Address Commission Deduction

Address Commission is typically dealt with in charter parties as an agreed deduction from freight, some charterers argue that the Address Commission is used to pay for their shipping department therefore there is no industry standard as to what the level of Address Commission will be.

In the dry cargo trades we see some as high as 5% and in the tanker trades frequently 1.25% but sometimes higher. A simple example of how this would affect the freight payable is:

Ship loads 50,000mt of cargo at $100 per mt

Address Commission 2.5% is payable by Shipowners.

Freight on 50,000mt x $100 per mt = $5,000,000

Less 2.5% Address Commission = $125,000

Net Freight Payable = $4,875,000

Some would argue that this is simply a discount granted by owners to charterers and to achieve a lower cost it would be better to do away with the Address Commission altogether.

In practice when fixtures are reported on the market it is the headline rate that is reported and little, if any, information is known about the commission structure. The result is that it is very unlikely that the charterer who does not take an Address Commission will pay a lower freight rate than the charterer who does.

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What is Address Commission in Ship Chartering?

Address Commission in ship chartering refers to a percentage-based fee paid to the charterer’s shipbroker for their role in negotiating and finalizing a charter party agreement. This commission is typically expressed as a percentage of the gross freight, hire, or demurrage charges and is paid by the shipowner. The purpose of the address commission is to compensate the broker for their services in securing the contract between the shipowner and the charterer.

In most cases, the commission is a standard industry rate, usually ranging from 1.25% to 2.5%, depending on the specific charter and the terms agreed upon by the involved parties. The address commission may be shared between the charterer’s broker and the owner’s broker if both are involved in the transaction. It is worth noting that the payment of address commission does not affect the freight rates, as it is considered a separate expense borne by the shipowner.

 

What is Address Commission Deduction in Ship Chartering?

Address Commission Deduction in ship chartering refers to the process of deducting the address commission from the gross freight, hire, or demurrage charges before making the payment to the shipowner. This practice ensures that the charterer’s shipbroker receives their commission fee directly from the relevant charges, rather than having the shipowner pay it separately.

When the charter party agreement is being negotiated and finalized, the address commission percentage is agreed upon by all parties involved. Once the charter has been executed, the charterer’s broker calculates their commission based on the agreed percentage and the gross freight, hire, or demurrage charges.

In the address commission deduction process, the charterer deducts the broker’s commission from the total amount due to the shipowner and then pays the remaining balance to the owner. Simultaneously, the charterer pays the deducted commission amount directly to their broker. This practice ensures transparency and proper compensation for the broker’s services in the chartering process.

 

Address Commission Deduction Example 1

Let’s assume there is a ship chartering deal involving the following parties and details:

1. Shipowner: Owner of the vessel
2. Charterer: The party hiring the vessel
3. Charterer’s broker: The broker representing the charterer

The charter party agreement states the following:

• Gross Freight: $100,000
• Address Commission: 2.5%

In this example, the Address Commission Deduction is calculated as follows:

1. Calculate the Address Commission:

Address Commission = (Gross Freight × Address Commission Percentage) Address Commission = ($100,000 × 2.5%) Address Commission = $2,500

2. Deduct the Address Commission from the Gross Freight:

Net Freight payable to Shipowner = (Gross Freight – Address Commission) Net Freight payable to Shipowner = ($100,000 – $2,500) Net Freight payable to Shipowner = $97,500

3. Payments made by the Charterer:

• To the Shipowner: The charterer pays the Net Freight of $97,500 to the shipowner.
• To the Charterer’s Broker: The charterer pays the Address Commission of $2,500 directly to their broker.

In this example, the Address Commission Deduction ensures that the charterer’s broker is compensated for their services, and the shipowner receives the correct net freight amount after the commission has been deducted.

 

 

Address Commission Deduction Example 2

Let’s assume another ship chartering deal involving the following parties and details:

1. Shipowner: Owner of the vessel
2. Charterer: The party hiring the vessel
3. Charterer’s broker: The broker representing the charterer

The charter party agreement states the following:

• Gross Hire: $200,000
• Address Commission: 1.5%

In this example, the Address Commission Deduction is calculated as follows:

1. Calculate the Address Commission:

Address Commission = (Gross Hire × Address Commission Percentage) Address Commission = ($200,000 × 1.5%) Address Commission = $3,000

2. Deduct the Address Commission from the Gross Hire:

Net Hire payable to Shipowner = (Gross Hire – Address Commission) Net Hire payable to Shipowner = ($200,000 – $3,000) Net Hire payable to Shipowner = $197,000

3. Payments made by the Charterer:

• To the Shipowner: The charterer pays the Net Hire of $197,000 to the shipowner.
• To the Charterer’s Broker: The charterer pays the Address Commission of $3,000 directly to their broker.

