Dry Bulk Freight

Dry Bulk Freight

The basic goal of Shipowners arranging to carry cargoes on the ships is to make sufficient income to operate their business successfully and, hopefully, to make a profit. on the other hand, Charterers’ goal is to move their cargoes at the lowest possible unit cost proportional to safe delivery. Consequently, close attention must be made to all charterparties, not only to the amount of income concerned and to its calculation, but also the modes and terms of payment, and the miscellaneous risks of the parties concerned.

In the Voyage Chartering business, income will result from FreightDeadfreight, and the calculation of Laytime. In the Time Chartering business, income will result from Hire. Nevertheless, in each case, there are miscellaneous additions and deductions a Shipbroker must take into account to accomplish a precise calculation of income.

 

Voyage Chartering Income

Risk of Loss of Freight

Risk of Loss of Freight: Commonly the event on which Freight is deemed to be earned is stipulated in the Charterparty, otherwise it is legally construed as “a reward payable upon the arrival of the goods at their destination, ready to be delivered in a merchantable condition”. Then, Freight would be payable concurrent with the delivery of the goods at the discharge port, and a consignee would not usually be authorized to take delivery of the goods until the freight had been tendered.

Charterparty stipulates that, unless otherwise expressly agreed, the risk of losing the Freight before safe delivery of the cargo falls upon the Shipowner or Carrier. Therefore, the party at risk should prudently seek insurance cover against the possible loss of cargo and freight from the insurance market, where Freight Insurance is usually obtainable at a reasonable premium, adjusted by the risks involved such as the age of the vessel, course of the voyage, etc.

In Dry Bulk Shipping Market, Shipowners frequently negotiate that freight deemed earned upon loading or freight payable on shipment, in which case the risk of losing the cargo and being liable to pay the freight, even without receiving the goods, becomes that of the Charterer. In this case, Charterer has to obtain suitable insurance cover instead of the Shipowner.

The Risk of Loss of Freight is independent of when Freight is physically paid. Therefore, even if Freight is paid per a Charterparty Clause stipulating that “Freight to be paid within five days after signing and releasing Bill of Lading (B/L)”, in case of a Total Loss of Ship and Cargo, Freight might have to be returned to Charterer if the risk of loss was deemed to be the Shipowner or Carrier. As a consequence of this, some Shipowners or Carriers insist to include in the Charterparty the terms such as Freight Deemed Earned, Discountless And Non-Returnable Ship And Or Cargo Lost Or Not Lost (FDEDANRSAOCLONL).

Printed words of some Charterparties for the Risk of Loss of Freight :

GENCON 1976 stipulates that “the freight to be paid in cash without discount on delivery of the cargo at a mean rate of exchange ruling on day or days of payment, the receivers of the cargo being bound to pay freight on account during delivery if required by Captain or Owners”

MULTIFORM stipulates that “the freight shall be deemed earned as cargo is loaded on board and shall be discountless and non-returnable, vessel and/or cargo lost or not lost”. 

Under the GENCON 1976, the risk of loss of freight is that of Shipowners. 

Under the MULTIFORM, the risk of loss of freight is that of Charterers. Therefore, the relevant party must buy the insurance cover. GENCON 1994 provides an option to be exercised in Clause 4 between “prepaid” and “on delivery”.

Where Freight Payable

Where Freight Payable: It is incredibly infrequent for a Freight to be settled by writing a cheque and dispatching it. Generally, Shipowners want the money in their bank account available to fulfill their financial responsibilities at the time specified. Usually, freights and hires are settled via wire transfer of money. Even wire transfers can take time and so the Charterparty must stipulate where as well as when the money has to be credited to the Shipowner’s bank account. 

Numerous Charterparties leave When and Where Freight Payable to the Shipowners and Charterers to include the arrangements they require. For example, AMWELSH Clause 2, OREVOY Box 29.

 

When Freight Payable: 

1- Freight Payable in Advance: “Fully Prepaid”  
2- Freight may be paid at some time during a ship’s voyage: “Within Five Banking Days of Signing and Releasing Bill of Lading”
3- Freight Payable Upon Reaching Destination: “Upon Right and True Delivery”
4- Freight may be paid at the Destination but Before the Commencement of Discharge: “Before Breaking Bulk (BBB)”

In some cases, Freight is paid in stages. For example, 90% of the Freight is to be paid during a voyage, 10% within a specified period after discharge has been completed, jointly with adjustment for Demurrage or Despatch.

