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Signal’s Position Value concept: freight pricing, fairness and simplicity addressed

This article examines recent progress and initiatives by the shipping industry to meet new IMO targets and provides Signal Ocean Platform data on emissions developments and trends.

The Signal Group
April 2, 2024

Position Value - the concept

If you had to select between an Aframax opening in the US Gulf and a sister vessel opening in the Far East, it seems obvious to opt for the one opening in the West, based on knowledge of basic oil flows and historical market conditions, right? But how can someone quantify the premium of one geographical position over others? How can we determine the potential earnings of a vessel starting from different locations around the world?

Owners traditionally make an assessment based on their experience and by calculating round trip earnings on voyage charters to assess the value of each geographical area. However, this assessment becomes more difficult as trading complexity increases, triangulation increases and comparison of multiple options becomes a necessity. Wouldn't it be much simpler if we had a price tag for each area? And even better, if this price tag incorporated all trading options out of this area, the latest market levels but also the historical market to account for volatility?

This is exactly what the Position Value concept, developed by Signal Maritime Services, aims to achieve. At any given moment, each vessel's opening position holds an earning potential that reflects the condition of all relevant markets. The model analyses the historical voyages of a given vessel class to understand the market structure, including flows and their frequency. It then utilises data for port and canal expenses, current market rates, average fuel consumption and bunker prices to calculate the Time Charter Equivalent (TCE) for each potential voyage.

Next, the model identifies the most profitable sequence of voyages for any location worldwide, given the current market conditions and most common flows. This analysis derives the Position Value of each area, representing its earnings potential. But how can we get the full advantage of the Position Value to enhance our day-to-day operations? Below we summarise some key use cases.

Position Value in vessel fixing

In relation to spot chartering decisions, Position Value enables quick and easy like-for-like comparison of voyage options.

Consider the case of an Aframax opening in Trieste. She could embark on a transatlantic voyage to the US, generating a TCE of $30k/d for about 30 days. However, an east run catches our attention. How much should a Mediterranean-Singapore voyage earn to be more profitable? By checking the current Position Values - US Gulf at $700k and Singapore at -$550k - we can deduce that the Mediterranean-Singapore voyage needs to yield over $70k/d to surpass the transatlantic option, given the market conditions.

Indicative example comparison of a transatlantic voyage and an east run for vessel opening in central Mediterranean Image source: The Signal Ocean Platform

Similar calculations can be applied to price correctly multiple discharging options for any fixture. Everything has a price; we just need to determine the right one.

Position Value can also be used as a tool to help price time charters as it quantifies the earning potential off a time charter delivery position and also quantifies the predicted, worst or best case, time charter redelivery position, allowing the lump sum debit or credit to be amortised over the time charter period to give a more accurate time charter hire rate. 

Using this method Signal are also able to price time charter hire values, in or out, accounting for the vessel’s earning potential on entry and exit which allows different delivery and redelivery positions to be compared, like for like.

Position Value as a catalyst in pool entry and exit flexibility

Position Value also plays a vital role in pooling, offering unique flexibility and commitment minimisation. By pricing the entry or exit positions of pool vessels, owners can seamlessly join or leave the pool anywhere, anytime without harming the pool partners or themselves and their earnings.  

Is it true that for technology-backed concepts it requires time to focus on the benefits of simplifying the output as it feels to be an underutilisation of such powerful algorithms. Similarly, in the early days, Position Value was calculated daily but this volatility created some uncertainty to Pool candidates and partners. Nowadays, Signal Maritime's algorithm compiles a monthly position value price list, ensuring that owners are aware of their vessel's position value credit or debit at the moment they provide entry or exit notice. 

In Signal pools, the position value operates as a zero-sum game. Any amount credited or debited to a vessel entering the pool is equally debited or credited to the other pool vessels. For example, if the Position Value of East Mediterranean is $150k, this means that the vessel enters the Pool in a better position vs. the Pool average, thus pool partners will benefit from her first voyage within the pool. As a result, she will be credited $150k. The same amount will be debited to the existing pool partners

One would say that the calculation methodology is a black box, so why would a pool partner trust an algorithm that generates values? Our reply to that is two-fold. Firstly, values are verified by humans, and shared with partners ahead of time enabling the chance to discuss any questions. Secondly, and most exciting, we offer a free seat to any of our partners at our chartering desk! We want our partners to see how our team operates and the way values are being derived and used. We feel this is a great chance to get closer to our valued clients and while working with them show how technological tools and AI can be applied in commercial shipping.

In conclusion, the implementation of Position Value in the shipping industry provides a valuable tool for optimising decision-making, enabling accurate comparisons, and promoting flexibility in pooling. By considering market conditions, historical data, and trading options, the Position Value concept enhances efficiency and profitability in day-to-day operations, ultimately contributing to the simplification of maritime businesses.

