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Chat about geopolitics and trade with Klaveness Dry Bulk

In the latest episode of Chat about Geopolitics and Trade, we delve into the world of dry bulk shipping with Klaveness both from a commercial and research perspective.

Our guest presenter Punit Oza, Founder of Maritime NXT, talk with Michael Jorgensen, Head of Dry Bulk at Klaveness Dry Bulk,  and Peter Lindstrom, Head of Research at Klaveness Dry Bulk.

The discussions cover:

  • Why the influence of geopolitics and trade is not in the forefront with shipping companies
  • Research taking a proactive rather than reactive role
  • Assessing the impact of a geopolitical event on dry bulk shipping
  • Translating these assessments into action
  • Using software tools to analyse tradeflows
  • What it is like for a young person to join Klaveness

Listen now in the player above or the app of your choice to hear about all these topics and much more

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Marcus Hand  00:09

Looking behind the headlines at how geopolitics influences the dry bulk shipping market, how trade always manages to find a new equilibrium, examining trade throws through algorithms. Find out about these on the latest Chat about Geopolitics and Trade episode of the Seatrade Maritime Podcast with guest presenter Punit Oza, founder of Maritime NXT. Over to you, Punit.

Punit Oza  00:34

Thank you very much, Marcus. Welcome to another episode of Chat about Geopolitics and Trade, as I call my Chat GPT, the podcast, which I'm thoroughly enjoying. Today, I am absolutely delighted to have two of my former colleagues and people who I really feel have an amazing grip on this particular subject. Michael Jorgensen, Head of Dry Bulk at Klaveness Dry Bulk, and Peter Lindstrom, Head of Research at Klaveness Dry Bulk.  

Torvald Klaveness is a company which I have had the privilege of working in past and both these ex-colleagues, as said, have been amazing in terms of their insights. Today, I intend to draw out from Michael and Peter a little bit about how geopolitics and trade interact with each other. Michael, specifically, being in the dry bulk space has a direct connection to what I have been talking about. But also, interestingly, Peter, coming from the research angle, will bring in a lot of interesting insights. Gentlemen, I welcome you to my podcast, and I'm really excited to talk to you about geopolitics and trade, welcome.

Michael Jorgensen  01:37

Thank you.

Peter Lindstrom  01:38

Thanks for having us.

Punit Oza  01:39

Thank you. Michael, maybe I start with you. Geopolitics and trade are quite closely interlinked with each other. And this, as I said, as a background, which is the reason why I teach the course on geopolitics and trade flows in various universities. And I was doing that even for a few years when I was in Klaveness with you. This was always in the background, but I have tried to bring it a little bit to the foreground. What are your kind of thoughts on the interaction between these two? And why is it that this is not highlighted in a big way within shipping companies or decision making? Maybe subconsciously it is, but consciously it doesn't come out to the table as often as it should. What do you think about that?

Michael Jorgensen  02:17

Why are things not highlighted? Why I think that brought to the forefront is always the question. I think different people, different agendas, right? You mentioned yourself we were engaging a lot with the younger community already back then. But, I think for many others, let's say outside of shipping, this is just something that happens. I don't think we look necessarily at a car or at a piece of metal, and we think, oh, someone has shipped that from somewhere to get it there. We forget a little bit about what is it that's happening with all these things that we consume. And then our job is to try and make it interesting and also explain what are the impact of big things. If you read most articles in a newspaper around international politics, it will actually have a trade effect. So, I hope, of course, during this session we can share a little bit more about what those are.

Punit Oza  03:01

Absolutely. That's very true. One of the reasons why I think this course has excited me is also because you can go behind the headlines, as I call it. I think most of the podcasts have actually highlighted that space.

But maybe I come to Peter first and then we go back to both of you. Peter, when it comes to research, I think one of the things that I always noticed even when I was working in Klaveness with you guys, I think since then I've seen more of this happening, is you've actually tried to analyse the commercial impacts of the geopolitical events. When things are happening, it's great to talk about information that what trade has gone, what trends have actually happened. But when you try and look at headlines and try and build the kind of implications of that and how you can profit probably from it on the commercial side, that is a very exciting space to be in. So how do you see research taking that proactive role rather than a reactive role, as I call it, in the business and contributing positively, especially on the geopolitical side?

Peter Lindstrom  03:57

First of all, we trade mostly in the spot market and maybe one year out. So as a research function, we don't spend too much time worrying about geopolitical events that might occur sometime in the future. Let's say the China-Taiwan conflict. If that happens at some time, it will have a big impact, but it's not something we can build into our forecasts. What we do is that we have built up a huge database and a lot of applications, which enables us on top of our domain knowledge, we can very quickly analyse the impact of an event. So, if it's an event, there's increased tension, something is definitely up on the agenda and something might occur in a short period of time, then we sit down and analyse if this happens, what would be the potential impact? Who will stop buying from whom? Which transit channels will be closed? What will be the impact of that? There are a lot of parameters and you have to put them up against each other and land on a conclusion and act on it.

