How nomination rules affect barge pricing

In current practice, once oil trades are finalised, one of the established rules is that the (barge) details must be sent to the counter-party eighty-four hours, two full clear working days, and sometimes even three days before the actual nominated date of loading. For loading on Sunday for example one has to nominate a barge already on Wednesday and if there are any bank holidays or bridging days it can even be six or seven days upfront.

If a barge planning of two or three consecutive trips works out without any delays then you can consider yourself very lucky.

If one of the parties fails to comply with this timeline, the period for demurrage to start accruing can begin a day, or even two or three days later, depending on when the nomination is eventually sent. Therefore, barge companies are required to do the same and comply with this timeline as well, otherwise the oil companies are exposed.

For instance, if one booked a barge for loading tomorrow but discovered that it didn't discharge today due to a storm or another unforeseen issue, the barge arrival will be delayed. Fortunately, the barge company has secured a replacement barge with the correct pre-cargo specifications and she is technical suitability for the terminal or refinery.

However, the oil company must send a re-nomination to the counter-party and if there are any changes to the barge nomination, as even a pre-cargo change can trigger this requirement. This means the nomination is only valid two working days later. Consequently, while the barge may arrive in time, if the terminal is busy and the barge has to wait for two days, no demurrage will be received by the barge company and the barge remains idle on their own expense.

Vetting

That’s a strange event if you think about it, of course it can take some time for everyone in the chain to check barge vetting etc. and change all the details in the systems again. But this can be taking into account and time starts counting when administration has been done by all parties in the chain, X hrs. later.

If a suitable barge is available which is in time at the same pricing conditions as the one originally booked and has acceptable pre cargo’s, one might think what is the problem? Why am I not entitled to any demurrage?

Logically, it should not be the case barge companies keep on optimising their fleet six times per day and change nominations all the time as this will cause more work but when it is done in good consult with all parties involved it shouldn’t be a problem.

Vetting a barge can go quickly, depending on the systems the companies are working with, if it has to be done manually it can take some extra time. But let’s say it can be done within one hour, if it is very busy it can take up to three hours. There is always the risk some certificates are expired in the BIRE system and these need to be updated and delay the process. But this is still better then nominating two to three days upfront or not allowed to re-nominate.

Fast-paced environment

As previously discussed in one of our articles, the uncertainty surrounding when a barge might load or discharge makes barge scheduling a significant challenge. Despite this unpredictability, it's essential to plan two or three trips ahead to stay ahead of the competition and in compliance with the nomination rules.

In the FARAG region the average sailing time is between eight and twenty-four hrs.

It is not like deep see planning where you have all the time in the world to find a new trip and the nomination rules it has less impact vs. these of an inland tanker barge.

Therefore, more flexibility would be more than welcome to optimise the planning and act quickly when changes in the planning occur.

Impact on pricing

However, the current nomination rules doesn't incentivise barge companies to send a barge replacement which is available and in time, as there is a risk in no demurrage payout in such cases. If barge companies had more flexibility to reschedule and re-nominate, it could result in more timely arrivals. This flexibility would enable them to plan more efficiently and utilise their barges more effectively.

With more timely arrivals and potentially increased barge capacity due to better optimisation, waiting times at terminals could be reduced. This, in turn, could lead to lower freight rates. Therefore, one might argue that these nomination rules are indirectly contributing to price increases in the market over time, especially in busy markets.

Competition

If the nomination rules were to change, it can of course also turns out the other way around from time to time. For instance, if a barge is late and the barge company cannot provide a suitable replacement, the oil company might cancel the barge and source a suitable alternative from another barge company that can meet the timing and requirements.

In the current situation the oil company might choose to leave the delayed barge on the planning as chartering a new one for today gives them the same exposure as re-nominating the delayed one and the barge company takes the hit anyway.

In a new situation where oil companies also would accept prompt barge changes within the oil trade, finding a new barge and nominating it for today makes them not exposed anymore and therefore it is less constraint to cancel a delayed barge.

The environment might get more competitive as it can be easier to take over trips from other companies.

Possible solutions

·      Sending nominations are allowed with barge name TBA/TBN until X hrs before load window.

·      Nominations have to be send 48hrs upfront but barge details are allowed to change, how closer until the deadline however how bigger the risk for vetting issues.

·      (Re)nominations on the day itself possible, if barge is suitable under the same pricing conditions and risk of cancellation.

Who to benefit?

Ultimately, the current nomination rules do not benefit either the oil companies or the barge companies; they only create downsides for both parties. Sometimes, outdated practices persist simply because "that's the way it has always been done."