Ballast Bonus

Ballast Bonus

In some cases, ships may be delivered to Time Charter some distance from their original position, shipowners may negotiate a positioning bonus (ballast bonus – BB) to cover time and expenses, such as bunker costs, canal tolls etc., incurred between departure from the original position to the ships’s delivery under the new employment.

Usually, if a time charterer redelivers a ship in a poor position relative to following employment opportunities, it may be possible for shipowner to negotiate a redelivery positioning bonus (ballast bonus – BB). Such a lumpsum payment by time charterer to a shipowner, whether applicable to delivery on to or redelivery off time charter, is termed a ‘ballast bonus’, and a delivery ballast bonus is usually payable in full together with the first hire due under a new time charter.

Like for freight payments, hire payments are usually subject to a discount for address commissions (ADDCOM) and/or brokerages (shipbroker fees), but not so in respect of bunkers or canal tolls.

Consequently, with ballast bonuses containing elements of both hire and voyage expense reimbursement, the question arises as to whether such bonuses should be paid ‘gross’ (i.e. liable to deduction for commission/ brokerage) or ‘net’ of such deductions. In practice, it all depends on the negotiating strength of each party (shipowners and charterers) and the state of the freight market.

In some cases, ballast bonuses are paid as net and in others they are paid as gross. Usually, ballast bonuses are paid net of address commission but gross of brokerage.

What is Ballast Bonus (BB)?

Ballast Bonus (BB) is a compensation and incentive paid by charterers to shipowners for the empty trip from the vessel’s last port of discharge to the port where the charter will commence. Ballast Bonus (BB) is typically used to attract shipowners. Ballast Bonus (BB) is more common under Time Charters, especially in a good market when charterers have difficulty obtaining vessels.

Ballast Bonus (BB) covers the cost of bunker (fuel) and time spent on the ballast leg. The amount of the Ballast Bonus (BB) is negotiated between the shipowner and time charterer and depends on the shipowner’s negotiating strength.

 

Market Conditions Affect Ballast Bonus (BB)

In some cases, time charter rates can be influenced by the amount of ballast bonus offered by the charterer. In a strong market where charterers are having difficulty finding available ship (tonnage), a high Ballast Bonus (BB) may be offered as an incentive for shipowners to agree to the charter. The shipowner may then use this higher Ballast Bonus (BB) as a bargaining chip to negotiate a higher rate of hire for the time charter. Ultimately, the agreed-upon rate will depend on the negotiating strength of the parties involved.

Ballast Bonus (BB) Payment

Ballast Bonus (BB) is usually a lump-sum payment and can be paid in advance or with the first hire payment. If the Ballast Bonus (BB) is paid free of commissions and brokerage, it is called a Nett Ballast Bonus (NBB). If the Ballast Bonus (BB) is paid after deducting commissions and brokerage, it is called a Gross Ballast Bonus (GBB).

In some rare cases, shipowners may pay the Ballast Bonus (BB) to time-charterers when the ship is being redelivered at the end of the time charter, particularly when the market is unfavorable for shipowners.

Ballast Bonus (BB) Example

MV HANDYBULK GOZDE
2023-Built 62,000 DWT Ultramax Bulk Carrier
DOP Buenos Aires (Argentina)
Laycan 15/25 April
TCT (Time Charter Trip) $19,500 + $800,000 Ballast Bonus (BB)
La Plata Buenos Aires (Argentina)/Qingdao (China)

MV HANDYBULK SENIZ
2022-Built 63,000 DWT Ultramax Bulk Carrier
DOP Durban (SAFR)
Laycan 10/20 May
TCT (Time Charter Trip) $20,500 + $200,000 Ballast Bonus (BB)
RBCT (Richards Bay Coal Terminal)/Rizhao(China)

In the above Ballast Bonus examples, time charterer redelivers a ship in a poor position relative to following employment opportunities, it may be possible for shipowner to negotiate a Redelivery Positioning Bonus (Ballast Bonus).

 

What is Gross Ballast Bonus (GBB)?

A Gross Ballast Bonus (GBB) is a type of compensation paid by charterers to shipowners for the cost and time involved in moving a ship from the ship’s last port of discharge to the port where the charter will commence, while deducting any commissions and brokerage. Gross Ballast Bonus (GBB) is usually paid as a lump sum either in advance or with the first hire payment. The amount of Gross Ballast Bonus (GBB) is negotiated between shipowners and charterers and depends on various factors such as shipping market conditions, negotiating strength, and bunker (fuel) costs.

