Dry Cargo Chartering Market
The Dry Cargo Chartering Market cannot be precisely split into different segments. However, it is possible to pinpoint local and worldwide trade zones in which Ship Chartering activity takes place. Nonetheless, the International Dry Cargo Chartering Market has distinctive segments according to:
- Ship Type
- Ship Size
On the other hand, Geographical Dry Cargo Chartering Markets exist that concentrate on regional trades, usually specializing in coastal Short-Sea Ships (Coaster Ships) as opposed to Seep-Sea Ships. The highly-sophisticated International Dry Cargo Chartering Market segment has developed around the Specialist Heavy-Lift Ships. Another International Dry Cargo Chartering Market segment has developed around Reefer Ships, incorporating Refrigerated Ships and Refrigerated Cargoes exclusively.
There is no single Geographic Dry Cargo Chartering Center since the Dry Cargo Chartering Market is indeed international. Dry Cargo Chartering business is being performed by word of mouth, electronic mail, on the telephone, and facsimile. Shipbrokers can participate in Dry Cargo Chartering Market by controlling cargoes or ships. Dry Cargo Chartering Markets are formed around Traditional Shipping Centers such as Singapore, London, Oslo, Hamburg, Athens, New York, Tokyo, and Hong Kong. Furthermore, there are also Regional Shipping Centers such as Montreal, Paris, Sydney, Bangkok, Rio de Janeiro, Stockholm, and Seoul.
The foremost physical Dry Cargo Chartering Market in the world specializing in the chartering of bulk carriers and cargoes is the Baltic Exchange, in London. With the advent of contemporary communications, fewer and fewer Ship Fixtures are being performed every year at the Baltic Exchange. However, Baltic Exchange Members are engaged in various other segments, ranging from the Ship Sale and Purchase (S&P) to FFAs (Forward Freight Agreements). The motto of the Baltic Exchange “Our Word Our Bond” is the same as that of the ICS (Institute of Chartered Shipbrokers). “Our Word Our Bond” motto exemplifies the significance of Ethics in the Shipping Business.
Dry Cargo Chartering Market Practitioners
Dry Cargo Chartering Market Practitioners can be sub-divided into the following types:
2- Ship Operators
There are different types of Shipowners. Some Shipowners operate a single ship; other Shipowners operate considerable fleets. Some Shipowners focus on ships of a certain size or type; other Shipowners operate mixed fleets. Some Shipowners are state-controlled; other Shipowners operate private companies. Some Shipowners operate their ships under the National Flag; other Shipowners operate their ships under the Flag of Convenience (FOC).
The phrase Flag of Convenience (FOC) is applied to ship registries of nations offering registration facilities to any Shipowner who satisfies their local provisions irrespective of the Shipowner’s nationality or place of business. The top Flag of Convenience (FOC) countries are Panama, Liberia, Marshall Islands (MI). Flag of Convenience (FOC) countries may provide all or any of the following:
1- Flag of Convenience (FOC) countries provide Freedom for the ship to be manned by crew members in whatever numbers or nationality the Shipowner prefers, at whatever salary scale.
2- Flag of Convenience (FOC) countries provide Anonymity for a shipowner. Shipowners may operate the ship from an anonymous company.
3- Flag of Convenience (FOC) countries levies a remarkably Low Tax against the ship ownership and little or no taxation against the earnings of the ship.
Some Flag of Convenience (FOC) countries are more concerned about the quality of the Ship Management and Ship Condition. Some of the finest ships in the world fly Flag of Convenience (FOC), as well as some of the worst. Flag of Convenience (FOC) is subject to a significant deal of criticism from many organizations. In some points, the criticism may be justified, however, for every sub-standard ship trading under a Flag of Convenience (FOC), there is another just as bad flying a National Flag.
One of the most typical accusations imposed against Flag of Convenience (FOC) countries is that they permit their ships to ignore international regulations. Every IMO (International Maritime Organization) Convention mandates the support of a certain number of countries representing a certain percentage of the world fleet for that convention to become internationally binding. Without the support of Flag of Convenience (FOC) countries, none of the IMO (International Maritime Organization) Conventions would ever become regulations.
Several traditional maritime nations have formed Second Registers. Second Registers are competing with Flag of Convenience (FOC) countries, for example, Norway’s Second Registry.
