AI Digital Freight Rating

What’s driving the demand for automation of freight services?

Whether producer use vessels, trains, planes, or 18-wheeler trailers, to transport their goods to the consumer markets the costs of transshipment, complex trade route and a smaller workforce are increasing costs to the supply chain. In 2018 air cargo companies reported an upsurge in overall movement of goods by 58% in air freight volumes over last year. FHA reports that driver shortages of 51,000 open positions in the United States alone which makes producers face higher hurdles and disruptions that are skewing the supply and demand chains in the market.

Many tech startups and established freight companies alike are experimenting with the new coined concept of on-demand freight for trucking. Instead of dedicated shipping lines, companies using on-demand shipping rely on availability of space when freight is in demand, facilitated by an online platform or mobile application off a line-haul lane.

“Well-known companies such as Uber and Amazon are heavily investing in freight services, with Uber announcing a $500 million run rate for revenue and Amazon working on a new digital freight matching application to go with their current trucking app. Freight matching apps from Convoy and Loadsmart are also investing heavily in expanding their driver networks and technology.”

While these services offer an alternative to traditional methods of choosing a transportation provider, some gaps in execution may exist. Freight rate setting has been a traditional businesses prerogative for negotiating with service providers; however, changing markets are switching more towards information technologies so that a better informed party can make better choices.

Because the concept of on-demand freight is still in its early stages, speculation is a big part of it as how this new carrier option could affect producers supply chain. A review of the current platforms can help understand challenges and opportunities in the supply chain and logistics innovation pipeline as reported by several logistics magazines of current information-provider platforms for on-demand freight:

“Uber Freight — comprises a mix of manual and automated processes to connect companies with freight transport.

Amazon Relay — permits delivery drivers to check in at the security gate and gives drivers access to expedited lanes in their facilities in a bid to lure independent truck drivers to their cargo, although Amazon is working on another application to match other distributors to carriers.

Convoy — automates every step of freight ordering for long-haul trucking, displaying the rate and trucker’s pay for each option.

Loadsmart — Offers instant pricing and booking for full truckloads, plus machine learning-based algorithms to determine pricing and terms of the load.

OnTruck — provides instant price quotes to companies for delivery before making the offer to carriers, who can choose to accept or reject a job, as well as creates visibility through a series of digital checkpoints throughout the route.

Haven Origin — Offers a fully automated, carrier-neutral, and free digital freight booking tool.”

The International Chamber of Shipping reports that there are over 50,000 merchant ships trading internationally, transporting every kind of cargo. “The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality. “

Although freight hauling is a very big business current market statistics indicate that only about 25 of major shipping companies worldwide operate over 5,000 ships. For instance Maersk’s 700 ships have almost a 4,000,000 TEU capacity and that is only a small portion of Maersk’s overall freight handling business. In the United States a large trucking company can accumulate 93 billion miles per year. “That’s like driving around the globe 3.7 million times.”

Many new service providers are making a new showing in the market to meet demand for innovative services as indicated by 3PLs, 4PLs and even 5PLs moving in to fill the needs gaps. The net effect is that as new players join the market services become more complicated as complex routes are added to existing trade lanes. The Maersk Triple E-class container ships comprise a family of very large container ships of more than 18,000 TEU. But in 2014, CSCL Globe a container ship owned and operated by China Shipping Container Lines (CSCL) made its debut with a load of 19,000 containers. In 2019 ships are getting bigger as indicated by OOCL Hong Kong 21,000 container capacity and advance naval architectural engineering. The biggest container ships now rival crude oil tankers and bulk carriers as the largest commercial seaborne vessels. According to the International Chamber of Shipping, there are more than 50,000 merchant ships operating in the oceans currently.

A larger size ship would traditionally require more crew to manage however, technological innovation is a manpower multiplier. The Maersk Triple E requires a crew of only 22 crew-members aboard. Notwithstanding these 22 crewmen are highly trained, skilled workers who are also verse in managing a family of computer systems that control the one of biggest ship in the world

As AI and automation increases the robots in the work flows companies can outsource complex calculations to computers, freeing up employees to expand business in other specialized ways. High up on the list would probably be the nightmare of informed judgement employees must make when generating multi-modal, multi-leg quotes or new services that force them to open up dozens of contracts, wait for answers from agents and then add in their own markup. These business methodologies can be best performed by humans with a pencil and paper until computers can be designed to reason and make informed judgement calls.

