Charterparty Subjects 

Charterparty Subjects essentially represent a conditional acceptance of the terms negotiated between the Shipowners and Charterers.

Upon acceptance of a Firm Offer, it might still be contingent upon further developments before the negotiations can be formalized into a fixture, meaning a legally binding contract. This Subject (Proviso) signifies that while the core aspects of the deal are settled, some details remain to be ironed out.

Shipbrokers are advised not to overload the Main Terms with excessive Subjects before finalizing the contract as a fixture. However, certain subjects (provisos) are essential, notably:

• Subject to Shipowners’ Approval of the Charterers;
• Subject to the Charterers’ Approval of the Shipowners;
• Subject to the Cargo Shippers’ or Receivers’ Approval of the owners or of the vessel;
• Subject to the Board of Directors’ (BOS’s) Approval of the fixture;
• Subject To Enough Merchandise (STEM): i.e., cargo must be available – commonly referred to as STEM (or often as subject STEM);
• Subject Details (Sub Details), meaning no fixture is finalized until all details are agreed upon: except in US LAW;
• Subject Open, meaning the vessel must be available for negotiation and fixing.

These subjects must be declared by a specified time or within a certain period after agreeing on the main terms and details.

Under English Law, a fixture is not established until all subjects are lifted, thus it’s crucial for an owner to ensure these subjects have a time constraint.

Charterparty Fixing on Subjects

Organizations like the Institute of Chartered Shipbrokers (ICS), BIMCO (Baltic and International Maritime Council), and the Baltic Exchange discourage Fixing on Subjects as it tends to slow down the conclusion of negotiations, even though it might allow charterers/merchants to finalize their trades in the meantime.

In a Shipowners’ market, Fixing on Subjects allows Shipowners the flexibility to fix elsewhere if Charterers do not lift the ‘Subjects’ promptly.

Conversely, in a Charterers’ market, this practice lets Charterers scout for a more suitable (larger, smaller, earlier, or later) vessel or a cheaper Freight Rate, providing them a tactical advantage if they fail on subjects with the initial Shipowners. Nonetheless, Charterers can only hold one vessel firm at any given time.

Fixing on Subjects – RECEIVERS’ APPROVAL: Occasionally, a trader’s receivers may demand a specific type of vessel and must approve it before chartering, whether by the trader (under CFR/CIF terms) or by the receivers (on an FOB basis). For instance, a dry cargo vessel may require a specified Safe Working Load (SWL) capacity, Australian hold ladders, or Great Lakes fittings. Note that such specifications should be included in the initial offer by the owners, detailing the vessel comprehensively. Older vessels might also need to be specified as having no wooden ceiling to prevent damage from the receivers’ grabs during bulk cargo discharging.

FIXED SUBJECT STEM: (S.T.E.M. stands for Subject To Enough Merchandise). Be wary of Charterers using this as a negotiation tactic in a weak (i.e., Charterers’) market. Most Charterers genuinely need to confirm cargo availability with their suppliers and can do so only when they have a firm vessel.

The term “STEM” originated from the era of sailing ships, which had to wait for their cargoes and were not permitted to dock until all cargo was ready for loading. The bowsprit of the vessel, known as the ‘stem’ and supporting the foresail, was the first part to reach the dock.

Fixed Subject Details in London Vs New York

In London, Fixed Subject Details mean that the ship is not considered fixed until all details of the Charter Party clauses are agreed upon. Fixing on Main Terms is merely the initial phase of negotiations.

In New York, agreeing on Main Terms means the vessel is considered fixed. It then falls to the parties (and their shipbrokers) to resolve any disputes or disagreements swiftly and amicably.

Unfortunately, this often leads to one party initiating arbitration or court proceedings to resolve issues that outside of New York are not yet deemed contractual, creating significant legal conflicts.

SUBJECT DETAILS (SUB DETAILS)

It’s crucial to differentiate between details and terms. Leaving details till the end is a risky practice and discouraged by organizations like Intertanko and BIMCO. If details cannot be agreed upon, there is no fixture. It’s also considered unethical, though possible, to renegotiate the main terms if the subsequent details suggest it.