How Freight is Calculated: Generally, Freight is paid against the Quantity of Cargo Loaded, usually on a Tonnage basis, but occasionally on a Volume basis. Therefore, freight for bulk cargo will very probably be paid at a rate of US$ per long ton or metric tonne. It is crucial to define how the cargo quantity is to be established.

Frequently, cargo quantity is achieved by Shore Measurement, from which a Bill of Lading (B/L) Weight is obtained, and on which Freight is based. 

In some cases, shore instruments are doubtful, maybe non-existent at undeveloped ports, and Bill of Lading (B/L) Tonnage (Intaken Weight) is figured by Ship’s Draft Survey. In some cases, there may be a disparity between shore cargo figures and cargo intaken quantity estimation as reckoned by the Ship’s Draft Survey. The disparity may not be significant, however, given the high value of some cargoes, a substantial discrepancy between these two sets of figures calls for prompt investigation.

In some cases, Freight is to be set on Cargo Outturn Quantity at the port of discharge. Cargo Outturn Quantity may be calculated by shore gauges or by Ship’s Draft Survey. Usually, a Charterparty Clause stipulates that the Draft Surveyor will be independent and also that the Ship’s Crew Members will provide every assistance to the Draft Surveyor to the extent of delivering the vessel’s plans and refraining from pumping water or bunkers during the Draft Survey.

In some trades, due to the evaporation of moisture, cargo is liable to suffer from weight loss during the sea voyage. Usually, Shipowners give Charterers the option to abide by loaded figures on which to base freight calculations or to weigh the cargo upon its discharge. 

As an additional option, Charterers may negotiate the right to deduct from freight a percentage off the Bill of Lading (B/L) Weight obtained at the Loading Port. For example, 0.5% In Lieu of Weighing (ILOW) cargo upon discharge. In most businesses, In Lieu of Weighing (ILOW) is now an option that is infrequently exercised.

 

Freight Currency

Freight Currency: In most Voyage Charters, freights are paid in United States Dollars which is currently the currency of international shipping.

However, in Short-Sea Shipping (Coaster Chartering) local currencies may be oftentimes used.

 

Cargo Size

Sometimes a Shipowner undertakes to load an exact cargo size. For example, 50,000 metric tonnes of minimum/maximum barley in bulk, stowing around 57 cubic feet per tonne. However, usually, a margin is negotiated to enable a Ship Master to maximize the ship’s lifting. For example, 50,000 metric tonnes of barley in bulk, 5% More or Less in Owner’s Option (MOLOO). This margin may be at Charterers’ option More or Less in Charterer’s Option (MOLCO). Although such an agreement precludes the certainty that the Ship’s Master can maximize the cargo lifting, and indicates that the Shipowner must calculate the minimum cargo quantity when calculating. 

Sometimes a Shipowner undertakes to load or a Charterer to provide about a specific quantity. For example, about 20,000 metric tonnes of steel. The term about is construed to indicate within a reasonable margin. For example, 5% margin, between 19,000 and 21,000 metric tonnes.

Nevertheless, if the term About is replaced by Without Guarantee (WOG), it indicates merely that. There is no guarantee that the cargo can legally be of any size.

Sometimes, a stated margin is contracted. For example, 50/55,000 metric tonnes. The cargo to be loaded and/or supplied will be between 50,000 and 55,000 metric tonnes of cargo and, to make points straightforward, the term Minimum/Maximum or identical terms might be added. For example, within 50/55,000 metric tonnes min/max, whilst the additional term Shipowners’/Shippers’ Option determines whose right it is to choose upon the exact cargo quantity within the settled limitations.

Usually, Shipowners seek to maximize the Ship’s Cargo Intake. However, there are other factors to consider:

  • DWT (Deadweight Tonnage)
  • Load-Line Zones

On no account must the ship’s Maximum DWT (Deadweight Tonnage) be exceeded, nor must the load-line be submerged at any point during the sea voyage. A ship may have to pass through different Load-Line Zones during the sea voyage. Occasionally, a ship may have to steam with empty holds for safety reasons.

