Written by Divya Tejwani, Article No. 125 [UNCTAD Transport and Trade Facilitation Newsletter N°103 - Third Quarter 2024]

This article explores the potential for optimal ship routing and freight pricing with real-time Automatic Identification System (AIS) data and the role of maritime authorities and regulators in navigating this technological revolution.

Over 80% of global trade by volume is carried by sea, facilitating the movement of goods across vast oceans, and connecting continents. As the maritime industry faces increasing pressure to optimise operations, reduce costs, and minimise its environmental impact, technological advancements are paving the way for significant improvements. One such technology that has revolutionised maritime operations is the Automatic Identification System (AIS). This article explores how the integration of AIS data with advanced technologies is transforming the maritime industry, addressing key trends and challenges along the way.

Understanding AIS Data and Advanced Communication Systems

AIS technology is a cornerstone of modern maritime operations. By providing real-time data on ship positions and speeds, enabling more efficient and safer navigation, it becomes essential for enhancing maritime safety, improving navigational efficiency, and optimising various aspects of shipping operations.

An important potential of AIS data lies in its application to optimise ship routing and freight pricing. Internal communication systems on ships incorporate onboard databases, ship gateway system software for interoperability, and spectrum management software to monitor and manage radio frequencies on-board. These systems utilise wireless technologies such as Bluetooth, WiFi, and Wireless Mesh Networking (WMN) to gather and aggregate real-time data on factors influencing freight costs, such as fuel consumption, vessel performance, cargo load, etc. This granular data feeds into the freight pricing models to predict freight prices.

External communication systems, on the other hand, will evolve to include a mix of terrestrial and satellite-based technologies. Future ships will leverage 5G/6G networks, long-range HF/VHF communication links, and mesh networks using drones to enhance connectivity between ships and shore-based entities in the maritime ecosystem, resulting in competitive and responsive freight rates by enabling real-time data exchange, leading to more accurate supply and demand forecasts. This will contribute to an efficient and market-responsive approach to freight pricing in the maritime industry.

Currently, the maritime industry is embracing digital transformation through the adoption of Intelligent Information Technology (IIT). This includes the Internet of Things (IoT) and its maritime-specific application, the Internet of Ships (IoS). The IoS interconnects various shipboard systems and devices, enabling the collection, sharing, and exchange of data both internally and externally. Big Data Platforms (BDP) and Big Data Analytics (BDA) are becoming increasingly important in maritime operations. These technologies process the vast amounts of data generated by ships, including global cargo flows, machinery performance and traffic data, to predict the optimal ship routes. BDA can reveal hidden patterns, correlations, and trends, supporting decision-making in areas such as route planning, maintenance scheduling, and operational efficiency. While Artificial Intelligence (AI) and machine learning applications are also finding their way into shipping operations. These technologies can analyse complex datasets, predict potential issues, such as cargo handling shortcomings, market demand fluctuations, piracy and security risks and suggest optimal solutions for both routing and pricing.

Optimal Ship Routing

Optimal ship routing is a complex process influenced by weather conditions, ocean currents, port congestion, and fuel efficiency. Real-time AIS data, combined with advanced analytics, is revolutionising how these routing decisions are made. By integrating AIS data with weather forecasts, ocean current information, and port status updates, shipping companies can dynamically adjust routes to minimise fuel consumption, reduce transit times, and avoid potential hazards. AI-powered systems can analyse vast amounts of historical and real-time data to suggest optimal routes that balance multiple objectives, such as fuel efficiency, timely arrival, and safety.

Case studies in the Transport 2040 – Impact of Technology on Seafarers – The Future of Work report have shown that AIS-based routing optimisation can lead to significant fuel savings and improved schedule reliability. For instance, some shipping companies have reported fuel savings of up to 5% and increased on-time arrivals by implementing such systems. The future of routing is closely tied to the development of autonomous ships. As MASS (Maritime Autonomous Surface Ships) technology advances, routing algorithms will need to become even more sophisticated to handle the complexities of unmanned navigation.

Dynamic Freight Pricing and its economic implications

Traditional freight pricing models are often based on fixed rates or simple supply-demand calculations. The availability of real-time AIS data and advanced analytics is enabling a shift towards dynamic pricing strategies. Dynamic freight pricing takes into account a wide range of factors, including vessel location and availability, port congestion levels, real-time fuel prices, supply and demand dynamics in different markets, competitor pricing and historical pricing trends. By leveraging Big Data Analytics, shipping companies can adjust their pricing in real-time to maximise profitability while remaining competitive. Allowing more accurate pricing that reflects the true cost of shipping services and market conditions at any given moment. Implementing such dynamic pricing strategies requires sophisticated algorithms that can process vast amounts of data quickly and make pricing decisions in real-time. While this presents technical challenges, it offers potential benefits in terms of revenue optimisation and market responsiveness.

The economic implications of dynamic freight pricing in the shipping industry are complex and multifaceted. While the Bertrand Competition Model suggests that prices could converge to marginal costs, leading to increased social welfare and efficiency; the use of advanced technologies might facilitate tacit collusion or enable sophisticated pricing strategies that maintain higher prices without explicit communication between firms. The overall impact on the economy remains uncertain and will likely depend on various factors such as market structure, regulatory environment, and the degree of transparency in pricing algorithms. In concentrated markets, dynamic pricing could potentially lead to higher prices, while in competitive environments, it might result in increased efficiency and better resource allocation. Ongoing monitoring will be crucial to understand and manage its real-world effects on the shipping industry.

