January 20, 2022

Why shipping’s 8% share of OPEX is its 100% headache

Among all the operational expenses on a vessel, provisions and stores represent only a tiny percentage of total running costs. In fact, the crew’s grocery bills and the ship’s ongoing hardware needs represent just 8% of total OPEX. Despite its small share of OPEX, however, having the right stores and provisions onboard has an outsized impact on seafarers’ welfare and safety. No coffee filters means no morning coffee. More critically, the wrong spare parts for a lifeboat devit could mean that the lifeboat cannot be deployed if needed. Source2Sea has been designed from the ground up to address these inefficiencies and enables crews to get what they need, when and where they need it.


Shopping at sea is not exactly smooth sailing

The digital transformation that has changed so many businesses has made a late arrival to the shipping industry. Until recently, poor and prohibitively expensive connectivity has hindered the wide spread adaptation of internet-based tools and processes. But that is changing fast.Reasonably priced satellite broadband is now widely available and is now essential to everything from navigation to logistical planning and fleet management.

One corner of the shipping world that has not been digitally transformed, however, is procurement. The way ship stores and provisions are ordered today would surprise consumers accustomed to online shopping, and is still characterize by several challenges with which land-based procurement no longer struggles:  

·     Inefficient analog processes: Instead of a few clicks to specify, order, and pay for a purchase from an online merchant, procurement at sea still involves paper catalogs to select goods and fax machines to transmit orders. It’s difficult to compare alternative products quickly. One purchase can easily require multiple interactions between buyer and seller. Requests for quotes are made manually. Depending on the purchase and the purchasing organization’s requirements, requisitions and purchase orders may entail separate approval flows. Integration between procurement systems and fleet management systems is incomplete or non-existent.

·     Opaque pricing: Often, shoppers at sea do not know the actual price of the goods they are ordering. Prices are set only when the supplier or chandler quotes a price, and these prices depend on individually negotiated terms and conditions that sailors have no influence on or insights into. Price opacity makes comparative shopping difficult and stifles competition, ultimately rendering maritime purchases more expensive than they could and should be.

·     No real-time insight into stock availability: Purchasers at sea often have no idea if what they are ordering from a seller is currently in stock. Unlike online shopping platforms that won’t let you order an item that is not available, ship procurement practices won’t reveal an out-of-stock situation until an item is ordered and the seller responds.

·     Specification mismatches: Paper catalog specifications are often not as precise as online specifications, and they are much harder to keep updated. Product pictures and accurate descriptions are often lacking when seafarers order goods. To make matters worse, purchasers and suppliers often use different SKU numbers and order fulfillment systems. However, given the needs of ships constantly on the move with little time in port, if a buyer orders something in a specific quality, quantity, and brand – and the seller doesn’t have exactly that in stock – it’s in both parties’ interest that the seller tries to sell something similar that might fit the bill. Or might not. Sorting out such mismatches forces players all along the maritime supply chain to indulge in “code-cracking”: stakeholders on both sides of the transaction must decipher inexact specifications and determine whether an alternative is acceptable.

As the crews and managers of the more than70,000 vessels currently in operation well know, these shopping frictions have real consequences for productivity and quality of life. Unlike on land, if you forget to pick up everything on your shopping list at the supermarket or buy the wrong screws at the hardware store, you can’t just jump into your car and go back to the store for additional purchases or exchanges. And the next shopping opportunity might be on the other side of the Pacific Ocean.

A tiny part of OPEX, but a big share of purchasing headaches

Given the frictions outlined above, it is easy to understand why procurement at sea is not as efficient as on land. But just how unproductive maritime procurement is in 2021 still surprises most people who don’t work with it every day.

A few numbers make this clear. Although stores and provisions represent just a twelfth of a vessel’s OPEX budget, they are responsible for roughly one-third of all the vessel’s purchase orders. Even worse, no less than half of the onboard purchaser’s time is spent sorting out the inherent inefficiencies of a system ripe for change.

But maritime procurement’s woes are more than numbers in a spreadsheet. Vessels are both workplaces and temporary homes to seafarers. When a vessel’s purchaser orders stores and provisions for pick-up in the next port of call, it’s because the crew needs the ordered goods to work and live on the ship until they call on the next port again.

Finally, crews can get exactly what they click, at exactly the price they expect, and with zero code-cracking. See for yourself how Source2Sea’s smart features reduce procurement complexity and increase transparency, for example by helping vessel operators slash order cycle time from 35 hours to 1 hour.