How to use the information opportunity to shake the shipping financing market?

How to use the information opportunity to shake the shipping financing market?

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Facing this situation, the development of information technology has provided a new tool for leasing companies to meet the challenges brought about by changes in business models. “Internet + shipping + big data” is expected to become the new normal of the shipping market.

Since 2007, China’s financial leasing industry has developed into an important provider of shipping financing in the international market. More and more international shipowners seek financing support from Chinese leasing companies.

In the past decade or so, the shipping market has occasionally experienced sectoral rotation, but asset prices and transportation costs have remained at a relatively low level overall. Coupled with the global low-interest environment, the shipowners’ financial expenditures have been low. These factors have contributed to the China’s financial leasing industry has achieved rapid expansion in the area of ​​international shipping financing. Especially in the past two years, with the rise of the US dollar interest rate in the international capital market and the imminent arrival date of IFRS’s new lease accounting standards, more and more shipowners have chosen to operate a leasing business model. Compared with the traditional financial leasing model, the operating leasing model has higher requirements for the leasing company’s risk control ability and the asset’s own value preservation and liquidity. Since it is necessary to bear the risk of residual value of assets in whole or in part, the leasing company needs to grasp the market pulse more accurately. Facing this situation, the development of information technology has provided a new tool for leasing companies to meet the challenges brought about by changes in business models. “Internet + shipping + big data” is expected to become the new normal of the shipping market.

Information technology can effectively increase market transparency

The traditional shipping market is a relatively obscure market. Although various types of intermediary agencies, research institutions and brokers provide consulting services, due to the complexity of the shipping business itself, it is difficult to grasp the true situation of the market. This is determined by the traditional assessment model based on the standard ship type and fixed operating parameters of the consulting agency. Its observation accuracy in the shipping market stays at the static ship type level, ignoring the individual differences of similar ship types, and responding to market changes for ship operators. Turns a blind eye to the adjustments made. The application of information technology based on AIS data may completely change the old market cognitive model to make the market more transparent. It will also bring impact on the shipping industry and it will also bring about the financing of shipping. positive influence. In short, as information asymmetry declines, financing risks will be easier to identify and control, and financing models will be more diversified.

AIS is an abbreviation of automatic identification system. The International Maritime Organization (IMO) requires that all international sailing vessels of 300 gross tonnage and above, non-international navigation ships of 500 gross tonnage and above and all passenger ships should be equipped with AIS. The AIS broadcasts data once every 2 to 10 seconds according to the speed of the ship. The anchored vessel broadcasts data every 3 minutes. The broadcast includes the Maritime Mobile Communications Service Identification Number (MMSI), the ship’s navigational status, the ground speed, and the local azimuth. Ground speed, longitude and latitude (accurate to one-tenth of a minute), heading, time stamp, etc. In addition, information such as the ship’s IMO number, call sign, name of ship, type of ship, type of ship’s positioning equipment, location of the ship’s positioning equipment antenna, ship’s draught (accurate to 0.1m), destination port, and estimated time of arrival should be broadcast every 6 minutes.

Estimating ship operations based on open market data, AIS data, weather information, and ship characteristics data is a new exploration in the shipping market. The application of this technology will directly increase the observation accuracy of the shipping market from the ship type level to the single ship level and change from static estimation to dynamic measurement, which will have a profound impact on the shipping financing market and the shipping market itself.

Information technology can dynamically assess market supply

The shipping industry is an important part of the global logistics infrastructure. It is a capital-intensive industry and requires a large amount of new investment every year. The main factor that plagues the healthy development of this industry is the imbalance between market capacity and capacity supply. This imbalance caused a significant fluctuation in the price of shipping assets and became the focus of market observation. The development of information technology makes it possible to dynamically assess the supply of market capacity, and to judge the balance of supply and demand in the market through the performance of fleet dynamic operations, and in turn guide corporate investment.

Currently, the supply and demand analysis of the shipping industry in the market is mainly based on the analysis of fleet capacity data and macro import and export data. This method is neither accurate nor timely, and it can only play a macro-guidance role for specific businesses. In the actual shipping business, the demand for macro capacity is relatively stable, and the supply of capacity is the focus of our attention. Capacity supply is not a static concept, but it is a dynamic process that is determined by factors such as total capacity, state, and average speed. The average speed is an extremely important factor. Compared with the slight fluctuations in the demand for capacity, the flexibility of the supply side of the transport capacity is relatively large, and it is possible to adjust the speed to adapt to changes in demand within a relatively large range. Only in the case of long-term strained shipping capacity can there be a risk of significant upward fluctuations in shipping revenue. In most cases, rising freight rates are more than compensated for fuel costs due to increased speed, rather than being transformed into profits of shipping companies. vice versa. Therefore, the speed of market operations is of critical importance in judging the cyclical point of the market, and this has not been possible in the past. The emergence of information technology such as AIS allows us to clearly see the operating speed and timing trends of almost all major merchant shipping plates.