In the USA, particularly under New York State law, the charter is considered FIXED even if still subject to details, and can only be voided if both parties withdraw. This is critical as New York law interprets agreement on Main Terms as a fixture, meaning failure to agree on subsequent details constitutes a breach of contract, potentially leading to legal proceedings.

Abuse of Subjects in Shipping Negotiations

BIMCO (Baltic and International Maritime Council) has issued warnings about the misuse of subjects, noting instances where Charterers:

• Employ subjects to tentatively fix multiple ships, eventually choosing the least expensive option;
• Fail to verify the suitability of the ship for the cargo, using the subject’s failure as an excuse to escape resultant complications;
• Fix a ship with a two-day ‘sub stem’ while already possessing a vessel, keeping options open for potentially more lucrative uses of their own ship.

 

Charterparty Fixed on Subjects

During the negotiation of a charterparty, one party presents offers, and when the other party unconditionally accepts these offers, an “agreement” is formed. If all other elements of the contract are established, this agreement becomes a legally enforceable “contract.” It is important to note that a conditional acceptance does not create an agreement because the terms of the original offer are not acceptable to the other party. Thus, there is no mutual understanding of the terms being negotiated. In the absence of such understanding, there can be no agreement.

In certain situations, one party may appear to “accept” the terms proposed by the other party, but this acceptance is contingent upon additional conditions. Such acceptance is referred to as conditional. During initial negotiations, the phrase “subject to contract” may be used, indicating that the parties have informally agreed on general issues but have yet to formalize the agreement, most likely through a written contract. This early agreement is only provisional because there is no binding contract in place, providing both parties the freedom to escape any obligations since they have not yet come into existence or are legally binding.

Either party involved in a charterparty negotiation can impose conditions. In some cases, these conditions are designed to enhance their bargaining power or allow them to explore better options elsewhere, while in other cases, they serve as a delaying tactic. For example, a Charterer can use a “subject stem” to search for a ship at a lower freight or hire rate. Under English law, the presence of a “subject” condition renders the entire agreement invalid. However, under American law, if the main terms have been agreed upon and only procedural details are pending (with the charter being subject to agreement on these specific details), the contract is considered enforceable.

A “subject” condition during charterparty negotiations can be seen as a prerequisite for a firm contract. If this condition is not met, the charterparty does not come into existence. The significance of the event to which the final agreement is subject is crucial. If the event holds minor importance, the agreement may still be considered binding regarding the substantial or essential terms. This appears to be the approach followed in the United States.

The process of negotiating and finalizing a charter involves two stages. Firstly, the main terms are agreed upon, including the cargo, freight, ports of loading and discharging, loading and discharging rates, and the charterparty form to be used. Following this, other details still need to be settled.

“Subjects” can limit the enforceability of a charter. BIMCO (Baltic and International Maritime Council) often cautions against charterers misusing “subjects” as they can greatly affect the shipowner, particularly in unfavorable freight markets. Below are explanations of various “subjects,” but it is important to be mindful of owners’ concerns regarding charterers’ misuse of these conditions.

BIMCO (Baltic and International Maritime Council) recommends adhering to certain principles in chartering and shipbroking practices when using “subjects.” It is generally advised that the parties imposing these “subjects” clearly specify and limit their scope. In fact, considering the different approach taken by American courts, it is preferable to agree on a ship being chartered subject to precisely defined “details” to ensure that the main terms can form the foundation of an enforceable contract.

In practical chartering, it is essential to recognize that the party imposing a “subject” restriction or qualification may do so for their own bargaining advantage, intending not to be bound by a firm contract.

 

What does “ON SUBS” mean in Ship Chartering?

In the context of ship chartering, the phrase “on subs” refers to a contractual stage during the negotiation of a charter party agreement, specifically, when an agreement has been tentatively reached but is still subject to further conditions or approvals, hence the term “subjective”, often shortened to “subs”.

