions to be made before events happen rather than after.
We digitalise the workflow, bring in as much automation as possible to reduce manual data entry, reduce the risk of mistakes and create a platform where users can create, collaborate, agree, and settle their laytime demurrage claims efficiently. All whilst providing users and their management complete visibility of all their laytime claims.
My follow-up question is, what problem is SHINC looking to solve?
The laytime process is still manual, from entering port events from the Statement of Facts into the laytime calculator to collaborating and agreeing demurrage claims via email with multiple PDF documents attached.
Users have long email chains of communications and spend time comparing one laytime calculation against another produced on different systems. They monitor and manage their laytime claims, often on an Excel sheet. It is still very much a manual process that is open to errors and sits at the bottom of the logistics chain. One error in calculating the laytime can cost users thousands of dollars. The data is so opaque that both users and management often never know the mistakes being made and the money they are risking!
The agreement of a demurrage claim can also be a cumbersome process as users often interpret the clauses in the contract differently, leading to protracted negotiations.
We hope to enable and encourage people to be more precise in their contract clauses, which will help to have fewer negotiations and quicker processing.
SHINC solves these inefficiencies by enabling information to flow live, both pre-arrival and whilst a ship is in port. It will allow commercial decisions to be made proactively rather than reactively.
SHINC will then use a combination of AI and digitalisation to enable demurrage claims to be agreed upon and settled more as a process than a negotiation.
Finally, once the demurrage claim has been agreed, SHINC provides data insights to help chartering departments make better commercial decisions in the future.
When you say that it enables commercial decisions during the voyage and the port, what type of commercial decisions would those be?
A good example would be whether to work overtime or not in a port. Currently, one would probably have to sit down with a pen and paper to manually calculate how much lay time is left on the port call to ascertain if the shipowner should pay for overtime or the port. SHINC aims to enable users to track laytime remaining during a port call on a 'live basis'. Thus allowing them to make more informed decisions about the likes of 'Do we pay for overtime or not?'
Many of my readers are young people who are learning about the business. Demurrage, despatch, and laytime may be unfamiliar to them. Could you just briefly explain them?
When a charterer contracts a ship to carry cargo, they stipulate in the contract how long it will take to load or discharge the cargo.
It is known as 'laytime allowed.'
If your cargo is 100,000 mt and you agree to load at 25,000 mt a day, that's four days' laytime allowed. It won't take exactly four days to load in practice. Suppose the laytime used to load the cargo exceeds the laytime permitted. In that case, a penalty payment is payable to the ship owner by the charterer for keeping the vessel in port longer than the contracted period. That payment is called the demurrage payment.
If the vessel is loaded by the port quicker than the laytime allowed under the contract, the shipowner pays a payment called despatch to the port at (usually) half the demurrage rate. It is like a bonus to the port for loading the ship quicker than the contracted period.
So, laytime is the time the vessel spends in the port?
Correct. The time spent in port is subject to the contractual laytime clauses. So, you have laytime allowed, and then there will be events stipulated in the contract where the laytime clock stops.
What might those events be?
You can't load sugar or grain cargo when it rains, so laytime will not count during rain periods. Laytime will not count when shifting from anchorage to berth. Laytime may not count if the vessel loader breaks down. Clauses like that stop the laytime clock as the port call continues. It is where the interpretation of the contractual clauses can cause disputes, negotiations and time wasted processing the demurrage claim.
In the contractual clauses, Sundays and holidays are sometimes included in the laytime and are sometimes excluded - which is why you've chosen that name.
Exactly. The standard terms are SHINC and SHEX, and then there are variations thereof.
What sorts of disputes occur over laytime?
The classic example is when the contract says that shifting from anchorage to berth does not count as laytime. We all agree, but the question then is which event counts as moving from anchorage to berth? Some say it is from 'pilot is on board' to 'first line ashore'. Others say it is from 'anchor up' to 'all fast'.