In this example, the Address Commission Deduction ensures that the charterer’s broker is compensated for their services, and the shipowner receives the correct net hire amount after the commission has been deducted.

 

Address Commission Deduction Example 3

Let’s assume another ship chartering deal involving the following parties and details:

1. Shipowner: Owner of the vessel
2. Charterer: The party hiring the vessel
3. Charterer’s broker: The broker representing the charterer

The charter party agreement states the following:

• Gross Demurrage: $50,000
• Address Commission: 1.75%

In this example, the Address Commission Deduction is calculated as follows:

1. Calculate the Address Commission:

Address Commission = (Gross Demurrage × Address Commission Percentage) Address Commission = ($50,000 × 1.75%) Address Commission = $875

2. Deduct the Address Commission from the Gross Demurrage:

Net Demurrage payable to Shipowner = (Gross Demurrage – Address Commission) Net Demurrage payable to Shipowner = ($50,000 – $875) Net Demurrage payable to Shipowner = $49,125

3. Payments made by the Charterer:

• To the Shipowner: The charterer pays the Net Demurrage of $49,125 to the shipowner.
• To the Charterer’s Broker: The charterer pays the Address Commission of $875 directly to their broker.

In this example, the Address Commission Deduction ensures that the charterer’s broker is compensated for their services, and the shipowner receives the correct net demurrage amount after the commission has been deducted.

 

What is meant by ADCOM (Address Commission)?

Address Commission (ADCOM) in ship chartering refers to a fee paid to the charterer’s shipbroker for their role in facilitating and finalizing a charter party agreement. The commission is typically expressed as a percentage of the gross freight, hire, or demurrage charges and is paid by the shipowner. The purpose of the address commission is to compensate the broker for their services in securing the contract between the shipowner and the charterer.

In most cases, the commission is a standard industry rate, usually ranging from 1.25% to 2.5%, depending on the specific charter and the terms agreed upon by the involved parties. However, some charterers go to the shipping market with 3.75% Address Commission (ADCOM) to work directly.

The address commission may be shared between the charterer’s broker and the owner’s broker if both are involved in the transaction. It is worth noting that the payment of address commission does not affect the freight rates, as it is considered a separate expense borne by the shipowner.

 

What is the Address Commission (ADCOM) for Time Charter (T/C)?

Address Commission (ADCOM) for Time Charter (T/C) is a fee paid by the shipowner to the charterer’s broker for their role in facilitating and finalizing a time charter agreement. The commission is typically calculated as a percentage of the total hire payable for the entire period of the time charter, including any options for extensions. The purpose of the address commission in a time charter is to compensate the broker for their services in arranging the contract between the shipowner and the charterer.

The commission rate for time charter agreements is usually a standard industry rate, generally ranging from 1.25% to 2.5%, depending on the specific charter and the terms agreed upon by the involved parties. The address commission may be shared between the charterer’s broker and the owner’s broker if both are involved in the transaction. As with other types of charter agreements, the payment of address commission does not affect the hire rates, as it is considered a separate expense borne by the shipowner.

 

Address Commission Clauses in Charter Parties

What is the difference between Address Commission (ADCOM) and Brokerage?

 

Address Commission (ADCOM) and Brokerage are both fees paid in the context of ship chartering, but they serve different purposes and are paid to different parties.

1. Address Commission (ADCOM):

• Address Commission is a fee paid by the shipowner to the charterer’s broker for their role in facilitating and finalizing a charter party agreement.
• It is typically calculated as a percentage of the gross freight, hire, or demurrage charges.
• The purpose of the address commission is to compensate the broker for their services in securing the contract between the shipowner and the charterer.
• Address Commission rates usually range from 1.25% to 2.5%, depending on the specific charter and the terms agreed upon by the involved parties.

2. Brokerage:

• Brokerage is a fee paid by the shipowner to their own broker for their services in finding suitable charterers, negotiating terms, and finalizing the charter party agreement.
• Brokerage is typically calculated as a percentage of the gross freight, hire, or demurrage charges, similar to address commission.
• The purpose of the brokerage is to compensate the shipowner’s broker for their services in representing the shipowner’s interests and securing a charter contract.
• Brokerage rates can vary depending on the specific charter, the type of vessel, and the complexity of the transaction, but they generally fall within a similar range as address commission rates.

The main difference between Address Commission (ADCOM) and Brokerage lies in their purpose and the parties they are paid to. Address Commission is paid to the charterer’s broker for their role in securing the charter, while Brokerage is paid to the shipowner’s broker for their role in representing the owner and finding a suitable charterer. Both fees are typically calculated as a percentage of the gross freight, hire, or demurrage charges and ensure that the brokers involved in the transaction are compensated for their services.