 

Calculating Freight

In some cases, the cargoes may be difficult to calculate in advance. There are alternatives available to the Shipowners and Charterers: 

1- Lumpsum Freight: In Lumpsum Basis, it is up to the Charterer to determine the maximum cargo load, but always consistent with the ship’s maximum allowed draft and safety. There is no financial benefit to the Shipowner from maximizing cargo intake in this case.

2- Cubic Freight: In some cases, the cargo consists of awkward shapes and sizes. It might be uncertain precisely what can be accommodated into a vessel’s cargo holds for a uniform-style cargo. An alternative is for Freight to be calculated on either the Available Cubic Capacity of the ship’s cargo holds, or on the Cubic Quantity of Cargo Loaded.

 

Deadfreight

If a Charterer fails to provide a Full Cargo according to the Charterparty, a Shipowner can claim Deadfreight. Deadfreight is a form of damages being calculated based on loss of Freight, less any expenses which would have been incurred in earning the Freight, such as Stevedore Costs, and less any advantage taken by the Shipowner from the deadweight suddenly available, such as Extra Bunkers. Deadfreight is added to Freight earned. Generally, Deadfreigh is liable to appropriate Shipbrokers’ Commissions.

 

Freight Taxes

Most developing countries levy taxes upon Freight deemed earned on exported cargoes and infrequently on imported cargoes. Generally, it is the Recipient of the Freight who is liable to pay Freight Tax, not the party paying the Freight. Consequently, Freight Tax is frequently levied against the Shipowner.

Usually, Freight Tax is added to Port Disbursement Account (PDA), incurred by the ship involved, and therefore Freight Tax is collected via the Port Agent.

A reasonable allowance for Freight Tax must be made in Voyage Estimation and thereafter in freight rates negotiated by Shipowners. Any Freight Tax must be stipulated in Charterparty. Furthermore, Charterparty must stipulate which of the contracting party is eventually responsible for payment of Freight Tax. Even though in the first instance the recipient of freight is liable for payment of Freight Tax, it may be negotiated that a Charterer is eventually responsible for payment of Freight Tax.

Some countries that levy Freight Tax negotiate Bilateral Agreements with other governments under which ships registered in certain countries are fully exempt or partially exempt from Freight Tax. Shipbrokers should inspect carefully first whether Freight Taxes are likely to be levied and, secondly, which country’s vessels if any, are exempt. Shipbrokers can check Freight Taxes via Port Agents or BIMCO (Baltic International Maritime Council) Freight Tax Booklet.

It is important to clarify the precise circumstances under which ships will be exempt from Freight Tax. For example, it may be that German Flag Ships, are exempt under one particular country’s laws, providing only that the Freight Beneficiary lives in Germany. Therefore, a German Flag Ship owned ostensibly by a Panama company, even though the shares in that company are owned by German citizens, would not qualify for exemption; whereas if the ship was time chartered to a German resident or German company for the voyage in question, as Disponent Shipowner that resident or company might very well qualify for the Freight Tax Exemption.

 

Bill of Lading (B/L)

In some cases, a Letter of Credit (L/C) between the seller and buyer of a cargo stipulates that a Bill of Lading (B/L) has to be claused as Freight Prepaid. The buyer is then entitled to assume that freight has indeed been paid when the Bill of Lading (B/L) ultimately comes into the buyer’s possession. 

It is considered fraud to make an alternative contract between Seller and Shipowner and mark Bill of Lading (B/L) as Freight Prepaid where none or only partial freight has been paid.

Furthermore, if a Shipowner releases a Bill of Lading (B/L) as Freight Prepaid before receiving any or all freight, that shipowner is in effect admitting receipt of all freight and may encounter problems in obtaining any compensation. In this case, the Shipowner is obliged to deliver the cargo in full to the Holder Bill of Lading (B/L)

There can be no objection to clausing of a Bill of Lading (B/L) such as Freight Payable as per Charterparty, and it is undoubtedly better for a Shipowner to retain the Bill of Lading (B/L) marked Freight Prepaid until the Freight is received.

Most Voyage Charterparty Forms provide a Shipowner or Carrier a lien on the cargo for non-payment of Freight and Deadfreight. However, this will not apply if the Shipowner has released the Freight Prepaid Bill of Lading (B/L).