And then also you have cases where something just happens suddenly from one date to the other. And then it's all about speed. Then you just have to be very quick. Based on your database, based on how you see the trade flows, based on your domain expertise. Say that based on this incomplete information and this incomplete analysis, the net effect is likely to be this and we should position ourselves accordingly.

Down the road, that might turn out to be false, but you need to act as soon as possible when you have positions in the freight market. And as long as that's a data driven position taking, I think you are, over time at least, you should be able to beat your competition.

Punit Oza  05:37

Absolutely. And I think that step-by-step approach is pretty amazing. What I am actually, the far few years of experience of teaching this course, I just find that the syllabus keeps changing very often and the number of points that you need to take into account are far too many. How do you, as a head of research, look at this specifically in terms of choosing the battles, let's say that you need to really fight? It's a very interesting space, but you still have to be aware of what priorities that you have, really. And how do you evaluate those priorities? That'll be fascinating to see.

Peter Lindstrom  06:06

Yes. So whenever these geopolitical events happen, you have to assess which commodities are affected, which countries are affected. Is it an oversupplied market? Meaning that, yeah, you have some kind of equilibrium today. Now that is shifted.

So, let's take an example, iron ore markets. And let's assume that you only have three players. You have Brazil, Australia on the export side, and you have China on the importing side. So, for dry bulk freight rates, ton-mile is a big driver. So, it's the volumes transported times the distance. So the higher the distance, the better for shipping.

So, if we say that we are in an oversupplied market. China suddenly has, we've seen the other case Australia-China, but let's use Brazil to China, their relationship breaks down and they stop trading. Obviously, this is negative. Even though Australia might be able to replace the volumes lost from Brazil, the average distances will decrease., that will be a very negative effect for dry bulk.

There's this timeline effect. So sometimes there's a trade war but it's communicated in advance that two months forward it will no longer be allowed to discharge Russian coal in the EU, for instance. Then it might have short-term positive effect because people are front-loading these regulations. So you have an immediate positive effect. More often it's a sudden event from one day to the other. Trade is disrupted, and then you're moving from some state of equilibrium where you have established trade lanes and you're no longer in that equilibrium. That tends to have a negative short-term effect. Because if Brazil was a big supplier of iron ore to China, and they can no longer be that, well, it takes time to reroute those volumes, et cetera. But then the medium-term impact, if you look at a quarter ahead and onwards, it can be a very positive effect or negative net effect for shipping. It just depends on whether it's an oversupplied market or not. And if it's two parties who are close to each other, who are in a trade war, then average distances are likely to increase. If it's two countries which are far apart, then, it's likely to have a negative effect.

Of course, one thing is just having the domain expertise and over time, building up your knowledge base and knowing that, for instance, right now I know that iron ore and coal, there's a buyer of every ton available. Just having that as a backdrop is very useful.

Over the years, you start to understand what's important, what is not important. Iron ore, for instance, is of course, by far more important commodity for dry bulk as a whole than manganese ore or some other dry bulk commodity which has a much lower volume. These things, over time at least, make it easier to make a sound assessment whenever these things happen.

Punit Oza  09:04

Very true. I think that's a very important point to note, in terms of what your priorities can be customised. Specifically, I just wanted to ask you, Michael, carrying on from this discussion, how do you see putting this into practice? Obviously, I talked to the students from my days in Klaveness that one of the geopolitical, now I look back at the geopolitical development of Qataris exporting urea, something that they never used to do because the Yara joint venture with them did not allow them to export to US at the time. But when they dissolved the joint venture, Qatar to US Gulf became a route that we then fixed with Muntajat. And that's the kind of implication that I see that there is happening in practice.

So, Peter, talking about this in terms of what could happen or what potentially might happen, how do you see this translate into actions? Can you give us some examples, even if they may be outdated, that can be useful examples for us to ponder over and learn some lessons from?

Michael Jorgensen  09:54

I think if you come back to what Peter is saying, that every ton is getting sold, that also means that the world tends to find an equilibrium fairly quickly. So, if you look at the numbers for Russia's exports, and Peter, correct me if I'm wrong, I believe that Russia's exports are more or less the same as they were before the war or before the conflict between Ukraine and Russia. Of course, it's gone up a bit, but of course, they're selling to different countries. So, if you go in and you analyse actually the export of Russia, you can see that things are still moving. There will be two or three countries, you've seen a big push and there'll be other countries that obviously have disappeared. Those countries are then buying from somewhere else. And this is again, interesting because the world just keeps finding the equilibrium. We keep on making sure that the cargo moves and the ships are moving. This is of course, in terms of ton-miles. What Peter mentioned has been fairly positive because it hasn't been necessarily the closest origin trade. It has more been whoever wants to buy my coal and those who don't want to buy it anymore, they buy from somewhere further away. So I think that's a very concrete example and something that's easy to relate to. So that's probably the one I would point out at the moment.

