Pools resurface with shipping swimming in data

Dr Roar Adland, shipping professor at the Norwegian School of Economics, writes for Splash on the sudden return of shipping pools in the news headlines this year.

Shipping pools used to be so 1980s. Now, the past couple of weeks have brought news of Signal Maritime’s effective takeover of commercial management for the Heidmar tanker pools, and Klaveness and Marubeni tying the knot to form one of the world’s biggest panamax bulker pools. Both announcements are heavy on analytics, digitalization and other buzzwords, but also a commitment to renew the concept and make pools more ‘flexible’.

The reasons for shipping pools to exist haven’t really changed. They were originally set up to improve the negotiating position of owners in a fragmented market and reduce the information asymmetry enjoyed by the, often stronger, charterers. However, pool size now matters for another reason: data. Having more information feeds from more partners, such as emailed fixture and position lists, means having a more accurate view of open tonnage and, ultimately, better commercial decision making. Signal Maritime’s reported outperformance over competitors in the aframax segment over the past couple of years suggests that these efforts pay off, at the moment.

Could a new breed of flexible ‘virtual’ pool structures have any downsides compared to how this has been done in the past? Well, if ships can enter and exit a pool on very short timescales, then two of the implied benefits of pools – income stabilisation and risk sharing – could be weakened. The tendency will be to enter the pool when it is deemed beneficial for the individual owner – typically in bad markets – and to strike out on your own as soon as things improve. Probably, owners would tend to reach such decisions at the same time, creating difficulties for the pool operator to manage long-term contracts and relationships with charterers.

What will happen when more players have access to similar data and algorithms? Naturally, not everyone can outperform the market. Improved commercial performance across a large share of a fleet will simply alter the benchmark and make it harder to beat. What is not obvious at all is how transparency and smarter players will impact the dynamics of the market. To put it simply – if everyone and his mother-in-law knows with some certainty that there are only five open aframax tankers able to make a Black Sea loading window – would that change the outcome compared to a market that has no clue? My take is that owners and charterers will end up playing even tougher cat-and-mouse games than in the past, increasing the freight rate volatility in the process.

What will end up being the differentiating factor in this brave new world? Data and analytics capabilities will remain key until (if) the playing field is levelled. This will be a long-term process – we are talking about shipping after all. However, long-term relationships and trust cannot be built by an algorithm and that is still how the best deals are done.