 

What is difference between Brokerage and Commission?

Brokerage and commission are both types of fees paid for services rendered in various industries, including ship chartering, real estate, and financial services. Although both terms refer to compensation for services, they have some differences in their application and the parties involved.

1. Brokerage:

• Brokerage is a fee paid to a broker or an intermediary for their services in facilitating a transaction, such as finding a buyer or seller, negotiating terms, or finalizing agreements.
• It is typically calculated as a percentage of the transaction value, such as the sale price of a property or the gross freight, hire, or demurrage charges in ship chartering.
• In ship chartering, the brokerage is paid by the shipowner to their own broker for their services in finding suitable charterers and negotiating terms.
• In real estate, the brokerage is usually paid by the seller to the real estate agent or broker for their role in listing, marketing, and selling the property.

2. Commission:

• Commission is a more general term used to describe a fee paid to a salesperson, agent, or broker for their services in securing a sale, contract, or agreement.
• It is also typically calculated as a percentage of the transaction value or a fixed amount based on the terms and conditions of the agreement.
• In ship chartering, the address commission is a type of commission paid by the shipowner to the charterer’s broker for their role in facilitating the charter party agreement.
• In financial services, commission can refer to fees paid to financial advisors or stockbrokers for their services in buying or selling securities or managing investment portfolios.

Brokerage is a specific type of commission paid to brokers or intermediaries for their role in facilitating transactions. The main difference between brokerage and commission lies in the context in which they are used and the parties involved. Brokerage is often used to describe fees paid to brokers in industries like ship chartering and real estate, while commission is a broader term used to describe fees paid to salespeople, agents, or brokers in various industries for their services in securing sales or agreements.

 

Address Commission (ADCOM) Deduction Process in Ship Chartering

The Address Commission (ADCOM) deduction process in ship chartering involves deducting the address commission from the relevant charges, such as gross freight, hire, or demurrage, before making the payment to the shipowner. This practice ensures that the charterer’s shipbroker receives their commission fee directly from the relevant charges, rather than having the shipowner pay it separately.

Here’s an overview of the Address Commission (ADCOM) deduction process in ship chartering:

1. Agreement on Address Commission: When the charter party agreement is being negotiated and finalized, the address commission percentage is agreed upon by all parties involved.
2. Calculation of Address Commission: Once the charter has been executed, the charterer’s broker calculates their commission based on the agreed percentage and the gross freight, hire, or demurrage charges.
3. Deduction of Address Commission: In the deduction process, the charterer deducts the broker’s commission from the total amount due to the shipowner.
4. Payment of Net Amount to Shipowner: The charterer pays the remaining balance (net amount after deducting the address commission) to the shipowner.
5. Payment of Address Commission to Broker: Simultaneously, the charterer pays the deducted commission amount directly to their broker.

By following this process, the Address Commission Deduction ensures transparency and proper compensation for the broker’s services in the ship chartering process. It also allows the shipowner to receive the correct net amount after the commission has been deducted.

 

Address Commission Clause in GENCON and NYPE

GENCON (short for General Charter) is a widely used standard voyage charter party form in the dry cargo sector. While the GENCON form may not specifically mention an address commission clause, it is common for parties involved in the charter party agreement to include such a clause as an additional rider or amendment to the standard terms.

The NYPE (New York Produce Exchange) is a widely used standard time charter party form for dry cargo ships. The NYPE form does not explicitly mention an address commission clause, but it is common for parties involved in the charter party agreement to include such a clause as an additional rider or amendment to the standard terms.

An Address Commission Clause in a GENCON and NYPE charter party would typically include the following elements:

1. Commission Rate: The agreed-upon percentage rate of the address commission, which generally ranges from 1.25% to 2.5% depending on the specific charter and the terms negotiated between the parties.
2. Basis for Calculation: The clause should specify whether the address commission is calculated based on the gross freight, demurrage charges, or another financial aspect of the charter party agreement.
3. Deduction Method: The clause should clarify the process of deducting the address commission from the relevant charges, such as whether the charterer will deduct the commission and pay the net amount to the shipowner or if the shipowner will pay the full amount and then be reimbursed for the commission.
4. Payment Terms: The clause should specify the timing and method of payment for the address commission, including any deadlines, currency, and payment methods agreed upon by the parties.
5. Broker’s Role: The clause may also outline the specific services provided by the charterer’s broker and any responsibilities or obligations they have in the charter party agreement.
6. Sharing Commission: If multiple brokers are involved in the transaction, the address commission clause may specify the distribution of the commission among the brokers.

By incorporating an address commission clause in a GENCON and NYPE charter party, the parties involved can ensure a clear understanding of the broker’s compensation and the process for paying the address commission, fostering transparency and a smoother transaction.