By Matthew Costello, CEO at Voyager Portal
This series of posts focus on the basic key performance (KPI) metrics that maritime C-Suite, finance, and business leaders should be tracking to measure operational effectiveness, identify areas for improvement, and optimize overall shipping and logistical performance, ensuring competitive advantage and operational efficiency.
KPIs represent the health of your operation, and your team’s efficiency.
As a business leader, VP, or C-suite manager in the maritime shipping industry, tracking and measuring relevant KPIs is especially critical where it concerns demurrage. The incorrect interpretation of a maritime contract or a specific clause can lead to large financial losses.
In this post we’ll be covering one of those vital KPIs – Negotiated Savings:
Demurrage claims are inherently complex, as you well know. The interpretation of the charter party often results in very different conclusions about the amount of demurrage that is due:
- If demurrage is to be paid by one party to the other, it is in their interest to obtain the lowest amount possible.
- If demurrage is to be received by one party from the other, it is in their interest to obtain the highest amount possible.
Therefore, the negotiated savings can represent a significant credit – or expense – to your bottom line.
To establish the efficacy of the team at saving or making money for the business, it is vital to track how well your team is at improving your claim and your position.
Here are five steps to improve this metric:
- Leverage software to track the difference from the initial invoice to the settled amount.
- Track the reasons for the difference so best practices and knowledge can be shared with other team members during future negotiations.
- Provide data on historical payment and negotiation behaviors which can be used as leverage in negotiations. An example could be monitoring total historical outstanding claims and payment periods for a counterparty.
- Provide robust training on charter party calculations, negotiation, and interpretation.
- Ensure contract clauses are unambiguous and clearly written to avoid confusion. Each demurrage clause should be reviewed for clarity and cost implications.
To improve your negotiated savings we recommend benchmarking.
So, what are some reasonable benchmarks?
- Traders should be targeting a 10% improvement per claim.
- Manufacturers should be targeting a 5% improvement per claim.
In summary, demurrage costs are significant and can exceed 25% of total shipping costs.
Poorly managed demurrage claims can mean the difference between profits and serious losses that are largely preventable with the right tools.