What is Nett Ballast Bonus (NBB)?

Nett Ballast Bonus (NBB) refers to the ballast bonus paid to the shipowner free of any commissions and brokerage. Nett Ballast Bonus (NBB) is the full amount of ballast bonus that the shipowner receives without any deductions. In contrast, Gross Ballast Bonus (GBB) is the ballast bonus paid to the shipowner after deducting the commissions and brokerage.

 

Is Ballast Bonus (BB) applied to a Voyage Charter?

Ballast Bonus (BB) concept is typically used in Time Charter contracts not in Voyage Charter contracts. Ballast Bonus (BB) is a payment made to a shipowner by the charterer as compensation for the cost of delivering an empty ship to a loading region of the world. Ballast Bonus (BB) involves a lump sum payment to cover the cost of bunker (fuel) and time required for the ship to travel in ballast from its last port of discharge to the port where the charter will commence. The amount of the Ballast Bonus (BB) is typically negotiated between the shipowner and the charterer and may vary depending on market conditions and negotiating strength. The payment may be made in advance or with the first hire payment, and may be either gross or net of any commissions and brokerage.

 

What is FH (Front Haul)? What is the meaning of FH in shipping terms?

Certain regions of the world are considered net loading regions (exporting regions) such as East Coast South America (ECSA), USG, or South Africa (SAFR). Certain regions of the world are considered net discharging regions (importing regions) such as China-Japan. In shipping, the route leg that has the highest cargo volumes is commonly referred to as the FH (Front-Haul) while the leg with lower cargo volumes is known as the BH (Back-Haul).

Ships may steam to net loading regions (exporting regions) without cargo (empty holds) due to the lack of cargoes to that direction. In situations where a ship needs to steam to a loading region empty (ballast leg) because there are no inbound cargoes, the charterer typically pays for the empty leg (ballast leg). This is because the shipowner may have other alternatives that do not require such a long ballast leg. However, if a ship has already started the empty leg (ballast leg) to a net loading regions (exporting regions) without securing an outbound cargo, a Ballast Bonus (BB) is often paid to compensate the shipowner for sailing empty (ballast) from a specific region. The Ballast Bonus (BB) is a lump sum payment added to the market time charter rate and should reflect the cost of the empty leg (ballast leg) in terms of time and bunker (fuel).

What is BH (Back Haul)? What is the meaning of BH in shipping terms?

The leg of a trade route that has lower cargo volumes or demand is often referred to as the BH (Back-Haul). Currently, for bulk carriers, China/Continent or Continent/USG is BH (Back-Haul). Back haul (BH) is a term used in the shipping industry to refer to the return leg of a shipping route or journey.

 

FH (Front Haul) Vs BH (Back Haul)

In the shipping industry, shipowners typically direct their vessels to areas where they can generate the highest profits. There are regions of the world that are known as net loading regions (exporting regions), meaning they have a surplus of cargo to be shipped out. On the other hand, there are net discharging regions (importing regions), which have a demand for incoming cargo. These net loading and discharging regions can shift over time due to various factors such as changes in global supply and demand, weather events, and political developments. Understanding these trends and positioning ships accordingly is key to the success of a shipowner.

To increase the profitability of FH (Front Haul) trips, shipowners and operators also take into consideration the seasons. For example, in the dry bulk industry, the summer months are usually associated with stronger demand for iron ore due to the increased construction activity, while the winter months are associated with stronger demand for coal due to heating needs. By positioning their vessels in the right region during the right season, shipowners can maximize their profits.

For example, crop season in East Coast South America (ECSA). The crop season in East Coast South America (ECSA) refers to the period when agricultural commodities are harvested in the region. ECSA is a significant exporter of various agricultural products, including soybeans, corn, wheat, and sugar. The crop season in ECSA usually starts in September and runs through February or March of the following year, depending on the crop. During the crop season, ports in ECSA become very busy with ships arriving to load up on agricultural commodities for export to other parts of the world. The busiest ports in ECSA include Santos and Paranagua in Brazil and Rosario in Argentina. The crop season in ECSA has a significant impact on the shipping industry, as it affects the supply and demand for shipping vessels. Shipping companies need to plan their operations carefully during this period to ensure that they can meet the high demand for transportation services while maintaining profitability.

In addition to the crop season, weather conditions can also affect the harvest and transportation of agricultural products in ECSA. Heavy rains or droughts can impact the timing and quality of the harvest, which can have a ripple effect on the shipping industry.