In some cases, Charterers offer to issue a Letter of Indemnity (LOI) for Freight Prepaid Bill of Lading (B/L). Indemnifying shipowners for issuing Freight Prepaid Bill of Lading (B/L) without physical receipt of the Freight. Some Shipowners accept such a Letter of Indemnity (LOI), but wise Shipowners demand that it is countersigned by a first-class bank.

 

Shipbrokers’ Commissions on Freight, Deadfreight, Demurrage

A shipbroker’s income from Voyage Charter is based on a percentage of the Gross Freight payable to a Shipowner, and this income is payable by that Shipowner to all the Shipbrokers involved in the fixture. 

Furthermore, Shipbrokers may be entitled to a commission based on a percentage of the gross amount of any Deadfreight. A Shipbroker’s right to receive a commission based on Deadfreight must be expressly stipulated in a Charterparty. 

Furthermore, Shipbrokers may be entitled to a commission based on a percentage of the gross amount of any Demurrage. Demurrage might accrue after the calculation of laytime. A Shipbroker’s right to receive a commission based on Demurrage must be expressly stipulated in a Charterparty. 

Sometimes a Shipbroker’s income is termed Brokerage to distinguish it from Commission (COM) or Address Commission (ADDCOM) which is used to express a Charterer’s negotiated entitlement to a discount on Freight payment, obviously to cover costs incurred as a consequence of operating ship to carry the cargoes. The tradition of deducting Address Commission (ADDCOM) from Freight, Deadfreight, Demurrage, is one peculiar to the dry cargo businesses and is rarely if ever, encountered in tanker businesses.

 

Shipbrokers’ Commission Levels

In Deep-Sea Dry Bulk Markets, Shipbrokers’ Brokerage usually amounts to 1.25% of Gross Freight, Deadfreight, and Demurrage. Shipbrokers’ Brokerage is payable by a Shipowner from sums received to each Shipbroker involved in a Charterparty.

In some cases, a Charterer may deduct Shipbrokers’ Brokerage Amount from Freight amount to the Shipowner and undertake to settle the Shipbrokers’ Brokerage direct to Charterer’s Shipbroker and/or to other Shipbrokers involved. Therefore, for the involvement of two Shipbrokers, 2.5% Brokerage is payable, 3.75% Brokerage for three Shipbrokers, and so on. 

In some cases, a Shipbroker regularly and exclusively employed by a certain Shipowner or Charterer may agree to a Brokerage of merely 1%. Alternatively, if that Shipbroker undertakes to manage all the post-fixture work on behalf of that Shipowner or Charterer, the Brokerage may be raised to 2%, to cover the costs of the additional time and expenses concerned. 

In Short-Sea Dry Bulk Markets, Coaster Shipbrokers’ Brokerage usually amounts to 2.5% of Gross Freight, Deadfreight, and Demurrage. Coaster Shipbrokers work as hard as Deep-Sea Shipbrokers. However, short-sea transactions are of a relatively small amount.

Address Commission (ADDCOM)

Address Commission (ADDCOM) varies in amount. Some Charterers do not apply Address Commission (ADDCOM) at all and add 0% Address Commission (ADDCOM) in Charterparty. On the other hand, some Charterers negotiate as much as 5% Address Commission (ADDCOM).

Consequently, in Dry Bulk Chartering, the Total Commission (Address Commission ADDCOM plus Brokerages) may range from as little as 1.25% to as much as 7.50% maybe even more. The standard Total Commission for deep-sea dry-cargo business is around 3.75%-5%, although, for specific businesses, such as the sugar business, Total Commission is traditionally higher at 6.25%. Total Commission is traditionally at 1.25% for the UN The World Food Programme.

Shipbrokers’ Brokerage

In some cases, Shipbrokers’ Brokerage may seem plentiful, however, it should be remembered that a Shipbroker’s income broadly follows the changes in the Freight Market. The lower the freight rates, the harder it is required to strive to fix business and the lower the return if successful, based as a Shipbrokers’ Brokerage is on low freight rate levels. 

Besides, Shipbrokers obtain Brokerage, only if Shipbrokers successfully fix the business. All those failures and near misses, even though costly in terms of time and expenses, count for nothing unless a confirmed fixture result.