2- Ship Operators
Ship Operators are companies that are experienced in the Dry Cargo Chartering Markets and its agents. Ship Operators produce income from trading in ships and cargoes. Some Ship Operators charter-in ships from Shipowners, subsequently, expecting to charter-out the ships to other charterers at higher rates. Some Ship Operators focus on booking COA (Contracts of Affreightment) and, charter-in ships at lower freight rates, thereby making profits. Some Ship Operators trade in both ships and cargoes and, at any one time, have a mix of short, medium, and long-term commitments to Charterers and Shipowners. These Ship Operators require significant skill and a moderate level of good fortune to maximize potential returns.
Trading ships as a Ship Operator is a high-risk business, and losses can be sustained as well as profits earned. Therefore, a few Ship Operators will become bankrupt, being unable to perform their commitments satisfactorily. This is a risk that Ship Operators and those dealing with Ship Operators have to consider. However, Ship Operators constitute a critical element of the international Dry Cargo Chartering Markets and are a principal part of international trading.
Undoubtedly, some well-known container liner companies are Ship Operators as they operate their liner services completely with chartered containerships.
Ship Operators who charter-in a ship and then re-let (re-employ) that ship for further trade, charter-out in a new role, are defined as Disponent Owners (Time-Charter Owners). Disponent Owner (Time-Charter Owner) is a party deemed to be the Shipowner having control of the ship by time charter. Some Ship Operators, having chartered-in a ship for a long period, only to find to their good fortune that freight rates increase substantially in their favor, are liable to re-let (re-employ) the ship to a Charterer or another Ship Operator. Therefore, making a profit for the rest of the charter period to the original Shipowner.
Ship Operators that are acting as the owner may be the Disponent Owner (Time-Charter Owner) such as the party who has the ship on period time charter. Periodically, there may be more than one link in the Chain (Charterparty Chain) between the Actual Shipowner and the Disponent Owner (Time-Charter Owner) involved in the fixture.
In Voyage Charters, it is presumably more the rule than the exception for more than one company to be involved. A routine case might be that the actual charter is being arranged with a trader who could have purchased the cargo FOB (Free on Board) from the factory who will then be the Shipper. The trader could then have sold the cargo to the Consignees who would be the third company. The factory and the consignees could well have to employ Terminal Operating Companies to accomplish the cargo handling.
Charterers charter-in ships to haul cargoes. There are many types of Charterers:
- Traders operating small companies and interested only in the carriage of certain cargoes
- Major International Trading Houses whose involvement in the international Dry Cargo Chartering Markets means an extremely tiny part of their overall corporate activities
Some Charterers are involved as Traders in the worldwide purchase, sale, and transport of scope of commodities such as fertilizers, minerals, grains, etc. Others are involved as Manufacturers, Mine-Owners, Farmers, Shippers, or Receivers. Some Charterers are involved in state operations such as the Indian Government. Government Employees are being assigned the duty of chartering-in suitable ships for the state requirements. I
Shipbrokers are individuals or companies who are acting as brokers in the middle of international Dry Cargo Chartering Markets. Shipbrokers recognize supply and demand for ships and cargoes and thereby support the main players (Charterers, Shipowners, and Ship Operators) to book cargoes for their ships and ships for their cargoes. Shipbrokers deliver the lubrication that facilitates the Dry Cargo Chartering Markets’ mechanisms to operate properly.
Shipbroker’s income is in the form of the reward of Commission (Brokerage) paid for a successful introduction and negotiation between Shipowner and Charterer ending with a Fixture. Even after much hard sweat and cost, a negotiation that does not lead to a Fixture will usually result in no reimbursement of any type to the Shipbroker. Therefore, Shipbrokers are intrinsically keen on Fixing. Almost Fixing Positions are exciting, but it drains the Shipbrokers’ precious time and energy.
In-House Shipbrokers: Some Shipbrokers are primarily employed by Shipowners or by Charterers to fix their ships or cargoes.
Exclusive Shipbrokers: Some Shipbrokers are individuals or companies working for Principals on an Exclusive or Semi-Exclusive basis.
Competitive Shipbrokers: Some Shipbrokers are individuals or companies working independently and fixing as an opportunity presents itself.