If the contract isn’t clear, you can waste time disputing that one point. Some more modern contracts explicitly say shifting from anchorage to berth means' anchor up' to 'all fast'. It's explicit and clear. But so many of the contracts are historical. They've been used year after year, and they're not explicit in the terms. So, people then interpret it in different ways.
Are those clauses in the contract or the charter party?
They are in both the charter party and the commodity contract.
What happens if you have a chain of counterparties when the cargo has been sold on a multitude of times?
When you have a chain of counterparts, the ship owner makes the initial demurrage claim as they claim the demurrage compensation. This demurrage claim will pass along the chain of commodity buyers and sellers, eventually arriving at the port terminal operators. Each claim may differ slightly depending on the contractual laytime terms between the two counterparts in that part of the chain. It means that for every one port call, there can be multiple demurrage claims flowing up and down the chain of counterparts.
I was interested to see that the different interpretations of the laytime clauses in the contract cause 30 per cent of disputes. So, how does SHINC help to resolve those disputes? You mentioned that you were trying to get people to be more precise in their contracts, but how will you do that?
It's a long-term aim of ours - an education thing. We will look to advise our clients as we go along. It would be a case of saying, "You spent six weeks disputing the interpretation of a clause with your counterpart. Maybe you should reword the clause to avoid this confusion going forward and save you time and money.
It would be more of an advisory service we would offer as an add-on to our digital platform - a value-added service where SHINC is not just a platform but a company that helps parties improve their bottom line.
How much money are we talking about here regarding demurrage and despatch? Can they be significant amounts of money?
Absolutely. I don't think anyone knows the total global annual demurrage bill for tankers, dry cargo, and barges. Educated estimates are several billion dollars a year.
How much might it be on an average grain cargo in Santos?
The most significant claims are at the beginning of the grain season when you have 60 vessels outside the port for 40-45 days. If it's a $20,000 per day demurrage rate in the contract, you're talking of a claim of $800,000 to $1,000,000.
Could your platform be incorporated into other platforms, such as Covantis?
Absolutely. We built our platform with an open API (Application Programming Interface) so we can integrate it with any other digital platform.
It's part of how SHINC can help businesses facilitate efficient workflows. Integrating with other digital platforms saves businesses from manually entering data from one data silo into another.
When did you launch SHINC, and how's it going so far?
We launched with our MVP (Minimum Viable Product) in March of this year. We've identified our ideal customer profile and are gaining traction within that sector. We are also building our brand so people know who we are, what we do and how we can help them improve their business. We are a small, bootstrapped team, so things take longer than if one had more resources.
SHINC is working to become a B Corp. Why do you want to become a B Corp?
We're here to generate a profit for SHINC, but we also want to look at the bigger sustainability picture. From helping ports reduce the time ships spend in port and thus reduce emissions to reducing the amount of paper used in the laytime process by going digital. Every little bit helps towards the greater goal.
And you've pledged to give one per cent of your revenue to Surfers Against Sewage. Are you a surfer?
I call myself an attempted surfer. I moved to Cornwall 21 years ago to surf, and I'm still learning how to do it properly.
Are you a serial entrepreneur?
Well, I'm on round two, having sold G-ports in 2017, so I guess so. I ran little businesses at school, but don't know if they count.
What's the most important thing about you that I don't know?
The shipping motto is My Word is my Bond. I believe in it. It's how I've been brought up in shipping and life. I'm a My Word, My Bond person. I'd like to think that I live my life like that.
What drives you?
I have learned, with age, that I should do things I enjoy. I enjoy the world of shipping. On a Sunday night, I don't go to bed with a heavy heart when I think about going to work the next day. I do it because I'm interested in it and enjoy it.
I work on this project in my head 24 hours a day, SHINC! But there is flexibility in it. I was up at 4 a.m. this morning talking to the Far East, but then I did the school run. I can then do the afternoon school run or go to the gym and work later in the evening. It's not nine to five. It's not a market that opens from nine till five.
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