Shipbrokers may be able to receive some protection in the case of non-performance of confirmed business. For example, GENCON Charterparty stipulates that “in case of non-execution at least 1/3rd of the brokerage on the estimated amount of freight and dead-freight to be paid by the Owners to the Brokers as indemnity for the latter’s expenses and work. In case of more voyages, the amount of indemnity is to be mutually agreed upon”. GENCON Charterparty benefits Shipbrokers to attempt to convince principals to Shipbrokers them against the financial costs and time involved in the case of cancellation of a negotiated fixture.

Under English Law, the strength of the Rights of Third Parties Contracts Act 1999 for Shipbrokers is that Shipbrokers are now entitled to sue for their earned commissions for non-payment. Before the Rights of Third Parties Contracts Act 1999, Shipbrokers were unable to sue for Brokerage as Shipbrokers were not a party to the Charterparty between Charterer and Shipowner and if the Brokerage is due but unpaid, the Shipbroker must obtain the support of one party to claim against the other. It is also crucial for Shipbrokers to enter their entitlement to Brokerage into the Charterparty signed by both Principals because then Principals cannot deny being aware of brokerage due.

Furthermore, Shipbrokers should get professional indemnity insurance coverage. Shipbrokers should get membership in the Baltic Exchange or BIMCO (Baltic International Maritime Council). 

Some Shipowners are better than other Shipowners at paying Shipbrokers’ Brokerage. On the other hand, some Shipowners are remarkably tardy. Furthermore, in some cases, Charterers negotiate that the full, 100% of Address Commission (ADDCOM) and, possibly, Brokerage, is deductible from any advance freight paid to a Shipowner.

FONASBA International Brokers Commission Contract Form

FONASBA (Federation of National Associations of Shipbrokers and Agents) has produced a standard form of contract, which is recommended by BIMCO (Baltic International Maritime Council), to be signed between the Shipowner and the Shipbroker under which the Shipowner agrees to remunerate the Shipbroker the commissions due under the relevant Charterparty. FONASBA International Brokers Commission Contract Form creates a separate contract between the Shipowner and Shipbroker under which the Shipbroker could sue for the commission under English Law.

 

Time Charter Income

There are significant dissimilarities in the calculation of Freight applicable to Voyage Chartering and Hire applicable to Time Chartering.

How Time Charter Hire is Calculated

How Time Charter Hire is Calculated: Generally, Time Charter Hire is computed and expressed in Charterparty Forms as a daily rate, for example, $30,000 per day pro-rata. To this is applied a pro-rata adjustment for part of a day. Therefore, a dry bulk carrier on hire for 30 days 12 hours, in other words for 30.5 days, would be entitled to gross hire of $915,000.

Commonly, Time Charter Hire is paid Semi-Monthly in Advance. Gross Time Charter Hire would amount to $450,000 ($30,000 x 15), or $900,000 for the full calendar month.

An alternative method but less used method of calculating Time Charter Hire is to base the same on a ship’s DWT (Deadweight Tonnage) per Calendar Month. Therefore, for a 100,000 Summer DWT (Deadweight Tonnage) bulk carrier, the equivalent Time Charter Rate of $30,000 daily can be calculated as:

$900,000 / 100,000 SDWT = $9 per SDWT Tonne

The duration of a Calendar Month changes month by month. Therefore, it is customary to use as a factor in such calculations, the average number of days in a Calendar Month allowing for the leap year. Consequently, an Average Calendar Month is 30.4375 days, and this will give a slightly different daily value to our bulk carrier:

100,000 SDWT x $9 per tonne / 30.4375 = $29,568 daily.

ASBATIME Charterparty Form (Clause 4) allows for either method of Time Charter Hire calculation.

When Time Charter Hire is Payable

When Time Charter Hire is Payable: Usually, Shipowners and Time Charterers agree that Time Charter Hire is payable in advance. Time Charter Hire is payable Monthly or Semi-Monthly in advance. 

ASBATIME Charterparty Form (Clause 5) stipulates Semi-Monthly in Advance, however, in the interests of straightforward accounting, convenience, and certainty, it is the standard practice to pay Time Charter Hire every 15 days in advance, which continues to allow for the following equal payments irrespective of whether a Calendar Month comprises 28, 29, 30 or 31 days. For the period leading up to redelivery, when there will presumably not be a Full Semi-Monthly period outstanding, Charterers are usually hesitant to pay Time Charter Hire over that which is estimated to be due. However, ASBATIME Charterparty Form, in common with most other Time Charter Forms, stipulates that “Time Charter Hire shall be paid for the balance day by day as it becomes due if so required by Shipowners”.