The representation of Shipbroker is wide-ranging. Other roles than that of a Dry Cargo Shipbroker abound. For instance, activities covering Port Agency; the Ship Sale and Purchase (S&P) Shipbrokers; Tanker Shipbrokers; Off-Shore Shipbrokers; Liner Agency, and Ship Management. All are positions in which Shipbrokers might be encountered.
A Shipbroker specializing in acting for traders seeking ships to carry cargoes may be known as a Chartering Shipbroker (Chartering Agent).
Chartering Shipbroker may be either the Employee of a Trader, negotiating exclusively with that Trader’s business (In-House Chartering Shipbrokers).
Chartering Shipbroker may be retained on an Exclusive basis. In other words, Chartering Shipbroker handles exclusively the Trader’s business. (Exclusive Chartering Shipbrokers). Exclusivity may be limited to a Chartering Center, for example, “Exclusive in Singapore”, or Exclusivity may be Worldwide.
Some Traders prefer to employ a chain of Semi-Exclusive Chartering Shipbrokers to cover several shipping centers. Conceivably supposing that Semi-Exclusive Chartering Shipbrokers will enable more comprehensive coverage of the Dry Cargo Chartering Market for suitable ships. Semi-Exclusive Chartering Shipbrokers involved may represent themselves as Direct Shipbrokers for the Traders concerned.
A Shipbroker in one Shipping Center, such as Singapore, may have Correspondent Shipbrokers that will be used co-operatively to seek suitable ships or cargoes in another Shipping Center, such as London.
Most Shipbrokers work Competitively (Competitive Shipbrokers) if they see a suitable non-exclusive ship for a non-exclusive cargo in the Dry Cargo Chartering Market. Furthermore, some Traders do not employ Shipbrokers on an Exclusive basis but prefer to treat all Shipbrokers as competitors one another, circulating details of their requirements to the Dry Cargo Chartering Market as widely as possible and negotiating afterward with the Shipowners of any suitable ship that is offered to them through whichever Shipbroking channel the Shipowner prefers.
Shipbrokers are intrinsically inclined to secure Exclusive Accounts (Principals), not only does the Commission (Brokerage) provide financial support to their business, but performing for Exclusive Accounts (Principals) encourages the Shipbroker to exercise the full professional potential in terms of delivering a constant flow of market information and expert guidance. Sometimes, Principals working competitively tend to push their Shipbrokers into a purely Dealer Role. Few Shipbrokers can afford to rely completely on Exclusive Accounts (Principals), nevertheless, and most Shipbrokers compete against others for additional earnings.
Shipbrokers should circulate details of Order (New Business) as soon as possible, and keep good and close contact not only with those Principals providing business but also with Correspondent Shipbrokers and with Shipowners’ In-House Shipbrokers, whose ships may need to be fixed.
Even when there is no special Order (New Business) to quote, it is advisable to keep good relationships and, hopefully, to make it easier to complete prospective business.
Some Shipbrokers specialize in fixing cargoes for the ships of Exclusive and Semi-Exclusive Shipowners, possessing a list of Open Tonnage (Open Ships) expected to become available in the days ahead. Same as other Shipbrokers circulate the available Cargoes, so they circulate this Tonnage List (Ship List) to Chartering Shipbrokers and Principals, to find suitable Cargoes.
Gigantic Shipbroking Companies presumably have Shipbroker Teams representing both Charterers and Shipowners, as well as Shipbroker Teams that are operating as Competitive Shipbrokers.
Securing a Fixture is merely part of a Shipbroker’s duty. After the Fixture, the Charterers’ Shipbroker then has the duty of:
1- Charterers’ Shipbroker manages communications between the Shipowners and Charterers
2- Charterers’ Shipbroker draws up the Charterparty faithfully documenting all negotiation that has been agreed
3- Charterers’ Shipbroker documents any subsequent amendments or additions to the negotiations
4- Charterers’ Shipbroker organizes financial deals such as remuneration of freights, hires, voyage balances, etc.
Practically, Charterer’s Shipbroker draws up Charterparty, and Shipowner’s Shipbroker checks the draft version of Charterparty.
Major Shipbroker Companies possess a Post-Fixture Department that conducts efficiently the operations of a completed Fixture. Post-Fixture Department leaves the Front-Line Shipbroker to focus on the fixing of further business. Small Shipbroker Companies do not possess a Post-Fixture Department. One Shipbroker may manage the entire operation from initial negotiations through to the final financial deals.