 

 

What does “SUB STEM” mean in Ship Chartering?

The charter is conditional upon the charterer obtaining cargo for the agreed loading period. “Stem” is an abbreviation of “subject to enough merchandise”. Both the charterer and the shipowner are relieved of their obligations if the cargo cannot be obtained.

When it comes to ship chartering, “subject to enough merchandise” means that the agreement to charter a ship is contingent on the availability of a sufficient amount of cargo. This condition is usually included in negotiations, when a charterer isn’t certain about the volume of cargo that will be available for shipping at a particular time.

For instance, if a company dealing in agricultural products wants to charter a ship to transport grain, but it’s not harvest time yet and they aren’t sure how much grain they will have, they might agree to a charter “subject to enough merchandise”. This means that if they don’t have enough grain to make the charter profitable or feasible, they can back out of the agreement without penalty.

It’s crucial to have these conditions spelled out clearly in the charter party, which is the legal document that outlines the agreement between the shipowner and the charterer. It includes all the terms and conditions of the charter, including the price, duration, and any conditions that might allow either party to withdraw from the agreement.

 

Lifting Charterparty Subjects

“Charterparty Fixed on Subjects” refers to an agreement or contract made between a ship owner and a charterer. The term ‘Fixed on Subjects’ means that both parties have agreed on the fundamental terms of the contract, but some minor details are still under negotiation or need to be confirmed. These pending details are commonly referred to as “subjects”.

Subjects might include, for instance, the receipt of necessary approvals from regulatory authorities, agreement on exact loading or discharge ports, or obtaining certain financial assurances. They may also pertain to ship inspections or specific performance requirements.

Once these subjects are lifted, i.e., the details are confirmed or the conditions are met, the charterparty is considered “fully fixed”, meaning that the contract is final and binding.

Here’s an example to illustrate this in a sentence:

“The charterparty for the oil tanker was fixed on subjects, with remaining discussions focusing on finalizing the discharge port and confirming the delivery dates.”

Note that the process of fixing charterparties on subjects requires careful negotiation and legal advice, as the specifics can have significant implications for both parties involved. Therefore, it’s recommended that both the ship owner and the charterer engage qualified legal advisors or brokers to ensure their interests are well protected.

Just to simplify it, “Charterparty Fixed on Subjects” is a term used in the shipping industry. A charterparty is a legal contract between the owner of a ship and the person who hires (or charters) the ship. When a charterparty is “fixed on subjects”, it means that the main terms of the contract are agreed upon, but there are still minor details (“subjects”) that need to be finalized. These could be things like getting approval from a regulatory body or deciding on the exact ports for loading and unloading cargo.

Once these details are finalized, the contract is said to be “fully fixed”. This means the contract is final and both parties must adhere to it.

For example, you could say: “We’ve agreed on the main points of the ship charter contract, so it’s now fixed on subjects. We just need to decide on a few more details to make it fully fixed.”

In the context of shipping and maritime trade, “lifting charterparty subjects” refers to the process of removing or satisfying conditions, often referred to as “subjects”, that have been put in place in a charterparty agreement.

A charterparty is a legal document between the owner of a vessel and the charterer, who wishes to rent the vessel for a certain period of time or for a particular voyage. This contract includes various terms and conditions, some of which may be classified as “subjects”. These are conditions that need to be met before the contract is fully executed or becomes “firm”. Subjects might include financing approval, inspection results, or obtaining necessary permissions or documentation.

When all subjects have been satisfied – that is, when all conditional events have occurred or been waived – the subjects are said to be “lifted”. This is an important milestone in charterparty negotiations, because once subjects are lifted, the charterparty becomes fully legally binding. Prior to this point, either party can typically withdraw without penalty if the conditions aren’t met.

Therefore, “lifting charterparty subjects” is essentially about finalizing the agreement, removing any outstanding conditions, and moving forward with the charter. This process often involves negotiation and communication between both parties, as well as various third parties such as brokers, banks, inspectors, and regulatory authorities.