SINGAPORE (July 3): Digitalisation has undoubtedly emerged as a key priority for businesses around the world. However, certain industries have taken to the use of technology better than others. For example, the manufacturing and transport industries have generally been successful at going digital. But it seems the shipping line is a step behind: On a normal day, a commercial manager of a shipping company has to make a slew of decisions in the daily running of the cargo ships under his charge. These include where to send a ship to, the duration of a voyage and when to grant a ship access to a particular dock.
These decisions are typically either made based on previous experience or on instinct. With no tools to confirm their predictions, results may also vary. In fact, research has shown that only 60% of the judgements, at best, are accurate. Identifying this issue and the urgent need to find a way for shipping companies to make more accurate decisions, Kaushik Reddy and Sudeept Sinha founded Quantship — a start-up which uses algorithms similar to those in quant hedge funds to predict freight rates and help companies optimise the timing of their bookings.
Having spent a good portion of his career sailing on ships as well as working on the commercial side of a shipping company, Reddy tells The Edge Singapore that freight rates are “extremely volatile” and a 20% change over a fortnight is nothing out of the ordinary. For instance, he explains how a company could potentially miss out on an additional $100,000 in revenue if they picked a wrong day to move a cargo ship. “In an industry which has extremely high fixed costs and margins as low as 1%, it’s actually catastrophic if you don’t make the bookings at the right time,” says Reddy
Greater accuracy, higher revenue
Quantship aims to make the shipping industry more data–driven through the use of technology, shifting it away from what Sinha calls the “old-school” sentiment driven methods. By the end of the year, the company aims to secure between five to 10 contracts. The longer shipping companies hold off on integrating artificial intelligence (AI) and technology into their systems, Reddy stresses that “revenue-making decisions” may be adversely affected.
The company first collates large amounts of data from companies including their historical decisions, prices and trends. Using this data, the software then helps companies make decisions by predicting if prices will go up or down, and if a company should make a fixture today or delay it for a week. Reddy and Sinha say this data collection process takes about two months.
“We try to identify the biggest pain point for a customer, be it in terms of prices or volumes,” says Reddy. “Quantship is essentially a decision support system for commercial managers.” They also say that although the company has some way to go in terms of development and expansion, its methods are already 20% better than the status quo. In terms of making the right decisions, Quantship has a record of 80% thus far they say.
To be sure, the system Quantship provides will not replace a commercial manager entirely. Rather, it exists to support him in order to ensure greater accuracy and efficiency. Sinha says Quantship drew inspiration from hedge funds, an industry he dabbled in for six years prior to taking the “entrepreneurial plunge”. He recalls how quantitative hedge funds used complex mathematical models to try to predict investment opportunities. These fund managers often built customised models using software programs to determine high return investments for funds.
“Quant hedge funds have been using this method for commodities prices for the last 25–30 years, and we decided to bring the same approach into the shipping industry,” explains Sinha. This one-stop approach, he adds, will cause companies to have a 10% increase in revenue with a “huge upside in profitability.” While the digitalisation may be expensive, he argues that the value created by the software overshadows the cost. “This is still superior in terms of returns on investment,” Sinha continues. “So far, we’ve seen customers willing to pay the amount of money because there is an amount of value creation.”
Turning challenges into opportunities
The firm has had a good start thus far. In just over three months, the start-up has signed multiple contracts with different companies. The Edge Singapore understands that this includes one of the largest shipowners in the world, but with the ongoing Covid-19 pandemic, times are bleak for start-ups like Quantship. Countries have imposed travel or import restrictions, while companies are slashing all unnecessary costs in a bid to save money. Sinha says with the virus, an already lengthy process in the industry now takes even longer as the continuing pandemic slows down communications between parties. And this remains the greatest challenge for the company. “Generally, the industry moves very slowly, and the cycles are very long,” laments Sinha.
Yet, the pair are quick to note that if customers are willing to fork out some money for a solution like this, it proves that Quantship is able to provide a “must-have” product for companies today. “If you identify the right problem, there is still uptake for that problem in the shipping industry,” says Reddy. “That is something we observed, and we were able to bring such a solution to the industry,” he adds.
Reddy also says that Quantship is poised to thrive on the same virus that has rattled stock markets and economies around the world. The way he sees it, companies are more likely to turn to comprehend the need for digitalisation and improvements to operations during “testing times and unpredictable events” as the need to become leaner and more efficient grows exponentially. “When things are not going right during a testing time, people start looking for solutions. The tough situation sort of validates what people are looking for,” says Reddy. “People are actually looking actively for solutions during periods like these,” he adds.
The company is also looking to enter the oil and gas industry should their current operations bear fruit. According to Sinha, the troubled sector — especially in terms of the transportation of oil — presents an opportunity for Quantship to tap on. “Whenever oil prices crash, tankers always make a killing because freight rates go up because they’re volatile, and we think this is interesting,” says Reddy. “When a sector is down, people start looking for more innovative solutions. So it’s not always a bad thing if an industry is at a low,” he adds.
Innovation in Singapore
The duo says Singapore was one of the best places to set up shop for what they are doing. Even before Stamford Raffles, Singapore has long been a place for ships to call. The local maritime industry constitutes about 7% of Singapore’s GDP, and the state has also attracted a number of renowned shipping companies to its shores. “In terms of customer reach, Singapore was our natural choice. In terms of innovation, the country is also ahead of the regional curve,” says Reddy. While costs are higher here, Reddy and Sinha agree that this is a small price to pay in return for governmental support and other opportunities. Thus far, Quantship has tapped on the likes of pre-seed funding from international talent investor Entrepreneur First as well as discussions with Maritime and Port Authority of Singapore.
However, Reddy says that while authorities and organisations have created a good environment for start-ups such as Quantship, companies here still have some way to go in terms of a change in mindset. For now, the start-up is focusing on companies that are actively championing the idea of digitalisation. “If a company thinks that not using technology is good enough, we probably don’t want to engage in business with them at this point,” he maintains.
While conversation has grown about digitalisation and innovation in the industry, the duo say application remains a rarity. And this is something they are aiming to change. “There’s a lot of talk about things like blockchain in every maritime conference that you go to. You’ll always find people talking about it, but talk is cheap,” says Reddy. “Mindset change remains one of our biggest challenges, but there are people who are actively changing and are more receptive to technology today,” he adds. “It’s about finding cheerleaders in a company, and that’s a journey every start-up has to go through.”