In 2001 an early market innovator Trade and Ship Net developed an algorithm to make rates more transparent it was well received by shippers but not by carriers and could not get off the ground without both parties support.

In 2019 TSN now re-branded World Commodity Freight is introducing not only a platform for container rates for all modes of transportation but a separate service for bulk commodity trade as an independent platform. The work- in-progress website can be viewed at

World Commodity Freight

Finance trade & loan agreement methods

Barter Trade is not a very viable proposition for the 21st Century as markets, international finances currency valuation take place in commodity exchanges where purchase point of delivery and ultimate consumer might not be in the same lane. 

SOURCES AND INSTRUMENTS FOR FINANCIAL TRADE

1. Sources of trade finance

2. Instruments of trade finance

3. Impediments/Challenges in accessing trade finance

Financing trade is different than regular bank lending. It includes innovative financial products and services that assist importers and exporters fulfill their financing needs. Trade Finance is a source of working capital for many traders in need of credit lines to purchase, process or manufacture products for sale in the future. These financial instruments can be important for individual traders and firms trading internationally, because it can shape competitiveness on their terms of trade contracts. As a market expands so is the need for financing instruments that facilitate transactions across borders.

Any nation that does not have access to financial instruments can be considered blocked from trade. Importers or exporters not having access to trade finance, have limited opportunities to offer competitive terms to their vendors or buyers such as instruments of credit and payment assurance. Exporters will also have difficulties penetrating a market, because importer may prefer to buy on open account, or on deferred terms, the exporter may not be in position to accept/offer such terms if trade finance is unavailable.

Commercial Banks are the main source of trade finance.

1. Provide pre-export financing (Term Loans)

2. Help in the collection process

3. Issue and confirm letters of credit

4. Book acceptance and discounting drafts

5. Offer fee-based services such as credit and country information on buyers.

6. Taking foreign exchange risks (spot, forward, swap and so on)

7. Taking market risks (options, futures)

8. Discounting documents under letters of credit

9. Advance under red clause letters of credit

10. Structured Finance

For example a supplier can offer credit to a buyer by releasing goods against bills of exchange, by which a seller can pay at a specified future date.

Specialized trading institutions purchase from exporters receivables without recourse at a discounted rate to allow them access to financing before maturity of the bill. In this case the receivable becomes a tradable security

Governments and other institutions like World Bank, regional bank, community bank can be good source of trade finance especially in less developed economies where financial markets and money markets are not easily available.

Such financial facilitation include:

1. Establish scheme of guarantees to support exporters

2. Establish floating line of credit to support imports for and exports from specific sectors

3. Establish guarantees schemes for small companies or micro group

4. Support trade facilitation policies, e.g. tax deferral for export/import on extended terms

Sources of Trade Finance: Government and other related institutions

1. Letters of Credit (Documentary Credit)

2. Bank Guarantees

3. Pre and Post shipment finance loan facilities

4. Buyers and Sellers credit

5. Bills Acceptance

6. Structured Finance

7. Leasing

8. Factoring and Forfeiting

9. Counter-trade

A Letter of Credit is a document issued by a bank (issuing bank) stating its commitment to pay a seller (beneficiary) a stated amount of money on behalf of a buyer so long as the seller presents specific documents and conditions.