Shipowner’s Shipbroker and Charterer’s Shipbroker are involved in a common deep-sea dry cargo Fixture. Periodically, there might be more Shipbrokers in the Chain (Shipbrokers Chain). It is comparatively uncommon for merely one Shipbroker to be involved in a deep-sea dry-cargo Fixture. On the other hand, in a short-sea dry-cargo Fixture and some specialized trades, sometimes only one Shipbroker may be involved between Shipowners and Charterers.
Ship Chartering Platforms
Despite several attempts, no reliable internet-based Ship Chartering Platform has been successful. Many Charterers and Shipowners who were first introduced by Shipbrokers, continue to operate together. In some form, this might be a compliment to the Shipbrokers because the Principals are pleased with the Charterers. Direct communication via the internet-based Ship Chartering Platform is not yet trusted because very frequently the Principals have no way of confirming the other party’s credentials in the way Shipbrokers do.
Chartering Negotiations differ with every Fixture. Issues requiring clarification are unlikely to be the same in every subject. Therefore, on internet-based Ship Chartering Platforms, it is virtually impossible for
a constant stream of questions back and forth. So, Shipbrokers are the lubricants of the Dry Cargo Chartering Markets.
In container shipping, internet-based booking has been embraced successfully. However, container shipping is quite different than bulk shipping. In container shipping, the cargo is always containerized, and the container ships’ itinerary is broadcasted and well known in advance. Furthermore, in container shipping, freight rates are non-negotiable. The difference between liner trades and chartering could be analogized to the difference in buying a ready-made suit or an individually tailored suit.
Dry Cargo Chartering Market is closely identified with Trading Documents such as Letters of Credit (L/C). Letters of Credit (L/C) influence Charterparty Terms and Conditions. Letters of Credit (L/C) influence how the Bill of Lading (B/L) is worded and released, and in which freight is paid. Consequently, Shipbrokers must have a good basic knowledge of all parts of international trade.
The International Chamber of Commerce publishes a standard set of terms for the international sale of goods known as INCOTERMS 2000.
INCOTERMS 2000 specify the separate Responsibility of the Seller and Buyer for each stage of the transportation process. In Dry Cargo Chartering Market, the most commonly used INCOTERMS 2000 are FOB (Free on Board) and CIF (Cost, Insurance, Freight).
EXW (Ex Works): The trader sells the goods where goods are at his place of business, and the Buyer has to make arrangements for storage of the goods, transportation to the carrying ship, and eventual loading.
Free on Board (FOB): The Seller arranges delivery to the port and loading of the cargo on board the ship. The exact point at which responsibility for the cost of handling and transport shifts from the Seller to the Buyer is at the ship’s rail. Therefore, the Buyer is responsible for any stowage, lashing, and securing costs. Nevertheless, in most ports, there is a Custom of the Port by which the split of the costs is made. Furthermore, the Buyer also has to arrange the chartering of a ship, payment of freight, insurance of the goods, and delivery at the port of discharge.
Free Alongside Ship (FAS): The Seller arranges delivery of the goods to the loading place, leaving loading procedures and costs to be arranged by the Buyer.
Cost and Freight (CFR): The Seller arranges carriage and delivery to the Buyer
Cost, Insurance, and Freight (CIF): The Seller arranges carriage, insurance, and delivery to the Buyer
It is crucial not to confuse INCOTERMS 2000 which relate to the contract between the Seller and Buyer of goods, with the Shipping Terms, such as FIO (Free In Out) which express the division of responsibility and costs between Charterer and Shipowner.
The Seller would not want to release the cargo until the Seller is secured that the correct payment will be safely received by the time of the cargo release. On the other hand, the Buyer would be hesitant to pay for cargo that has not been safely received or has not been verified as being in the condition expressed in the agreement. Besides, the transaction might be complicated if the Seller and the Buyer are domiciled far away from each other, with the cargo possibly located in another place. The transfer of cargo and funds must unmistakably take place at a time and in a way that guarantees that both parties are fulfilled, and their agreement has been properly honored. There are miscellaneous methods of accomplishing this purpose, depending on market forces and degrees of trust between the Seller and the Buyer concerned.
