Logistics is where physical commodity trading becomes real. It’s also where operational excellence creates competitive advantage. A trader who can move cargo more efficiently, more reliably, and at lower cost will outperform competitors with the same market view.
The Logistics Challenge
Every physical commodity trade requires answering:
Question Logistics Component How to move it? Vessel chartering, rail, truck, pipeline Where to store it? Tank, warehouse, silo booking When to load/discharge? Scheduling, nomination How to track it? Operations monitoring How to verify quality? Inspection coordination
Shipping & Chartering
Vessel Types by Commodity
Vessel Type Size (DWT) Commodities Route Examples VLCC 200,000-320,000 Crude oil Middle East → Asia Suezmax 120,000-200,000 Crude oil West Africa → Europe Aframax 80,000-120,000 Crude, products Short-haul Panamax 60,000-80,000 Products, coal, grain Global Supramax 50,000-60,000 Bulk, grain, sugar Emerging markets Handymax 35,000-50,000 Bulk, grain Short-haul MR 25,000-55,000 Products Clean products LR1/LR2 55,000-115,000 Products Long-haul products
Charter Types
Type Description Risk Allocation Use Case Voyage charter Fixed rate per cargo Owner bears voyage risk Spot trades Time charter Daily rate, charterer directs Shared risk Term positions COA Contract of Affreightment, volume commitment Shared Regular routes Spot Single voyage, market rate Owner bears One-off
Voyage Charter Economics
VOYAGE CHARTER COST BREAKDOWN
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VLCC: 2 million barrels, Nigeria → China
Freight rate: $3.00/bbl (Worldscale-based)
Total freight: $6,000,000
Bunkers (fuel): 40-50% of freight cost
Canal fees: 5-10% (if applicable)
Demurrage risk: Charterer
Freight per day: $133,000
Compare to: VLCC time charter ~$40,000/day
Premium for: Flexibility + owner takes voyage risk
Time Charter vs Voyage
Factor Voyage Charter Time Charter Control Less More Flexibility Fixed route Choose voyage Bunker risk Owner Charterer Speed control Owner Charterer Best for Known, one-time voyages Trading positions
Chartering Process
Day 0: Trade agreed, need vessel
Day 1: Issue requirement to shipbroker
- Laycan (loading window)
Day 2: Broker circulates, collects offers
- Agree main terms ("On Subs")
- Subjects: cargo confirmation, L/C
Day 5: Charter party signed
- Full legal documentation
- Voyage instructions issued
Key Charter Party Terms
Term Description Importance Laycan Loading date range Vessel must present Demurrage Penalty for delay $15,000-100,000/day Dispatch Reward for speed Half demurrage NOR Notice of Readiness Starts laytime SHEX/SHINC Holiday counting Affects laytime WWWD Weather Working Days Delay allocation
Loading Operations
Pre-Loading Checklist
Activity Responsible Timeline Vessel nomination Trader 7-14 days before NOR acceptance Terminal On arrival Inspection booking Operations 3-5 days before Documentation prep Ops/Finance 5-7 days before Tank inspection Surveyor Pre-loading
Loading Workflow
LOADING SEQUENCE (Oil Cargo)
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- Tenders Notice of Readiness (NOR)
- Vessel moors at terminal
- Tank inspection (surveyor)
- Rate: 10,000-15,000 bbl/hour
- Duration: 24-48 hours (VLCC)
Quality Control During Loading
Check When By Whom Tank cleanliness Pre-loading Surveyor Cargo sampling During/after loading Surveyor Quantity measurement Before/after Surveyor Quality testing Post-loading Lab Documentation review Throughout Operations
In-Transit Operations
Cargo Monitoring
Activity Purpose Frequency Vessel tracking Know cargo location Continuous Weather monitoring Anticipate delays Daily ETA updates Discharge planning Daily/weekly Cargo condition Quality preservation Per master’s report
In-Transit Optionality
Cargo on water provides OPTIONS:
SCENARIO: Cargo loading in Nigeria, 45-day voyage to Asia
Day 1-15: Can sell to multiple destinations
- India (if arbitrage opens)
- Korea (if demand spikes)
Day 15-30: Narrow options as cargo approaches
- Suez vs Cape routing decision
- Specific port selection
Day 30-45: Final destination fixed
VALUE: Optionality premium from flexible destination
This is why traders prefer FOB over CIF
Vessel Diversion
Consideration Impact Extra voyage days Additional cost Bunker consumption Fuel cost change Port compatibility Can vessel fit? Contractual obligations Original buyer expectations Insurance Coverage for new route?
Discharge Operations
Discharge Workflow
- ETA notification to receiver
- Wait for berth (if congested)
Outturn Discrepancies
Discrepancy Type Typical Tolerance Action Quantity loss 0.3-0.5% Within tolerance: accepted Quality deviation Per contract Adjustment or claim Contamination Zero tolerance Reject, investigate
Documentation for Discharge
Document Purpose Issued By Outturn report Quantity received Surveyor Quality certificate Specs verification Lab Customs declaration Import clearance Customs Receipt Acknowledgment Receiver
Storage Management
Storage Types
Type Commodities Key Features Tank farms Oil, chemicals Temperature control, blending Warehouses Metals, agri Security, weatherproof Silos Grain, sugar Aeration, pest control Floating storage Oil Tankers used as tanks
Storage Costs
Location Oil ($/bbl/month) Metals ($/MT/month) ARA $0.30-0.50 $8-15 Singapore $0.40-0.60 $10-18 Houston $0.25-0.40 $6-12 Fujairah $0.35-0.50 $8-12
Storage Economics
Storage (6 months): $2.40/bbl
Financing (6% APR): $2.16/bbl
RESULT: Negative margin (-$0.86)
Operations Management
KPIs and Metrics
Metric Target Importance Demurrage incidents <5% of cargoes Cost control Quality claims <2% of cargoes Reputation On-time loading >95% Reliability Documentation errors <1% L/C protection Cargo losses <0.3% Margin protection
Operations Organization
Technology and Systems
System Function Vessel tracking (AIS) Real-time position Operations management Workflow tracking Document management Secure storage, sharing Port intelligence Congestion, berth availability
Key Takeaways
Logistics is competitive advantage — Efficiency = marginChartering is critical skill — Rate negotiation mattersOperations require precision — Errors cost real moneyStorage creates optionality — Key in contango marketsDocumentation must be perfect — L/C discrepancies = delaysTechnology enables scale — Systems reduce errors
References
Baltic Exchange
BIMCO Charter Party Forms
Intertanko
International Maritime Organization (IMO)