• Letters of Credit can be issued as “Revocable” or “Irrevocable” form and are either “Unconfirmed” or “Confirmed”, payable at “Sight” or at a deferred period “Use”
• Letters of Credit can also be special types, namely: Revolving letters of credit, Standby Letter of Credit (SBLC), Red Clause letters of credit, Transferable letter of credit, and Back-to-back letters of credit.
• Letters of credit issued against L/C facility allows importer to delay payments to exporter, thus easing cash flow problems and interest expenses. It allows supplier to access credit against presentation of documents at the counters of negotiating bank without waiting for goods to reach the buyer. It allows buyer to obtain credit terms from a seller under active period or differed L/C terms whereby the bank books acceptance for payment of bills to be made at future agreed date (maturity date).
• Supplier can discount documents and obtain credit before due date.
• Red clause Letters of credit allows exporter to obtain pre-export advance payment
• A Letter of guarantee is a written promise issued by the Bank to compensate the beneficiary (third party, local or foreign) in the event that the obligor (customer) fails to honor its obligations in accordance with the terms and conditions of the guarantee/agreement/contract. Types include Bid, Custom, Payment, Performance, Advance payment, Government export guarantees etc.
• Advance payment guarantee allows its beneficiary to access advance payments to facilitate procurement or production of goods for delivery to the intended party
• Custom Bonds allow a buyer or seller to postpone payment of tax until the goods are sold
• Customs Bonds for Temporary Transit facilitates movement of goods on transit or sent abroad for a trade fair, or goods, which are imported with intention of re-exportation without paying related custom duties.
• Structured finance refers to transferring risks in trade financing from parties less able to bear those risks to those better equipped to bear them in a manner that ensures automatic reimbursement of advances from the underlying assets.

Some examples of structured finance include:

1. 1. Inventory/Ware house financing
2. 2. Receivable financing
3. Leasing
4. Factoring and forfeiting are both forms of receivables discounting
5. A specialized financial firm pays up-front for the amounts due to them by their customers.
6. While forfeiting is mostly used for international transactions, factoring is mostly used for domestic trade. Factoring is the assignment to a third party receivables from its customers for a discounted factor (fee) in different ways:
7. Advance-based factoring
8. Maturity-based factoring
9. Collection-based factoring

• Forfeiting is a term generally used to denote the purchase of obligations falling due at some future date, from deliveries of goods and services-mostly export transactions-without recourse to any previous holder of the obligation.
• In a forfeiting transaction, an exporter/seller remits guaranteed debt, which results from a sale on credit, to a forfeiting company.
• The forfeiting company pays a seller up-front for the face value of the debt minus a discounted factor.
• The debt has to be enhanced through guarantee from a bank or other financially strong institution.
• Once the debt has been accepted by the forfeit er, the exporter is no longer liable for a failure of the buyer to pay-the forfeit er, except where there was fraudulent transaction.
• Counter-trade involves the exchange of goods and/or services as a condition of purchase, or as financing of purchases as in bartering.
• Under such arrangements valued goods are exchanged at an agreed value without cash or credit terms.

This method of trade is particularly valuable in markets where there is a shortage of foreign exchange reserves, where the currency is not freely convertible, or where there is difficulty in obtaining export credit. It is method for a range of reciprocal or compensatory trade mechanisms including barter, compensation, counter-purchase, buyback- offset, switch trading and tolling.

What are the Components Particulars of Freight Transportation                                                    Technology?

Transport assets fall into one of three basic types; land-- road, rail, -- water—shipping and air. Enabling economic prosperity by efficient movement of goods is at the apex of any comprehensive transportation system.

Each mode of transportation provides certain benefits when compared one to the other, however those benefits is usually a trade-off for some other factors.  Road transportation conveys speed and flexibility features. Rail service advantage is safety and energy efficiency per unit of weight transported. Air is the fastest but most expensive mode and waterborne can move massive amounts of freight cheaply but at a much slower pace.

“The U.S. and Canadian networks of inland waterways are based on the great navigable rivers of the continent linked by several major canals. The Gulf Intracoastal Waterway comprises large sheltered channels running along the coast and intersected by many rivers giving access to ports a short distance inland. The total inland U.S. system, including protected coastal routes, approximates 25,000 miles, of which well over half has a minimum depth of nine feet. The largest system is based on the Mississippi, which is navigable for about 1,800 miles from New Orleans to Minneapolis, and its vast system of tributaries. This system connects with the St. Lawrence Seaway via Lake Michigan, the Chicago Sanitary and Ship Canal, and the Illinois River and with the Atlantic coast via the New York State Barge Canal (Erie Canal) and the Hudson River. The two intra-coastal waterways are the Atlantic and the Gulf, the former extending from Boston, Mass., to Key West, Fla., with many sections in tidal water or in open sea.“