Speed ​​does not only affect the balance of supply and demand in the shipping market, but also directly affects the level of revenue of shipping companies. In a nutshell, the relationship between speed and fuel consumption is a “cubic relationship.” For example, for every 5% increase in speed, the corresponding increase in fuel consumption is close to 16%. As the cost of fuel is the most important cost of the shipping industry, the reasonable choice of speed is the most critical link in the operation of the ship. The new information technology allows us not only to observe the speed of the ship, but also to reverse the maximum variable cost of fuel costs through speed, making it possible to accurately estimate the cash flow level of the shipping sector.

Information technology can accurately measure operational capabilities

In addition to the fundamentals of supply and demand, the other most direct factor affecting the judgment of investors and financiers on shipping business is the ability of shipping assets to generate net cash flow, that is, income in a certain period minus costs. As there are many different commercial arrangements in the shipping market, such as time, light, voyage, voyage charter (TCT), and freight contract (COA), the income forms are different, the cost distribution is not the same, and different shipping The different characteristics of market segments have created some obstacles to research. However, aside from various differences at the business level, the essential logic of shipping asset operations is still freight income minus operating costs.

The underlying logic of freight revenue is the freight charge based on volume, ie the freight per unit volume multiplied by the freight volume; the operating cost includes both fixed and variable costs, fixed costs such as ship operating expenses (OPEX) and depreciation For example, variable costs include fuel costs, port fees, canal fees, and temporary insurance fees. The largest variable among these variables is the unit freight, volume, fuel cost, and fuel consumption of the goods. If you can achieve a more accurate estimate of these four variables, you can make a more accurate estimate of the operating cash flow of a shipping asset. The unit freight and fuel cost among the four variables can be estimated through market public data. Volume and fuel consumption are the core operating data of various shipping companies and are difficult to obtain. The analysis and application of AIS data provide the possibility of estimating these two data. As a result, the problem is translated into the estimation of volume and fuel consumption through AIS data.

Dynamic estimation of volume

The first thing to be solved in order to estimate the volume is to determine whether the ship is in the cargo segment or the empty segment. This can be inferred from the merchant route data and port data currently mastered by AIS data service providers. The second step is to determine the volume of goods, which can be roughly estimated by the ship’s draughts broadcast by AIS, and can also be judged by the time of arrival in Hong Kong on the routes where the port information is relatively complete. It must be admitted that this judgment is still inaccurate and conservative, but it has greatly improved compared with the current standard of dwt multiplied by a fixed utilization rate as the basis for the volume. Moreover, this estimate is based on the estimation of each ship, which is a huge improvement over the current application of standard ship type data to hundreds of ships of different specifications. In addition to public data estimates, working with existing brokerage systems is also a viable option. In addition, the use of statistical means to estimate the overall situation through sample data can further optimize the observation and judgment of the market.

Dynamic estimation of fuel consumption

The method of estimating carbon emissions from ships in recent years has pointed out the way to dynamically estimate the fuel consumption of ships. In short, there are two methods. The first method is more complex. It uses the ship’s speed, sea state, wind direction and other factors, combined with ship scale data and draught data to estimate the propulsion power of the ship, and then according to the model of the ship’s host and the efficiency of the ship’s propulsion. Factors such as fuel consumption under corresponding power are estimated. The second method is to estimate the actual speed of the ship (taking into account the flow rate correction), compare the ship design speed and the corresponding host power, calculate the power of the host at the actual speed, and then estimate the fuel consumption under the corresponding power according to the ship type. Compared with the two methods, the former method is more accurate and the latter one is less accurate but is easy to operate. Either method is a big step forward in the method of estimating voyage fuel consumption (ignoring the change in speed) than the current rated daily fuel consumption of a standard ship, and the accuracy is also greatly improved. The method of estimating the fuel consumption of ships by AIS has been applied to the estimation of carbon dioxide emissions in the 2014 IMO greenhouse gas emission report, and has proved to be an effective and accurate method.

In addition, port and route information have been more comprehensively covered in recent years, and big data technology has achieved rapid development. We have already had the necessary conditions to construct a shipping market estimation model with a much higher accuracy than the traditional model. When the observation granularity is focused on the single-ship level, the distance expressly shows the immediate performance of the shipping market is even closer, and the shipping market will be more open and transparent. The advancement of this technology will have a huge impact on the shipping financing business, which can assist in accurately identifying and estimating the cash flow level of the ship’s assets and become the basis for operating leases and other more flexible financing models. In 2011, ICBC Financial Leasing Co., Ltd. first established a ship asset management system through AIS data. In recent years, with the rapid development of this technology, ICBC Leasing is constantly exploring new technology application models to help the rapid and healthy development of the shipping financing business.

In recent years, there have been many domestic and foreign pioneers in the “Internet + Shipping + Big Data” field, including both start-ups and shipping giants. Different companies focus on different areas, some focus on ship services, such as ship repair, ship management, etc.; some focus on cargo, such as booking, customs declaration and port logistics; some focus on foreign exchange payments in shipping links; Some focus on information consulting and logistics data. The emergence of various types of information-related entities related to shipping indicates that the traditional industry of shipping will be deeply integrated with the Internet and will be inseparable from big data.

The author of this article is the senior manager of the ICBC Leasing Shipping Finance Division and an ICS member of the Chartered Ship Brokers Association.