For more information of the Position value or our Pool, please get in touch with the contact form: https://www.thesignalgroup.com/contact

-Republishing is allowed with an active link to the source

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
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Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert

Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

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Signal’s Position Value concept: freight pricing, fairness and simplicity addressed

Posted by
Panos Dimitracopoulos
|
July 14, 2023

Position Value - the concept

If you had to select between an Aframax opening in the US Gulf and a sister vessel opening in the Far East, it seems obvious to opt for the one opening in the West, based on knowledge of basic oil flows and historical market conditions, right? But how can someone quantify the premium of one geographical position over others? How can we determine the potential earnings of a vessel starting from different locations around the world?

Owners traditionally make an assessment based on their experience and by calculating round trip earnings on voyage charters to assess the value of each geographical area. However, this assessment becomes more difficult as trading complexity increases, triangulation increases and comparison of multiple options becomes a necessity. Wouldn't it be much simpler if we had a price tag for each area? And even better, if this price tag incorporated all trading options out of this area, the latest market levels but also the historical market to account for volatility?

This is exactly what the Position Value concept, developed by Signal Maritime Services, aims to achieve. At any given moment, each vessel's opening position holds an earning potential that reflects the condition of all relevant markets. The model analyses the historical voyages of a given vessel class to understand the market structure, including flows and their frequency. It then utilises data for port and canal expenses, current market rates, average fuel consumption and bunker prices to calculate the Time Charter Equivalent (TCE) for each potential voyage.

Next, the model identifies the most profitable sequence of voyages for any location worldwide, given the current market conditions and most common flows. This analysis derives the Position Value of each area, representing its earnings potential. But how can we get the full advantage of the Position Value to enhance our day-to-day operations? Below we summarise some key use cases.

Position Value in vessel fixing

In relation to spot chartering decisions, Position Value enables quick and easy like-for-like comparison of voyage options.

Consider the case of an Aframax opening in Trieste. She could embark on a transatlantic voyage to the US, generating a TCE of $30k/d for about 30 days. However, an east run catches our attention. How much should a Mediterranean-Singapore voyage earn to be more profitable? By checking the current Position Values - US Gulf at $700k and Singapore at -$550k - we can deduce that the Mediterranean-Singapore voyage needs to yield over $70k/d to surpass the transatlantic option, given the market conditions.

Indicative example comparison of a transatlantic voyage and an east run for vessel opening in central Mediterranean Image source: The Signal Ocean Platform

Similar calculations can be applied to price correctly multiple discharging options for any fixture. Everything has a price; we just need to determine the right one.

Position Value can also be used as a tool to help price time charters as it quantifies the earning potential off a time charter delivery position and also quantifies the predicted, worst or best case, time charter redelivery position, allowing the lump sum debit or credit to be amortised over the time charter period to give a more accurate time charter hire rate. 

Using this method Signal are also able to price time charter hire values, in or out, accounting for the vessel’s earning potential on entry and exit which allows different delivery and redelivery positions to be compared, like for like.

Position Value as a catalyst in pool entry and exit flexibility

Position Value also plays a vital role in pooling, offering unique flexibility and commitment minimisation. By pricing the entry or exit positions of pool vessels, owners can seamlessly join or leave the pool anywhere, anytime without harming the pool partners or themselves and their earnings.  

Is it true that for technology-backed concepts it requires time to focus on the benefits of simplifying the output as it feels to be an underutilisation of such powerful algorithms. Similarly, in the early days, Position Value was calculated daily but this volatility created some uncertainty to Pool candidates and partners. Nowadays, Signal Maritime's algorithm compiles a monthly position value price list, ensuring that owners are aware of their vessel's position value credit or debit at the moment they provide entry or exit notice. 

In Signal pools, the position value operates as a zero-sum game. Any amount credited or debited to a vessel entering the pool is equally debited or credited to the other pool vessels. For example, if the Position Value of East Mediterranean is $150k, this means that the vessel enters the Pool in a better position vs. the Pool average, thus pool partners will benefit from her first voyage within the pool. As a result, she will be credited $150k. The same amount will be debited to the existing pool partners

One would say that the calculation methodology is a black box, so why would a pool partner trust an algorithm that generates values? Our reply to that is two-fold. Firstly, values are verified by humans, and shared with partners ahead of time enabling the chance to discuss any questions. Secondly, and most exciting, we offer a free seat to any of our partners at our chartering desk! We want our partners to see how our team operates and the way values are being derived and used. We feel this is a great chance to get closer to our valued clients and while working with them show how technological tools and AI can be applied in commercial shipping.

In conclusion, the implementation of Position Value in the shipping industry provides a valuable tool for optimising decision-making, enabling accurate comparisons, and promoting flexibility in pooling. By considering market conditions, historical data, and trading options, the Position Value concept enhances efficiency and profitability in day-to-day operations, ultimately contributing to the simplification of maritime businesses.

For more information of the Position value or our Pool, please get in touch with the contact form: https://www.thesignalgroup.com/contact

-Republishing is allowed with an active link to the source

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