“In Europe the Danube waterway connects the Rhine with the Black Sea which completed in 1992 provides a route for traffic between eastern and western Europe through Germany, accommodating craft of 1,350 tons throughout its length. Following the Main River to Bamberg in Germany, France’s waterway network of nearly 5,000 miles is based primarily on its rivers, but many of the low-capacity canals are being raised to the 1,350-ton standard. A major development planned in the 1970s in cooperation with West Germany was the construction to this standard of the North Sea–Mediterranean waterway via the canalized Rhône and Rhine.  In the Netherlands the extensive canal system based on large natural rivers and serving the ports of Rotterdam and Amsterdam has required comparatively little modernization while In Scandinavia there are two major commercial artificial waterways: the first, the Trollhätte Canal, connects the Götaälv (river) upward from Göteborg with Lake Vänern and with the Finnish lakes and connecting canals; the second, the Saimaa Canal, in southeast Finland, connecting the vast Saimaa Lake system to the sea. In the former Soviet Union, water navigation played a major role in the country’s economy; and after World War I its great rivers—the Dnepr, Dvina, Don, Vistula, and Volga—were linked to form an extensive network, making through navigation possible from the Baltic to both the Black Sea and the Caspian.”

Road transportation

Road infrastructures have the lowest level of physical constraints among transportation modes but constraints are significant in road construction when encountered during construction to overcome features such as rivers or rugged terrain. Historically however, road transportation was developed to to be traveled by non-motorized vehicles; therefore, motorization has shaped the most development since the beginning of the 20th century.

Road transportation is mainly linked to light industries where rapid movements of freight in small quantities are the norm.  Nevertheless, with the introduction of containers, road transportation has become a crucial link in freight distribution, specially, in what is known in the industry as door-to-door service.

Less than Truckload (LTL)

“LTL freight includes freight shipments that do not completely occupy an entire truck trailer. Most freight trailers on the road today are 8’ – 8.5’ wide, 12.5’ – 13.5’ high, and 40’ – 53’ long. This allows carriers to load several LTL shipments into a single truck and service multiple customers and destinations. LTL freight shipments typically weigh between 200 and 10,000 lbs.”

 Full Truckload (FTL)

“Truckload freight includes all freight shipments that solely occupy a trailer. These are large volume or weight shipments from point to point many a case as line-haul. Weight limits depend on the weight of the vehicle and local laws, but typically are around 34,000 – 45,000 lbs. in the US. The most typical truckload shipments are transported via dry van, flatbed, and refrigerated trailers. “

Rail transportation

In light of more recent technological developments, rail transportation also includes monorails and maglev. The average level of physical constrains is mainly linked to the types of locomotives and a low gradient is required, particularly for freight. Heavy industries and bulk commodities are traditionally associated with rail transport systems.  Here too containers have improved the flexibility of rail transportation by connecting it with road and maritime modes. Rail is by far the land transportation mode offering the highest capacity. Unit trains with 23,000 tons of coal are the heaviest load ever carried. Although rail gauges, vary around the world, making it a challenge for the integration of rail systems across national boundaries.

Trailer On Flat Car (TOFC) predates inter-modal and Container On Flat Car (COFC) was a system where goods were loaded into a semi-trailer, driven to the railyard and backed onto flatcar. When the train reached the other end another semi-tractor pulled it off the flatcar and took it to the final destination.

The inter-modal transportation concept took it another a step in the supply chain, loading the freight into a container that could itself be transferred from a truck flatbed to a flat car to a container ship and back again without needing to transfer the freight itself as it stays packed and secured in the container for the entire trip regardless of how many transfers there are.