Supply Chain Management

The optimisation of ship routing has far-reaching implications for the entire supply chain. Real-time visibility into ship locations and estimated arrival times allows for better coordination with land-based logistics operations. Improved routing and scheduling can enhance just-in-time delivery practices, reducing inventory holding costs for shippers. Dynamically adjusting routes based on port congestion can help avoid costly delays and improve overall supply chain reliability. Furthermore, the increasing trend of e-commerce and digital consumption is putting pressure on maritime logistics to become more responsive and efficient. The integration of maritime operations with broader supply chain management systems such as Project44 and FourKites, is crucial to meet these evolving demands. By connecting maritime data with other supply chain information, companies can create a seamless, end-to-end view of their operations. This integration will allow more holistic decision-making, improved efficiency, and the ability to quickly adapt to changing market conditions or disruptions.

Cybersecurity

As ships become more connected and reliant on digital systems, cybersecurity has emerged as a critical concern. The increased use of IoT devices, satellite communications, and interconnected systems creates potential vulnerabilities that could be exploited by malicious actors. To address these risks, the maritime industry is implementing various cybersecurity measures, such as network partitioning to isolate critical systems, air-gap technologies for the most sensitive operations, Virtual Local Area Networks (VLANs) to segment network traffic, advanced firewalls and intrusion detection systems and encryption of communication links, especially satellite communications. The International Maritime Organization (IMO) has recognised the importance of cybersecurity, making it mandatory for shipowners to address cyber risks in their Safety Management Systems (SMS) as of January 2021. As technology continues to evolve, so will the cybersecurity challenges facing the maritime industry. Ongoing research and development in this area will be crucial to stay ahead of potential threats.

Legal and Regulatory Considerations

The application of AIS data and advanced technologies in ship routing and pricing presents several legal and regulatory challenges. Key issues include ensuring that the collection and use of AIS data comply with data protection and privacy laws, such as the General Data Protection Regulation (GDPR) in the European Union. Additionally, the implementation of dynamic pricing strategies must be handled with care to prevent any risk of price-fixing or collusion. Regulatory considerations, including algorithm auditing and data sharing regulations, will play a crucial role in shaping outcomes.  Moreover, the impact on consumers could vary, with potential benefits from more efficient pricing but also challenges due to increased price volatility and service differentiation. Environmental considerations are also crucial, as routing decisions must adhere to regulations like Emission Control Areas (ECAs) and ballast water management requirements. As these technologies continue to evolve, regulatory frameworks will need to be updated to maintain safety, security, and fair competition. The growing reliance on technology in maritime operations is likely to spur new regulations and governance structures, making it essential for industry stakeholders to remain informed and actively involved in these developments.

Future of Shipping: Smart and Autonomous Ships

The concept of smart ships is gaining traction in the maritime industry. These vessels leverage advanced technologies such as AI, IoT, and Big Data Analytics to optimise operations, enhance safety, and improve efficiency. Looking further ahead, the development of autonomous ships represents a potential paradigm shift in maritime operations. Projects are underway in several countries, including Norway, Finland, and Japan, to develop and test autonomous vessel technologies.

While fully autonomous oceangoing vessels are still some years away, the technologies being developed for these projects are already finding applications in conventional shipping. For example, advanced situational awareness systems and AI-assisted navigation tools are enhancing the capabilities of manned vessels. The rise of smart and autonomous ships will have significant implications for the maritime workforce. While some roles may be automated, new opportunities will emerge for skilled professionals who can operate, maintain, and manage these advanced systems.

Developing Countries: Challenges and Opportunities

The implementation of advanced routing and pricing systems based on AIS data and other technologies presents both challenges and opportunities for the maritime industry in developing countries. Technical challenges include integration of diverse data sources and systems, ensuring data quality and reliability, developing robust algorithms for real-time decision-making, and maintaining cybersecurity in an increasingly connected environment. These challenges are balanced by significant opportunities such as improved operational efficiency and cost savings, enhanced safety and environmental performance, and new business models enabled by data-driven insights. This will also contribute to the Blue and Green Economy through more sustainable shipping practices while staying abreast of emerging technologies and their legal implications.

For developing countries, governments and maritime stakeholders will need to address the potential of widening economic and skills inequalities as technological advancement takes place. This will require investment in capacity building, training and education to ensure that the maritime workforce onshore and onboard can adapt to new technologies and new operational practices/landscape. Maritime regulators will need to proactively monitor and prevent potential collusion and data corruption among firms under the guise of dynamic freight pricing. By doing so, the legal profession can help shape the future of the shipping industry in developing countries, ensuring that technological advancements are implemented in a legally sound and responsible manner.

Conclusion

The integration of real-time AIS data with advanced technologies for optimal ship routing and freight pricing represents a significant leap forward for the maritime industry. By leveraging Big Data Analytics, AI, and advanced communication systems, maritime stakeholders can improve operational efficiency, enhance safety, and respond more dynamically to market conditions. However, realising the full potential of these technologies requires addressing challenges related to cybersecurity, regulatory compliance, and workforce adaptation. As the industry navigates these challenges, it stands to benefit from improved sustainability, increased profitability, and enhanced competitiveness in the global marketplace. The future of shipping is undoubtedly digital, data-driven, and increasingly autonomous. By embracing these technological advancements while maintaining a focus on safety, security, and sustainability, the maritime industry can continue to play a crucial role in facilitating global trade and economic growth.

Contact the author:

Divya Tejwani| Marine enthusiast| [email protected]