 

Where Time Charter Hire is Payable

Where Time Charter Hire is Payable: Like Voyage Chartering and the payment of Freight, Time Charter Hire has to be wire-transferred in time. If Time Charter Hire does not arrive in time, then technically the Time Charterer is in breach of the contract and the Shipowner has an option of withdrawing the ship from the Time Charterer’s employment.

However, withdrawing the ship from the Time Charterer’s employment is not as simple as that because, in a legal sense, the Shipowner has to demonstrate that the Time Charterer consistently paid late and had been consistently warned that the Shipowner was considering withdrawal. 

In some cases, when the Dry Bulk Market is strong, a Shipowner who is anxious to find any reason to withdraw the ship from a Time Charter commitment at a low rate of hire takes advantage and charters out at a higher rate. Therefore, Anti-Technicality Clause is added to many Time Charterpart Forms. Anti-Technicality Clause protects Charterers from unreasonable and/or unfair withdrawal by Shipowners for minimal or unimportant issues, the contractual right of withdrawal is usually expressed within the limitations of an Anti-Technicality Clause. Anti-Technicality Clause mandates Shipowners to send Charterers a prescribed notification which allows Charterers a precise additional period to remedy the default and prevent a withdrawal of the ship. Anti-Technicality Clause is important as it applies a Grace Period for settlement that aims to protect Charterers from damages in cases where Charterers have a reasonable opportunity to correct unintentional breaches.

The purpose of a well-drafted Time Charterparty should be to as far as practicable remove any temptation for potential miscreants to misbehave. Whilst Time Charter Hire is to be paid and received by the Shipowner’s Bank in advance at agreed intervals, the Time Charterparty should unquestionably express this. Sometimes, banks accidentally delay wire transfers or misroute. Therefore, Anti-Technicality Clause stipulates Shipowners give some notice which provides an opportunity for Time Charterers to make amends or to fix any banking error.

 

Ballast Bonus

Ballast Bonus: In the Time Charter business, some ships are delivered to Time Charter some distance from their original position. Therefore, Shipowners may negotiate a Ship Positioning Bonus to cover Time and Expenses, such as Bunker Expenses or Canal Tolls, incurred between departure from the original position to the ship’s delivery under the new Time Charter Hire. In some cases, if a Time Charterer redelivers a ship in a Poor Position relative to following employment opportunities, it may be possible for a Shipowner to negotiate a Ship Redelivery Positioning Bonus. Such a Lump Sum Payment whether applicable to Delivery on to or Redelivery off Time Charter is termed a Ballast Bonus. Usually, the Delivery Ballast Bonus is payable in full together with the First Time Charter Hire due under a new Time Charter. 

Time Charter Hire is usually subject to a discount for Address Commission (ADDCOM) and/or Brokerages. Therefore, with Ballast Bonus incorporating aspects of both hire and voyage expense reimbursement, the question arises as to whether Ballast Bonus should be paid Gross Ballast Bonus, which is liable to deductions for Address Commission (ADDCOM) and/or Brokerages or Nett Ballast Bonus of such deductions.

In chartering market, it all depends on the negotiating strength of each party and the state of the Freight Market. In some cases, Ballast Bonus will be Nett and in other cases, Ballast Bonus will be Gross. Generally, Ballast Bonuses are denoted Nett of Address Commission (ADDCOM) but Gross of Brokerage.

Ship Bunkers: Usually, when a ship is delivered on Time Charter, the Charterers take over the Bunkers Remaining on Board (ROB) of the ship at that Delivery Time, and reimburse the Shipowner accordingly. Bunkers Remaining on Board (ROB) Payment is usually made with the First Time Charter Hire payment. On Ship Redelivery, the reverse process takes place, with Charterers estimating the quantity of Bunkers Remaining on Board (ROB) on Redelivery and Deducting the equivalent monetary amount from the Final Time Charter Hire payment. On-Hire and Off-Hire Surveyors are appointed. Adjustments in both cases can be made upon receipt of the Delivery and Redelivery Survey Reports.

