Brokerage

A shipbroker’s income from voyage chartering is based on a percentage of the gross freight payable to a shipowner, and this income is payable by that shipowner to all the brokers involved in the fixture. In addition, each shipbroker may be entitled to an equivalent, percentage of the gross amount of any deadfreight although, since deadfreight is, in fact, payment by a charterer of damages for failing to produce an entire, contracted cargo and not strictly a freight entitlement by the shipowner, a shipbroker’s right to receive income based on deadfreight must be specifically recorded in a charterparty. It is also normal practice for shipbrokers to be entitled to receive income in the form of a percentage of any demurrage that might accrue after the calculation of laytime, although this too has specifically to be recorded. A shipbroker’s income is usually termed ‘brokerage’ to distinguish it from ‘commission or ‘address commission’ used to describe a charterer’s negotiated entitlement to a discount on freight payment, ostensibly to cover expenses incurred as a result of employing tonnage to carry the goods. In fact the practice of deducting ‘address commission’ from freight, deadfreight and/or demurrage, is one peculiar to the dry cargo trades and is rarely, if ever, encountered in the ‘wet’ or tanker trades. In deep-sea markets, brokerage normally amounts to 1.25% of gross freight, deadfreight and demurrage, and is payable by a shipowner from sums received to each broker involved in a transaction, although it frequently occurs that a charterer will deduct an appropriate amount from freight payment to the shipowner and undertake to pay the brokerage direct to his own and/or to other brokers involved. Thus, for the involvement of two brokers, 2.5% brokerage is payable, 3.75% for three and so on. This varies, however, and a broker regularly and exclusively employed by a particular shipowner or charterer may agree to a brokerage of, say, only 1%. Alternatively, if that broker undertakes to handle all the post-fixture work on behalf of that owner or charterer, his brokerage may be increased to, say, 2%, to cover the costs of the extra time and expenses involved. Furthermore, a broker involved in transactions of relatively small value – say a short-sea broker – may be entitled to a higher basic brokerage than 1.25 % – say one third of 5% or 2%.