The most straightforward international payment method is for the Buyer to pay in advance for cargo, such as Cash Order. The opposing international payment method is where cargo and documents are despatched to the Buyer and the Seller awaits payment against his invoice. With these methods, the Seller or the Buyer is thus exposed to risks and suffers a loss of cash flow. Therefore, these international payment methods are undesirable.
The most widely used international payment method is the Letter of Credit (L/C). The Buyer issues a Documentary Letter of Credit (L/C) via a reputable Bank that is acceptable to the Seller.
Documentary Letter of Credit (L/C) has two types:
1- Revocable Letter of Credit (L/C)
2- Irrevocable Letter of Credit (L/C)
Revocable Letter of Credit (L/C) is open to cancellation or amendment by the Buyer provides little security for the Seller and is therefore seldom used.
Irrevocable Letter of Credit (L/C) is widely used and under the terms of such a document, the bank involved undertakes to pay the Seller without fail but only when appropriate pre-conditions have been met within the time specified. Irrevocable Letter of Credit (L/C) pre-conditions and duration are clearly defined and attached.
Letter of Credit (L/C) pre-conditions are security in respect of the condition of the cargo received and, since it is impracticable for a bank to inspect the cargo, banks usually rely exclusively upon the description of the condition of the goods as stipulated in a Bill of Lading (B/L).
If a Shipowner ensures that cargo received aboard is in good condition at the port of loading, the Bill of Lading (B/L) is issued incorporating No Adverse Remarks about the condition of the cargo (Clean Bill of Lading B/L). Generally, this is a prerequisite before a Letter of Credit (L/C) can be honored. Having issued a Clean Bill of Lading B/L at a loading port, the Shipowner accepts responsibility for the carriage of the cargo and for its safe delivery into the custody of the eventual holder of the Bill of Lading (B/L) at the port of discharge, when the cargo should be in substantially the exact condition as received on board of the ship.
Besides Bill of Lading (B/L), other documents typically required as prerequisites to release funds under a Letter of Credit (L/C) are:
1- Cargo Insurance Documents
2- Cargo Invoice
3- Certificates of Origin
Another international payment method is by Bill of Exchange. A Bill of Exchange is a conventional and versatile document that can be utilized either as a payment method under a Documentary Letter of Credit (L/C) or in place of the Letter of Credit (L/C).
Dry Cargo Chartering Market Reports
Shipbrokers broadcast information and give recommendations. Therefore, Shipbrokers should gain experience and proficiency in the preparation of written reports for their Principals.
Some Shipbrokers focus on a fairly small market segment or supply data on the freight of a certain cargo, ship type or ship size, or geographic area. These Shipbrokers report fixtures, available cargoes, trading contracts, etc.
Some Shipbrokers focus on a fairly large market segment. Large Shipbroker Companies report the general circumstances of the freight market. Large Shipbroker Companies report the daily and weekly fixtures of cape, panamax, ultramax, supramax, and handysize bulk carriers.
In Dry Cargo Chartering Markets, Shipbrokers can observe the day-to-day trading activities and the demand for vessels, and consequently, Freight Rates. Worldwide recession eventually affects the Dry Cargo Chartering Markets and vessels lay-up for a while. On the other hand, positive sentiment in Dry Cargo Chartering Markets will result from active trading and there might be a small number of vessels to meet demand, leading in turn to high freight income for the Shipowners or Ship Operators.
Shipbrokers should read international newspapers, especially political and business pages, and think about the effect on the Dry Cargo Chartering Markets. Dry Cargo Chartering Markets do not exist in isolation from the others or the effects of world trades, events, and politics. For example, the Ukraine invasion may increase tonne-mile, and the bankruptcy of a giant grain trader may seriously affect freight rates for that certain market segment. A severe famine in one region may seriously affect freight rates and the Dry Cargo Chartering Markets. The political developments, sanctions, and export regulations in one country may seriously affect medium and long-term freight rates in Dry Cargo Chartering Markets.
Ship Employment Types
Ship Employment Types can be divided into:
1- Time Chartering
2- Bareboat Chartering
3- Voyage Chartering
4- Consecutive Voyages
5- Contract of Affreightment (COA)
6- Shipping Pool
7- Joint Venture (JV)
8- Slot Charter
9- Project Cargo (Turnkey Project)
1- Time Chartering: In Time Chartering, ships are hired for a specific period. The responsibilities of the Shipowners and Charterers differ substantially from those concerned in Voyage Chartering. Time Charterer takes control of the Commercial Management of a ship including, for instance, the appointment and settlement of Port Agents, purchase of Bunkers, etc. The Shipowner is responsible for the Operational Management of the vessel, with particular regard to maintenance, crewing, insurance, etc.
