Charterparty Subjects (Proviso) – Fixed on Subject
When a firm offer is made and accepted, it may be subject to something else happening before negotiations can become a fixture, i.e. a legally binding contract. This subject (proviso) is an indication that the main parts of the business have been agreed upon, but there are still some details to be finalized.
Shipbrokers should avoid peppering the main terms with too many subjects before the final contract can be concluded as a fixture. However, some subjects (provisos) are necessary, the important ones being:
- 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’ approval of the fixture;
- Subject To Enough Merchandise: i.e. cargo being available – known as STEM (or strangely but most usually as subject STEM);
- Subject Details (Sub Details), i.e. there is no fixture until all the details have been agreed: except in US LAW;
- Subject Open. Subject to the vessel being available to be negotiated and fixed.
These ‘subjects’ are to be declared by a given time or within a specific period after fixing the main terms and the details.
Under English Law there is no fixture until all the subjects are lifted therefore, as far as an owner is concerned, it is important that there is a time limit on the subjects.
Charterparty Fixing on Subjects
- The Institute of Chartered Shipshipbrokers, BIMCO and the Baltic Exchange disapprove of this practice i.e. Fixing on Subjects
- Fixing on Subjects does not make for speedy culmination of negotiations, even though it might well help charterers/merchants to conclude their trade in the interim.
- In an shipowners’ market, Fixing on Subjects does leave shipowners open to fix elsewhere if the charterers cannot release the ‘subjects’ in time.
- In a charterers’ market, this practice does allow charterers to look around for a better (a bigger or smaller or earlier or later) vessel or a cheaper freight rate and have that extra knowledge up their sleeves in case they fail on subjects with the first owners. However, as above, charterers can only hold one vessel firm at any one time.
- Fixing on Subjects – RECEIVERS’ APPROVAL: Sometimes a trader’s receivers will insist on a certain type of vessel and will need to approve the vessel before it can be chartered, either by the trader (if the sale of goods is on a CFR/CIF basis) or by the receivers (if they purchase the merchandise on an FOB basis). For example, a dry cargo vessel may need to be fully geared up to a certain stipulated SWL (Safe Working Load) capacity. Alternatively it may need to be Australian hold ladders fitted or (Great) Lakes fitted. However, you should be aware that this information should be made available in the owners’ initial offer, which includes a full description of the vessel. Older vessels may even need to be described as having no wooden ceiling, to avoid damage by the receivers’ grabs when discharging bulk cargo.
- FIXED SUBJECT STEM: (S.T.E.M. stands for Subject To Enough Merchandise). Beware of charterers who may try to use this as a bargaining ploy in a weak (i.e. charterers’) market. Nevertheless, the majority of charterers do genuinely need to confirm this with their suppliers and can only do so once they have a vessel firm in hand.
- The origin of the word “STEM” in this shipping context is from the time when sailing ships had to wait for their cargoes and were not allowed to come alongside the berth until all the cargo was available to be loaded. The bowsprit (also called the ‘stem’) of the vessel, being the boom for the foresail and the most prominent front part of every mercantile sailing ship, was the first part of the ship to arrive at the berth