Punit Oza  11:04

Absolutely. No, that's a very valid example. And I think it's about really targeting and keeping a track of that as well. And obviously one of the good things is that you can get a lot of this, let's say, leads from Peter., but you have to then see this happening in the market. You need to see those cargoes actually being out there with your network and then you need to cross-verify those things. And that's the interesting part as well, which is a fascinating part of how technology marries physical relationships and basically the basic bonding blocks of shipping still remain valid in spite of technology being there. So it's really an interesting topic, a separate one though.

But let me get to something that both of you have actually done. And I am very thankful that you have given me and my students access to it as well. And that's the Market Manager. You guys have now got the Market Manager out there. And it's a tool that I am really thankful that I get the chance to access myself, but also allow students to access in order to understand just the trade flows.

For those who are listening in, it's a fantastic interactive tool which allows people to basically look at trade flows over the past many years between countries, between commodities, trends, changes. Talk a little bit about it to both of you, one after the other, because it's a really interesting product and I would love to get the listeners to learn know more about it, please.

Peter Lindstrom  12:19

For many years we have had trade flows and we built our own dashboards on top of it, which are from third providers, which have good accuracy, but often come with a delay. Being traders in the spot market, we need to have very fresh information and try to stay ahead of the others. So recently we have built or concluded something we call "Bulk Pulse”, which will also be available on Market Manager. I think you have seen the old tool actually Punit, but I think it's more interesting to talk about our new tool.

Punit Oza  12:49

I look forward to using that as well. Absolutely.

Peter Lindstrom  12:51

So, what we do here is that we have built our own trade flow algorithm, which we call "Bulk Pulse”, where we are buyers and have many years been buyers of raw AIS data, position data of vessels. These vessels send out every fifth second or so, they send out their position. Then we have mapped out all the drywall berths in the world and drawn-geofenced each individual berth in the world. And we've annotated it with the commodities moving out.

So, we have the smallest building blocks, and we can create a lot of insights on top of that. For instance, as you mentioned, trade flows, we can have a live log at any point of time and see how much iron ore is on the water, how much has been loaded.

So, I like to say the most uneducated people in our business, they take their position just based on their gut feeling. And hopefully, it's at least a gut feeling that's based on many years in the industries, which is worth something. Then you have the somewhat more educated people who look at customs data and look at the flow of commodities. But that often comes like with two months delay. So, you would be acting in retrospect.

Then you have other providers or others who use more updated information, which is also possible to break down into specific segments, subsegments like Capesize, Panamax, Supramax, Handysize, et cetera, which you normally can't do with customs’ data.

And then you have our new tool, which basically is live. So rather than saying in October we had very high loadings of this and that, it's likely to have a negative effect this month because all of those vessels will discharge. We can say right now these vessels are discharging and we see that the supply base is increasing. Having this liveliness and freshness, it's worth a lot in our market, where we are traders of spot fit.

Michael Jorgensen  14:49

So, this again helps our commercial people to really be on top of things, right? And what Peter and the team have built over the years because this is not just a job done in a week or two. It's taken a long time to get to where we are. That really enables us to focus on, let's say, every trade, understanding that very well, but also understanding the bigger picture of, okay, what are the overall movements? It can really be leveraged if you want to look into it, if you really want to understand something, it gives you such an advantage, right? And that's, of course, I wouldn't say we understand it before everyone else, but that is a part of it, right? It is a part of being able to be just, you don't need to be a lot ahead but if you're a couple of days or even a week ahead in understanding the data and the knowledge that's out there, it's a big advantage.

Peter Lindstrom  15:34

And to add, so, one thing you can get from this is the trade flows and the commodities moving. But as we are controlling the smallest building blocks, the position data of the vessels and the geofencing of berths, et cetera, you can produce a lot of other types of insights, like port turnaround times. You can have a live log on, the turnaround time in ports, what's the waiting time, what's the congestion, et cetera, et cetera. It's really exciting these days to work with these data.

Punit Oza  16:04

Absolutely. And I love this quotation, that I'd read many years ago saying that “you're never scared of darkness once you know where the light switch is”. Basically, once you are able to click that button, you know the light will come on. And that's really about the comfort that you have this information, that you have the ability to use that information. How you use it is, of course, completely different for each individual, company and person, but it's still there, and that's great. So that's really interesting.

Let me come back to you, Michael. Klaveness has had a history of joint ventures in past. I think that was also one of the subconscious ways of managing geopolitical risks or managing these potential opportunities in some way or the other.