The Shipowner is remunerated by the payment of regular amounts of Hire Money. Commonly, Hire is paid monthly or semi-monthly in advance. Nevertheless, if the ship fails to perform properly or suffers such interruptions to the smooth performance as mechanical breakdowns, the ship may be deemed Off-Hire. During Off-Hire the Shipowner will not be eligible for remuneration.
Time Charter Trip (TCT) or Trip Chartering
Numerous Charterers find it suitable to charter-in ships on a Time Charter basis for Single or Round-Trip Voyages. This method has given rise to the term Trip Chartering. Time Charter Trip (TCT) or Trip Chartering is similar to Voyage Chartering with regard both to the duration of the venture and to the point that the purpose of the Charterers is to use the ship for one or two voyages. However, there the resemblance terminates, and the roles of Shipowner and Charterer are similar to those assumed for Time Charters of longer periods.
Time Charter Responsibilities:
Shipowner’s Responsibilities in Time Charter
1- Ship Repairs
2- Ship Crewing
3- Ship Maintenance and Spares
4- Ship Classification
6- Lubricating Oils
7- Fresh Water (FW)
8- Heating and Cooking
9- Stores and Provisions
10- Insurance of Ship
Charterer’s Responsibilities in Time Charter
1- Employment of the Ship
2- Port Disbursement Accounts (Port DA)
4- Canal Tolls
5- Cargo Handling
7- Insurance of Cargo
8- Insurance of Bunkers
Generally, under Voyage Chartering, most of the Charterer’s Responsibilities in Time Charter will become those of the Shipowner, except for the responsibility of Stevedoring, Cargo Handling, and the Insurance of Cargo.
Commonly, a Time Chartered ship is employed on a Liner Service operated by the Time Charterer. Some ships are taken on significantly long-term charters for this purpose. Time Charterers may charter-in other replacement ships for short-term to cover drydocking, repairs, or seasonal fluctuations. Time Charterers may negotiate the right to temporarily rename the ship. Furthermore, in some cases, Time Charterers may negotiate to change the Flag of the ship.
2- Bareboat Chartering: In Bareboat Chartering, Shipowners hire their ship to a Charterer. Bareboat Charterer virtually operates the ship as if Bareboat Charterer were the Shipowner. Bareboat Charterer takes both the Time Charterer’s responsibilities and most of the responsibilities of the Shipowner. In return, the Shipowner relatively receives a lower hire income, proportional to reduced responsibilities and risks.
Bareboat Chartering vs Demise Chartering
Demise Chartering differs from Bareboat Chartering in that it may be agreed between the Shipowner and Charterer that the Shipowner employs the Ship Master and/or Crew Members. In Demise Chartering, the Shipowner employs the Ship Master and/or Crew Members.
In reality, Demise Chartering and Bareboat Chartering are financial instruments, developed to enable investors to acquire ships. In both Demise Chartering and Bareboat Chartering, Charterers execute the operation and management of a ship. Financial institutions may not have expertise in the operation and management of a ship. Demise Charterer and Bareboat Charterer might be a Shipowner without the financial resources to fund ship investment directly.
3- Voyage Chartering: In Voyage Chartering, a ship is employed for a Single Trip, loading cargo from one or more ports for discharge at one or more ports.
In return for the transportation of the cargo and, conceivably for the expenses of loading and discharging the cargo, the Shipowner gets a monetary reward termed Freight. Freight can either be payable Pro-Rata per tonne in respect of the quantity of cargo carried or be in the form of a Lump Sum payment.
In Voyage Chartering, the Shipowner limits the amount of time the Charterer is allowed for loading and discharging the ship which is termed Laytime. If the allowed Laytime is exceeded, then Liquidated Damages, termed Demurrage, will become payable by the Charterer to the Shipowner. The dates between which the ship is required to be presented at the loading port are termed the Laydays.
