How Ore Carriers Can Improve Their TCE With Route Optimization

By Ben Merrell

For mining companies and ore carriers 2020 was a year especially full of disruption: the Covid-19 pandemic, the China-Australia coal dispute, and now shippers must adapt to a charter market that is reminiscent of 2008. With hire rates booming and high export volumes expected to persist, carriers should look for ways to minimize their costs and improve voyage efficiency.

A comparison of hire rates over the last few years, showing monthly low and high price for Hire and Freight Rate (Data via The Baltic Exchange)

One potentially overlooked opportunity for improving TCE¹ lies in reducing sailing time by optimizing vessel routing. This is especially important for mining companies given that they fix many voyages throughout the year along consistent and well defined trade routes. As our case study below will demonstrate, it is worthwhile to analyze these well-trafficked trade routes to search for marginal improvements in sailing time. Even 1-2hrs saved on each voyage has the potential to compound and produce significant savings over the course of a year.

Case Study: Voyages between N. Australia and N. China

In spite of China’s unofficial ban on Australian coal, the dry bulk trade between Australia and China will continue to play a critical role for each nation. Australia continues to export large quantities of Iron ore to China and total exports are projected to grow over the next 5 years by abt. 200M mts to 1.1Bn mts annually. In the near term, this year has seen iron ore prices reach record highs driven by demand in China and China is expected to remain a major importer of Australian Iron Ore.

Australia’s bauxite exports are projected to remain steady over the next 5 years in the face of increasing competition from mines in Guinea and elsewhere. This year Australia is forecast to export approximately 36 630 000mt of Bauxite in 2021, representing about  A$BN 1.487 in trade.

Given the high volume of ore exported from Australia destined for China every year, we conducted an in-depth analysis of weather conditions along one frequently sailed route between N. Australia and N. China as well as the return voyage. We expect that this route will continue to be well traveled over the coming years and so presents an excellent candidate for analysis and optimization.

Based on our analysis we can conclude that by making a small deviation of approximately 10nm, vessels may be able to reduce their time at sea by between 2-3hrs and improve their TCE over the shortest – distance route.

N-Bound Voyage:

The laden voyage between the N. Australian ports (Weipa, Amrun, etc…), and disports in N. China (Longkou, Tianjin, etc…) provides a clear example of how minor alterations in route can provide opportunities for significant cost savings.

 

Our route analysis for the N-bound voyage is based on a Panamax vessel sailing between Weipa, Australia and Longkou, China in April. Strong SW’ly currents off of Davao produce a net-negative effect on vessels sailing basis the standard strait route. The adverse effect of these currents can be reduced by following our 10-nm deviation and net-positive currents can be taken advantage of exiting the Jailolo strait. Compared to the standard strait route our deviation can potentially reduce sailing time by approximately 3hrs (basis full speed) or approximately 4hrs (basis eco speed)

 

S-Bound Voyage:

For the ballast return voyage from the ports of N. China to N. Australia, even greater savings are achievable through a deviation abt. 10-nm west of the standard strait route:

 

For the S-bound route, TNM’s optimization takes the vessel further west of the shortest overall route in order to take advantage of the strong SW’ly currents east of the Philippines. These currents provide at least 2kts of net-favorable effects on vessel speed for approximately 235nm and thus allow for greater time savings than can be achieved on the N-bound route. For a vessel sailing on Full speed TNM’s deviation could potentially save approximately 6.4hrs and for a vessel sailing on eco speed, about 8.6hrs.

 

Our analysis has been conducted using the Atlas of Pilot Charts, TNM’s own data sources, and previous voyage data. In order to isolate the effect of adverse currents on vessel speed, we assume slight conditions (wind and waves) throughout the voyage and no typhoon activity. Under real-world conditions variations from the route plotted above may be necessary due to typhoon activity, typically most severe between July and December, or other adverse conditions (ie. winds and waves). (Source: TNM Weather Data)

Conclusion

The above example illustrates how in-depth analysis can identify opportunities for cost savings,  achievable with only minor alterations to a vessel’s route. For charterers who conduct many voyages along similar routes these slight improvements have the potential to compound and add up to sizeable financial benefits.

For mining companies and ore carriers this type of route analysis is especially important because high-volume agreements, like COAs², ensure that many voyages will be conducted at a predictable rate along a given route. In light of the high frequency of these voyages every opportunity for efficiency improvement should be realized.

Make sure you’re getting the most efficient route on every voyage. If you’d like TNM to analyze a route for you, please contact us here.

Our routing advice is based on first-hand experience: Our team includes former seafarers and several master mariners who are experienced at interpreting weather conditions in correlation to vessel’s weather handling capability. Thus we provide realistic and informed suggestions to exceed your expectations. At TNM we believe in bespoke weather routing and optimization solutions.

¹ Time Charter Equivalent: (Voyage Revenue – Voyage Expenses) / Voyage Duration in Days

² Contract of Affreightment