Maritime transportation

Maritime transportation is the most effective mode for moving large quantities of cargo over long distances. Maritime routes are composed of oceans, coasts, seas, lakes, rivers and channels. However, due to the location of economic activities and suitable ports and modern infrastructure maritime circulation takes place on specific parts of the water world, mainly, over the North Atlantic and the North Pacific oceans. Channels, locks and dredging are challenges to maritime trade in order to insure continuity between small and large bodies of water. Presently, there are comprehensive inland waterway systems included in Western Europe, the Volga / Don System and Danube. In Canada the St. Lawrence and Great Lakes system; in the United States the Mississippi and its tributaries. Other major waterways include the Amazon, the Panama / Paraguay and the interior of China. However, maritime transportation has high terminal and port costs, since these infrastructures are the most expensive to build, maintain and modernize. High inventory costs and large capital outlays are other characteristic of maritime transportation as it is also linked more than any other mode, to heavy industries, such as steel, petrochemical, grains and other bulks and liquefied gas with facilities adjacent to port sites and docks with rail tracks.

Sea Freight / Ocean Freight

Ocean freight is freight transported via ship from port to port. Shipments are organized into two primary categories; FCL (full container load) and LCL (less than container load). Containers are typically 20’, 40’, or 53’ in length. Providers often offer expedited and economy options depending on your needs. An obvious limit to sea based freight is the proximity to a serviceable port, but is overcome by using traditional land based transportation to get goods to, and from, ports.

Maritime general cargo classification

Shared Bulk

Break bulk Cargo

Break bulk Hazardous

Reefer Ship

Oversize or Overweight Vehicles MMT >4,500 Kilos or >11 Meters Long

Maritime containerized cargo classification

Reefer Container

Flat-rack Cargo

General Cargo in Container

RORO Vehicles

U.S. River Transportation

The Mississippi River System accounts for 92% of the nation's agricultural exports and 78% of the world's feed grains and soy beans. It also has some of the biggest ports in the U.S. like The Port of South Louisiana and The Port of New Orleans (NOLA).

Data from these two ports account for over 500 million tons of shipped goods per year which is significantly larger tonnage than any other ports in the United States. Some commodities that are shipped include petroleum, iron, steel, grain, rubber, paper, wood, coffee, coal, chemicals, and edible oils.

The standard river barge is 195 feet long, 35 feet wide, usable to a 9-foot draft with a capacity of 1500 tons. Some of the newer barges today are 290 feet by 50 feet, doubling the capacity of earlier barges.

Goods Movement

Commodity Percentage Grains (soy, corn, wheat) 87% Asphalt 4% Potash 3% Misc. 6%

Upriver bound Commodities                         Downriver bound Commodities

Commodity	Percentage
Sand and Gravel	47%
Fertilizer	24%
Salt	9%
Cement	10%
Misc.	10%

Air transportation

Air routes are practically unlimited, but they are denser over the North Atlantic, inside North America and Europe and over the North Pacific. Air transport constraints are multidimensional and including facilities such as about 3,300 meters of runway for landing and takeoff and cargo handling, the terminals.  Air transportation has been accommodating growing quantities of high value freight and is playing a growing role in global logistics.

Air freight is the fastest method of delivering goods between two destinations but also one of the costliest. Air freight can transport items from one port to another in a matter of hours rather than days or weeks for sea freight. There are some limitations to air freight, such as hazardous materials heavy materials and other restricted cargo.

Food Stuff L1 Container

Food Stuff L8 Container

Fresh Cargo Dry Ice

Frozen Cargo Dry Ice

Live Animals Fish

Live Animals Mammals

Inter-modal Freight

“Inter-modal freight is any combination of transportation modes; specifically truck, train, ship, and plane. Inter-modal allows shipments to maximize the benefits of each mode to ensure the most economical and timely outcome. Inter-modal also can take a single origin shipment and deliver it to multiple destinations.  The method reduces cargo handling, improves security, reduces damage and pilferage, and allows freight to be transported faster from origin to destination.”

Feet Length	20' container	40' container	40' high-cube container	45' high-cube container
Net Load Tons	28.2 Metric Tons	26.6 Metric Tons	26.58 Metric Tons	25.6 Metric Tons

 

For a review of how transportation components interact with one another in a network of prices and services go to https://www.worldcommodityfreight.com/

What is Maritime Trade?

Nobel laureate economist Paul Krugman once wrote:  A large part of the costs of international trade was taking the cargo off the ship, sorting it out, and dealing with the pilferage that always took place along the way. So, the first big thing that changed was the introduction of the container.