4- Consecutive Voyages: Occasionally, the Shipowners and Charterers to a Voyage Charter agree on repeat business. Shipowners and Charterers sign a contract that commits the ship to perform several voyages either a predetermined number of voyages or sometimes for as many as can be performed within a specified period. Consecutive Voyages are covered by the same basic terms and conditions. Furthermore, long-term Consecutive Voyages might be agreed that the freight rate fluctuates throughout the contract. Each of the voyages is treated as an individual contract for purposes of Demurrage and Despatch.
If the ship is lost for any reason, then the Consecutive Voyage Contract comes to an end and the Shipowner is relieved of any additional commitment to the contract. Therefore, the Consecutive Voyage Contract differs materially from the seemingly similar Contract of Affreightment (COA).
5- Contract of Affreightment (COA): In Contract of Affreightment (COA), a Carrier (Shipowner or Ship Operator) agrees to carry a provided Quantity of Cargo between named ports on agreed Voyage Chartering Terms over several trips. For example, 3 million metric tons of grain in one year from San Lorenzo to Rotterdam. Subsequently, a Carrier (Shipowner or Ship Operator) may use owned ships or charter-in ships to perform contractual obligations. Unlike a Consecutive Voyage Contract, in a Contract of Affreightment (COA), the governing element is the Cargo, and, if the ship is lost for any reason, the Shipowner is obliged to make other alternative arrangements to perform the contract.
The benefit of Contract of Affreightment (COA) to a Shipowner is that security of employment is obtained for the ships for the duration of the Contract of Affreightment (COA). Particularly, Contract of Affreightment (COA) is advantageous if the Shipowner anticipates that freight rates are about to decline. Ship Operators expect to make profits by chartering-in ships at lower rates and subsequently performing the Contract of Affreightment (COA) at higher freight rates.
In Contract of Affreightment (COA), Charterers may also be able to obtain a financial advantage if market freight rates increase once they have committed Shipowner or Ship Operator locked into the Contract of Affreightment (COA). Even if the Dry Cargo Chartering Market freight rates decline, at the very least the Charterer has swapped the unreliability of the daily marketplace, for freight rate stability.
Under a Contract of Affreightment (COA), the covering charterparty is fundamentally a modified Voyage Charterparty Form, with each voyage ship being nominated in a booking form describing dates and cargo quantity.
6- Shipping Pool: A group of Shipowners comes together to pool their ships and collectively market their combined fleet. Shipping Pool might be involved in Contracts of Affreightment (COA) and Joint Ventures (JV).
Shipping Pool’s earnings are collected together and once Shipping Pool’s operating costs have been subtracted, the remaining earnings are distributed amongst members utilizing a Weighting System by which each entered ship’s unique features are taken into account and measured against a Pool Model Average, debits and credits being applied accordingly.
In Shipping Pools, Dry Cargo Chartering Market risks are somewhat alleviated for an individual Shipowner who has little or no previous shipping experience. In Shipping Pools, Shipowners’ management overheads are reduced by collectively managed chartering, commercial and financial operations.
7- Joint Venture (JV): Charterers who are controlling cargoes negotiate and come to terms under a Joint Venture Agreement with Shipowners or Ship Operators. Generally, profits and losses are shared on the seaborne freight amount. Joint Ventures (JV) might be relatively simple and of short duration or Joint Ventures (JV) might be of significant volume, involving the mutual exploitation of a country’s mineral deposits, the construction, and management of ports, marketing of products.
8- Slot Charter: In liner trades, especially in container ship trades, Line Operators have sometimes found themselves having difficulty in filling their vessels. Some Freight Forwarders (FF) handle large amounts of cargo. Freight Forwarders (FF) contract with Line Operators to take a set part of space or slots on each voyage. Freight Forwarders (FF) sell this space to the clients as if they were the Line Operators.
Big companies usually deal directly with the Line Operators or conduct through Freight Forwarders (FF) who offer service at the point of loading as well as unloading. Big companies may hire containers or ship as consolidated cargo, the costs of which they will recover easily. Nevertheless, small companies or individuals may find it challenging to deal directly with large Line Operators and Freight Forwarders (FF) as they might not require an entire container to ship their goods. Such small companies and individuals may also not find it cost-effective to deal with such Line Operators.
Non-Vessel Operating Common Carriers (NVOCCs) complete the entire cargo shipping hassle-free and cost-effective by being the single point of contact for the client. Non-Vessel Operating Common Carriers (NVOCCs) are suitable for small and medium-sized companies.