The profitability of a shipowner is not solely dependent on a single voyage, but rather on the overall returns that their vessel generates across a series of voyages. Therefore, shipowners calculate the Daily Operating Cost of each vessel in the fleet.

Suppose a shipowner wants to earn a return of $15,000 per day for their new vessel over the course of a year. To achieve this, the shipowner need to carefully plan each trip, taking into account the cargo volumes and rates for each leg of the journey. By assessing the market conditions and negotiating favorable rates, the shipowner can maximize their profits and ensure the long-term success of their business. If the shipowner takes some BH (Back Haul) from China to the Continent and only achieves USD 10,000 per day, it is not good news as it is USD 5,000 below his costs. After discharging the cargo on the Continent, the shipowner is likely to face more competition for his ship as other shipowners may also be looking for cargo in the same area. To compensate for the negative impact of a previous loss, the shipowner decides to do a short ballast to the East Mediterranean (EMED) to load some FH (Front Haul) cargo back to the Far East (FEAST), where the shipowner accepts USD 20,000 per day for his ship, which is a USD 5,000 per day win against his budget. In other words, the shipowner was able to achieve a higher daily rate for his ship than what he had budgeted or planned for.

To summarize, if the shipowner takes a Back Haul (BH) cargo that doesn’t achieve his required daily return, the shipowner may try to compensate the loss by taking a Front Haul (FH) cargo that earns more than his required daily return. This allows the shipowner to balance out his overall returns and achieve his target return over a longer period of time.

The primary goal of a shipowner in the shipping industry is to make a profit over time. This requires careful planning, efficient operations, and effective risk management. A successful shipowner must be able to optimize cargo flows, manage costs, and adapt to changes in the market. By doing so, the shipowner can ensure a steady stream of revenue over multiple voyages and maintain a competitive edge in the industry.

Back Haul (BH) typically refers to trade routes or legs where shipping rates are lower, and the shipowner may have to offer a discount to secure cargo. These routes are often characterized by lower cargo volumes and less favorable market conditions, resulting in lower returns for the shipowner.

On the other hand, Front Haul (FH) refers to trade routes or legs where shipping rates are higher, and the shipowner can expect to make better returns. These routes often have higher cargo volumes and more favorable market conditions, allowing the shipowner to command higher rates for their services.

In summary, Back Haul (BH) legs are typically less profitable for shipowners, while Front Haul (FH) legs offer higher returns.

The best shipowners use the commodity market cycles to predict when certain net loading regions (exporting regions) will be busy and position ships accordingly. However, this is not always easy to do.

Skilled shipowners are able to utilize the cycles of the commodity market to anticipate when particular net loading regions (exporting regions) will experience high demand, and position their vessels accordingly. Nevertheless, this is often a challenging task.

 

What is APS (Arrival Pilot Station) in Ship Chartering?

In ship chartering, the Arrival Pilot Station (APS) is an important consideration for both charterers and shipowners. The APS is the location where the ship must wait to receive a pilot who will assist in navigating through the port or waterway, and it can affect the time and cost of the charter.

Charterers may request a specific APS in their charter agreement to ensure that the ship can enter the port or waterway at the desired time. This can be important for cargo operations, as delays in arrival can cause disruptions to the supply chain and affect the delivery of goods.

Shipowners, on the other hand, may consider the APS when negotiating the charter rate. If the APS is located far from the port or waterway, it can result in longer waiting times and higher costs for the shipowner. In contrast, a closer APS can result in quicker turnaround times and cost savings.

The location and procedures for the APS may vary depending on the port or waterway, and the regulations of the local maritime authorities. Therefore, it is essential for both charterers and shipowners to be aware of the APS requirements and plan their operations accordingly.

In summary, the APS is an important consideration in ship chartering, as it can affect the time and cost of the charter. Careful planning and communication between the parties involved can help to ensure that the ship arrives at the desired time and location, and the charter is successful.

 

What is DOP (Dropping Outward Pilot) in Ship Chartering?

DOP (Dropping Outward Pilot) is a term used in ship chartering to refer to the point at which the ship drops off the outward pilot who assisted in navigating through a port or waterway.

After a ship enters a port or waterway, it is required to have a pilot on board to assist in navigating through the complex channels and berths. The outward pilot is responsible for ensuring the ship safely exits the port or waterway and reaches the open sea.