Ship Delivery and Ship Redelivery: When a ship is delivered to Time Charter, not only does the Time Charter Clock start to tick, but it sets in motion also the payment of the First Time Charter Hire and any additional sums such as for Bunkers Remaining on Board (ROB) at the time, and Ballast Bonus. Consequently, copies of the On-Hire and Off-Hire Survey Reports must be signed and witnessed by the Ship Master and Port Agents and, if available, by a Time Charterer’s Representative such as a Supercargo, be broadcasted to all concerned parties.

It is important to specify whether Ship Delivery and Ship Redelivery times will be identified as being as per Local Times (LT) or as per standard time, such as Greenwich Mean Time (GMT). If the Time Charterparty is silent on this aspect, English Law will assume that Actual Elapsed Time will apply to the Time Charter period. In other words, as if a stop-watch was started on the bridge of the ship upon Delivery only to stop upon Redelivery and Off-Hires Times. If Local Time (LT) is stipulated, Shipowners or Charterers might take advantage by gaining time by application of time zone changes. With standard time, such as Greenwich Mean Time (GMT), there is no advantage to either party. Generally, in Time Charterparty, it is recommended to insert a standard time, such as Greenwich Mean Time (GMT).

 

Additions to Time Charter Hire

Additions to Time Charter Hire: Besides Ballast Bonus, there may be other additions to Time Charter Hire payments made such as:

1- Stevedores’ Meals
2- Supercargo Accommodation 
3- Gratuities Paid on Time Charterers’ Behalf
4- Radio Message Expenses 
5- Cleaning the Ship’s Holds

Most Time Charterparty Forms stipulate that the ship is being redelivered in good order and condition as when the ship was delivered to the charterer. Consequently, Time Charterer would be required to employ labor to Clean the Ship’s Holds and she would remain on hire all the time this was taking place. Hold-Cleaning can occasionally be relatively easily done by the Ship’s Crew on the Ballast Passage to the next loading port and quite often the Time Charterer can negotiate the right to redeliver the ship without that Final Hold-Cleaning. Usually, the quid pro quo for this benefit is a lump sum in lieu of cleaning payable with the balance of outstanding hire. The Time Charterer is obliged to fix any damage to the ship done by Stevedores and other Servants of the Time Charterer during the period of the Time Charter. Usually, these damages are minor, and delaying the ship while repairs were made could be costly. Frequently, Shipowners and Time Charterers agree that the Time Charterer pays over a sum of money that Shipowner will fix issues right when the ship is in drydock or undergoing more comprehensive repair work.

 

Deductions from Time Charter Hire:

Deductions from Time Charter Hire: Time Charter Hire is subject to deductions for: 

1- Address Commission (ADDCOM) and/or Brokerage

2- Port Disbursements: In the Time Charter business, the Shipowners usually avoid appointing a Port Agent to attend on the Shipowners’ behalf. Instead, the Shipowners rely on the Time Charterers’ Port Agent and reimburse any expenditures the Time Charterer and/or the Port Agent may incur, such as CTM (Cash to Master), Ship Chandlery Bills, Crew Expenses, etc., through a common deduction from Time Charterer Hire. Most Time Charterparty Forms reward Charterers for carrying out this service by payment of a percentage based on the amount involved. For example, ASBATIME Time Charterparty Form rewards Charterers with a 2.50% commission on any such advance payments. 

3- Domestic Bunkers: ASBATIME Time Charterparty Form, although intended as a replacement for the NYPE 1946 Time Charterparty Form, is infrequently used. NYPE 1946 Time Charterparty Form Clause 20 stipulates that “Fuel used for cooking, condensing water, or for grates and stoves to be agreed as for quantity, and the cost of replacement same, to be allowed by owners”. ASBATIME Time Charterparty Form and NYPE 1993 Time Charterparty Form do not mention Domestic Bunker Arrangement. However, and despite the old-fashioned wording introduced initially when steam-powered ships were the standard, it has been legally upheld under English Law during the 1980s that the spirit of this clause applies in principle also to modern diesel-engined ships. Therefore, providing agreement can be reached as to Domestic Bunkers Quantity, usually by a pre-calculation during chartering negotiations, and no matter what Time Charterparty Form is being utilized, Time Charterers can negotiate entitlement to an allowance for a Ship’s Domestic Bunker Consumption for heating, lighting, cooking, etc. Usually, Ship’s Domestic Bunker Consumption is deducted from Time Charter Hire.