Today Klaveness has got multiple offices in other parts of the world. And your joint venture with Marubeni and MaruKlav is, of course, another JV, which is, amazingly, doing very well. Do you see that as a way of kind of managing risks on a macro level? Do you see the ability to collaborate, forming JVs, setting up offices as a way of taking the pulse of the market and collaborating on what Peter would get in terms of information? I know you've got research people sitting in Dubai as well now. How do you see that strategy being connected to the geopolitical and managing of the risks as such, that'll be fascinating.

Michael Jorgensen  17:16

I would almost turn it upside down, right? By being aware of what's going on and being able to understand what's moving out there, we're also able to see trends, we're able to see movements, we're able to understand what is coming from where to where and which trades do we want to be a part of.

Certain grain trades or most grain trades from Australia to China, were stopped for quite a few years because of the issues there. That's now back. But the minute we saw that movement in the data that Peter and the team are building, we knew that we had to be close and we had to be present to the people who are actually doing the freight there. So, it's again, I have the offices there predominantly for relationships, but because we have the knowledge, we know which of the relationships we need to leverage the most.

When it comes to partnerships and all of that, I don't think we've ever really done in Klavenes, right? Because we always believe in this, two plus two is five. And most of the time, it is like that.

Peter Lindstrom  18:07

To add on that. So, Market Manager, as a tool, we will sell software as a service to third parties, including these bulk pulse algorithms and the insights there. It can serve as a kind of integration platform where you can interact more closely with other players in the industry, which is a very fragmented industry. There's an overall goal to make it less fragmented. And if you have a digital interface, like Market Manager, should make cooperation, joint ventures, et cetera, more likely to happen and more easy to manage.

Punit Oza  18:37

Absolutely. And, we're nearly coming to the end of this, but I just wanted to highlight that one of the passions that I have had for many years, and now I'm actually able to execute that, is talking to the young ones and trying to mentor, as well as help the younger ones to really get the passion for the industry. And you guys are, of course, role models, I could see that, during my time in Klaveness, we've always had interns coming in. A lot of interns decided to get into permanent employment with Klaveness, and they've been doing very well. So, I am fully aware of that. And you continue to take on the young blood and train them. So, both of you, just a few tips and tricks as to what can these students who are listening to this podcast, really try and focus on if they want to try and latch onto an employment opportunity in Klaveness. What is it that you're looking for them to focus on in the next two, three years of their education so that they can actually start getting the best of the opportunities with companies like Klaveness and others?

Michael Jorgensen  19:30

If you're a young person coming into Klaveness, it is like a playground where basically every roller coaster you can imagine, any activity that you really want is available to you. You got some of the best data structure of any company in the world, and you got a lot of shipping knowledge, and actually, you have a company willing to put those two together. So, find your passion, and find what are the one or two places where you want to contribute.

So Klaveness vision we have is to improve the nature of shipping. Every young person, old person, everyone in Klaveness, they should have their own improving of the nature of shipping. Where is it they want to be 18- 24 months from today? What is the change they want to be a part of? And, if we can instill that, I think that would be the best thing for everyone, for them and for us. But I think it's important to say it's not only for the young guys. This is also a little bit of a change management for people who've been in the organisation for 5, 10 and 15 years, it's a constant journey.

Punit Oza  20:24

I can vouch for that, Michael, 100%. Peter, what about you? You've had some younger people, of course, different people in the research side as well. How do you see them getting this mindset about plotting some ideas or tracking some news and looking behind the headlines? How do you instill that? Curiosity is one of the values that you have in Klaveness, right?

Peter Lindstrom  20:41

Yeah. So, whenever we recruit someone for the research team, at least for a more market analyst type of role, I basically look at two things. One is that they have a specific interest in shipping. That's very important that they can demonstrate that interest through what they've done so far. Secondly, we are becoming a very quantitative team, so we actually put very high up on the agenda that you have some kind of programming competence, as well. So, keen on shipping interest, interest in trade in general, financial subjects combined with programming skills. And if the person also is not extremely introverted, that would be a plus. You need to interact with other people.

Punit Oza  21:32

Alcohol plays a big part in that, I can tell you that, but that's another story.

But seriously, I think it's been a pleasure. I always enjoy interacting with you. I've had the pleasure of seeing the company from the inside. I now see it from the outside, and I'm super proud of the way you guys are improving the nature of shipping. So, thank you very much for your time. And I'm sure that the new Market Manager is something that I look forward to testing and using, and so do my students, as long as they are students.

Thank you very much.

Marcus Hand  22:01

That is all we have time for this week. Thank you for listening to the Seatrade Maritime Podcast. And make sure you subscribe on the app of your choice to never miss an episode.

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