Once the ship reaches a safe distance from the port or waterway, the outward pilot is no longer needed, and the ship can drop off the pilot at the DOP point. The DOP point is usually located a few nautical miles away from the port or waterway, and it is where the outward pilot disembarks and returns to shore.

In ship chartering, the DOP is an important consideration for both charterers and shipowners. The location of the DOP can affect the time and cost of the charter, as a longer distance from the port or waterway can result in higher waiting times and costs for the shipowner.

Therefore, it is essential for both charterers and shipowners to consider the DOP location when negotiating the charter agreement and planning their operations. Effective communication and coordination between the parties involved can help to ensure that the ship drops off the outward pilot at the desired location and the charter is successful.

Overall, the DOP is an important component of the ship chartering process, ensuring the safe and efficient navigation of ships through ports and waterways.

 

APS (Arrival Pilot Station) Vs DOP (Dropping Outward Pilot)

The terms APS (Arrival Pilot Station) and DOP (Dropping Outward Pilot Station) are commonly used in time charter negotiations to determine the delivery point for the vessel. The delivery point is the point at which the charterer starts paying hire for the vessel.

In most cases, the charterer pays for the empty ballast leg to the loading port, even though common sense may suggest that the shipowner should pay. However, the choice of delivery point can depend on prevailing market conditions at the time of negotiation.

Charterers generally prefer APS (Arrival Pilot Station) delivery, which means they start paying hire at the load port. On the other hand, Shipowners prefer DOP (Dropping Outward Pilot Station) delivery, which means the charterer pays from the moment the ship leaves the last discharging port of the previous contract.

In time charter negotiations, the delivery point of the vessel is a major point of discussion. While charterers try to get the delivery point as close as possible to their loading port to minimize costs, shipowners try to negotiate for delivery at the previous port of discharge to maximize their hire payments. However, in most situations, it is the charterer who usually pays for the empty ballast leg to the load port.

In a bad shipping market, when the shipowner is desperate to charter his vessel, he may choose APS (Arrival Pilot Station) delivery and the shipowner willing to pay for the ballast leg to the load port. However, in a good shipping market, the shipowner may opt for APS (Arrival Pilot Station) delivery with a Ballast Bonus (BB) or DOP (Dropping Outward Pilot Station) delivery with an equivalent amount of money.

DOP (Dropping Outward Pilot Station) delivery term can be used for both Ship Delivery or Redelivery in Time Charter. DOP (Dropping Outward Pilot Station) delivery and redelivery terms are commonly used in time charter contracts. DOP delivery means that the charterer is responsible for the vessel from the point where it drops off the outward pilot at the last port of discharge from the previous charter, while DOP redelivery means that the charterer is responsible for the vessel until it drops off the outward pilot at the first port of the next charter or the shipowner’s nominated discharge port. These terms are often preferred by shipowners as it means they can earn hire for the time the vessel spends sailing from the last port of discharge to the load port without having to pay for the ballast leg.

It is not always the case that APS (Arrival Pilot Station) delivery will have a higher rate than DOP (Dropping Outward Pilot Station) delivery. The delivery terms and rates depend on various factors such as market conditions, vessel availability, and the negotiating power of the charterer and shipowner. In some cases, a shipowner may be willing to offer a lower rate for APS delivery in order to secure a time charter for their vessel. Conversely, in a tight market with high demand for vessels, the charterer may be willing to pay a premium for DOP delivery to secure a vessel.

 

What is DLOSP (Dropping Last Outward Sea Pilot) in Ship Chartering?

DLOSP (Dropping Last Outward Sea Pilot) refers to the point at which the ship drops off the final outward sea pilot who assisted in navigating through a port or waterway and reaches the open sea.

Once the ship is in the open sea, the outward sea pilot is no longer needed, and the ship can drop off the pilot at the DLOSP (Dropping Last Outward Sea Pilot) point. The location of the DLOSP (Dropping Last Outward Sea Pilot) point is typically agreed upon in the charter agreement, and it can affect the time and cost of the charter.

The ship’s captain or agent is usually responsible for communicating with the outward sea pilot and ensuring that the ship follows the appropriate procedures. The pilot will then disembark the ship and return to shore, allowing the ship to continue its journey without pilot assistance.

In ship chartering, the DLOSP (Dropping Last Outward Sea Pilot) is an important consideration for both charterers and shipowners, as it can affect the time and cost of the charter. Effective communication and coordination between the parties involved can help to ensure that the ship drops off the outward sea pilot at the desired location, and the charter is successful.