4- Ship Off-Hire:  ASBATIME Time Charterparty Form Clause 15 stipulates a useful summary of some of the numerous reasons why a Time Charterer is allowed to set a Time Chartered Ship Off-Hire. Even for the best-run ship, a moment will come when that ship will be positioned Off-Hire. Such unfortunate events may happen through mechanical break-down, either of a ship’s engine or cargo gear, or it may be that the ship has to deviate from the course to disembark a sick crew member. An Off-Hire Clause usually covers such eventualities fully and there should be no reason for any discrepancies of view. Nonetheless, much the same as when a ship is delivered on Time Charter at sea instead of at a convenient and easily identifiable place, it may be extremely challenging to establish the exact limits of Off-Hire.

 

Ship Poor Performance

Poor Performance of the ship may be considered as Off-Hire. Time Charterers may claim that the ship has failed to perform in terms of Speed and Bunker Consumption as described in the Time Charterparty. Most modern ships can provide a range of combinations of Speed and Bunker Consumption, allowing Time Charterers to choose whichever combination is most appropriate for their goal. For instance, Time Charterers may have a tight schedule to meet in which case Time Charterers want the highest speed even though this means higher bunker costs. Contrarily, time may not be so critical, and economical use of bunkers is preferable. Nevertheless, whichever Ship Speed Range is selected the Time Charterparty stipulates that such a Speed and Bunker Consumption is only achievable in good weather conditions. In a disagreement over Speed and Bunker Consumption, the Shipowner may claim the weather was at fault whilst the Charterer may argue otherwise and demand monetary compensation for the alleged Poor Performance.

Ship’s Logbooks may be made available to a Time Charterer and it may well be that it is also agreed that in such disagreements, reference will be made to a professional routing company such as Oceanroutes or Fleet Weather to evaluate whether a ship performed poorly or not and, if so, the monetary extent of the Poor Performance.

In the Tanker Charter business, it is usually the case that the Shipowner of a tanker exceeding the specified Time Charter Performance is rewarded by payment of extra hire reflecting the monetary extent of the Better Performance. 

ASBATIME Time Charterparty Form Lines 190 to 195 stipulates the Deviation from a ship’s planned course. Shipbrokers should familiarise themselves with Ship Deviation Calculations used to assess the costings of Off-Hire incidents. In the following Ship Deviation Examples, a ship is deviating to a dry dock for emergency repairs. We are going to calculate the time spent Off-Hire and the quantity and cost of extra bunkers consumed.

 

Ship Deviation Example 

Point Y

                                  Dry Dock

Point X A

Ship Deviation is usually calculated by the Ship Master and dispatched to Principals. Ship Master also reports the extra time and bunkers consumed. The actual time used to deviate from Point X to Drydock and to return to Point Y, including all-time spent at the Drydock, must be deducted from the estimated time that would have been taken if steaming as per Time Charterers’ instructions from Point X to Point Y direct. The difference is Ship Off-Hire. Bunker Consumption can be checked by applying Time Charterparty bunker figures to the speeds used in the Deviation Calculations.

Let’s assume that the distance between each point is 336 NM (Nautical Miles) and that the ship spent 7 days in the dry dock and Time Charterparty stipulates bunker consumption at 14 KT (Knots) 25 tonnes IFO (Intermediate Fuel Oil) daily at sea:

Ship’s Speed: 14 KT (14 x 24 hours)=336 NM Per Day

Ship Deviation Calculation:
Point X to Dry Dock: 336 NM=1 day
Dry Dock to Point A: 336 NM=1 day
Time in Dry Dock: 7 days
Total Deviation: 7 days
Less Point X to Y: 336 NM=1 day
Total Off-Hire= 6 days

Ship Bunker Consumption:
IFO Point X to Dry Dock: 25 tonnes
Dry Dock to Point Y: 25 tonnes
Total: 50 tonnes
Less Point X to Point Y: 25 tonnes
Bunker Consumption: 25 tonnes

This is a very simple Ship Deviation Example but the principle is the same for more complicated Ship Deviation Calculations.