When we think about technology that changed the world, we envisioned ports were longshoremen loading and unloading ships but for the most part have Transportation economics have long emphasized that the global adoption of intermodal transport was a prerequisite for the distribution of production and the establishment of global supply chains that the container revolution and intermodal transport made possible global trade. In the past far away producers could not enter competitively international trade because they had no chance of reaching far away markets. The need to reduce transportation costs embedded in labor, time and handling, containerization established the links from producers and manufacturers to retailers and the ultimate to consumers from any part of the world.

Efficiencies were gained by eliminating the chain link of handlings freight until containers minimize cargo loss, damage and pilferage in addition to speeding delivery; and reducing overall expenditure to shipping process.

Before containerization, the methods for loading and unloading break bulk general had hardly changed since the ancient Phoenicians traded along the coast of the Mediterranean. The loading of individual items packed in barrels, sacks and wooden crates from a land journey to the port and back again on arrival was slow and tedious labor-intensive and costly enterprise.

Technological advances through the use of cranes, tide downs for bundling timber and the introduction of the unit pallet for stacking and transporting bags and sacks generated some efficiency gains, but the handling of cargo was still labor intensive.  After World War II following the spread of the railways, it became apparent that the bottleneck in freight transport was at the exchange point between land and sea transportation modes.

Historically, the origin of the container revolution goes back to April 26, 1956 when the “Ideal- X”, made its maiden voyage from Port Newark to Houston, Texas. This ship was a converted World War II tanker redesigned with a reinforced deck to sustain the load of 58 containers.  In the history of innovation, the breakthrough of containerized shipping did not come from the maritime industry but someone in the trucking industry who was also looking for short cuts and efficiencies to the supply chain. This entrepreneur was named Malcolm McLean, a trucking entrepreneur from North Carolina.

US coastwise shipping was widely seen as an unprofitable business; and McLean's main idea was to join in coastwise shipping with his trucking business at a time when trucking and shipping were not integrated industries.  McLean's vision consisted of a transportation system that moved cargo door to door from the producer to the consumer and that became the central idea.  At the port of Houston, McLean's enterprise later became a Sea-Land Service, and it was already taking orders to ship containerized cargo back to Newark. The 1956 container revolution made McLean's fundamental insight ahead of his time, but the success of the container did not rest simply in the idea of putting cargo into a metal box. Many innovations followed in cranes, ships, ports, trucks, trains and storage facilities. Additional savings were through the building of purpose-built container cranes followed by the building of large specialized containerships.

“On January 9, 1959 the world's specific-built container crane started to operate and was capable of loading one 40,000-pound box every three minutes. The productivity gains from using this container crane were staggering, as it could handle 400 tons per hours, more than 40 times the average productivity of a longshore gang. “The snowballing effect then moved to investment in larger shipping capacity now profitable since containerization radically reduced a ship's average turnaround time in ports.

Given the large investment costs, industry experts revealed that a considerable amount of uncertainty- investment was now needed to complement the success of the container technology. However, industry analysts judged container shipping as a specific technology and did not anticipate the dramatic transformations that this technology was about to bring to the entire domestic and international transportation sector. Innovation and investment in container technology remained for a long time as an American affair but from a transportation technology perspective, containerization resulted in the introduction of Inter-modal freight transport. It follows that the shipment of a container in multiple modes of transportation –ship-rail- truck- resulted in not having to handle the freight when changing modes.  Since containerization caused in a reduction of the total costs of shipping a good from the manufacturer to the distribution center,  its impact was not adequately captured, nonetheless,  until globalization took hold and more efficiencies reduced port to port and freight costs in general that can be summarized as follows:

• Productivity of dock labor went from 1.7 tons/hour to 30 tons/hour
• Ship size increased from 8.4 Gross Registered Tonnage to 19.7 (GRT)
• Insurance costs decreased from $0.24 per ton to $0.04 per ton

According to the Shipping Council, each year roughly 10 billion tons commodities are carried across the oceans.  

In our current global economy, maritime trade is essential. Daily, thousands of ships sail the seas moving large amounts of cargo in a safe and cost effective manner across continents.