Frequently, the terms Non-Vessel Operating Common Carriers (NVOCCs) and Freight Forwarders (FF) are used to indicate the same entity though there are particular distinctions between the Non-Vessel Operating Common Carriers (NVOCCs) and Freight Forwarders (FF).
As the name implies, Non-Vessel Operating Common Carriers (NVOCCs) do not own or operate ships. Rather, Non-Vessel Operating Common Carriers (NVOCCs) contract with Shipowners, Ship Operators, or Line Operators for the carriage of cargo under their own Bill of Lading (B/L) known as the House Bill of Lading (HBL).
This is the principal characteristic that distinguishes Non-Vessel Operating Common Carriers (NVOCCs) from Vessel Operating Common Carriers (VOCCs). Some of the biggest Vessel Operating Common Carriers (VOCCs) are Maersk, ONE, CMA CGM, etc.
Non-Vessel Operating Common Carriers (NVOCCs) sell cargo slots or container slots onboard mainline ships, to their clients. Non-Vessel Operating Common Carriers (NVOCCs) organize the loading of cargo from the client’s facility and the transfer of such laden cargo to the gateway ports. Furthermore, Non-Vessel Operating Common Carriers (NVOCCs) undertake the delivery of cargo to the consignee at the destination.
Generally, Non-Vessel Operating Common Carriers (NVOCCs) deal mainly with Freight Forwarders (FF) directly to sustain unbiased rates. Non-Vessel Operating Common Carriers (NVOCCs) may or may not own warehouses. Non-Vessel Operating Common Carriers (NVOCCs) may also offer services such as cargo consolidation, deconsolidation, and employing out-sourced services such as container cleaning, and repair.
NVOCCs (Non-Vessel Owning Common Carriers) pay the Shipowners, Ship Operators, or Line Operators at a Fixed Rate for each TEU (Twenty Equivalent Unit) slot. Usually, Line Operators agree on a reduced Freight Rate for any cargo supplied over the contracted amount.
Slot Charter Contract is usually contracted on the standard SLOTHIRE Form. SLOTHIRE Form allows NVOCCs (Non-Vessel Owning Common Carriers) to issue their Bills of Lading (B/L), set their Freight Rates, and commonly act as if NVOCCs (Non-Vessel Owning Common Carriers) were the Shipowners, Ship Operators, or Line Operators. NVOCCs (Non-Vessel Owning Common Carriers) have an abundance of obligations and should only contract to carry on terms identical to the Shipowners, Ship Operators, or Line Operators. Additionally, NVOCCs (Non-Vessel Owning Common Carriers) will be responsible for recompensing the cargo claims. The Line Operators can make any number of slot contracts with various NVOCCs (Non-Vessel Owning Common Carriers) so the same ship may appear to be running on several different lines at the same time.
9- Project Cargo: In Project Cargo (Turnkey Project), a heavy-lift market professional undertakes entire responsibility for the seaborne movement of both small and large prefabricated structures, constructional equipment, and raw materials to the project’s eventual site. An example would be the carriage of material and equipment required to assemble a steel plant or clinker factory in another country.
10- Parcelling: Some Ship Operators specialize in carrying smaller parcels of cargoes by grouping them in a ship steaming from one or more ports in a certain region to one or more ports in another region. Specialist Operators in the region contract to carry parcels of cargoes, subsequently grouping these with other parcels in one bottom (the old-fashioned term bottom as an option to the word ship or vessel).
Accordingly, in addition to negotiating the highest freight rate and best terms for each parcel. Ship Operators seek the widest possible laycan and a wide cargo quantity margin that provides Ship Operators maximum flexibility, therefore simplifying their chartering restrictions for appropriate ships. Thereafter, Ship Operators time charter-in a ship at a cost which is, overall, less than the freight they anticipate to accumulate from miscellaneous parcels.
Ship Chartering Negotiations
After finding a ship to carry a Principal’s cargo or cargo for a ship, the Shipbrokers exchange supplementary facts, to secure the business is mutually attractive and workable with a reasonable chance of success, before discussing it with the Principals.
A Shipbroker seeks and receives the Principal’s authority to make a Firm Offer for the business. Although this may appear an easy procedure, severe problems can materialize if a basic code of conduct and practice is not followed in the tendering and receipt of such Firm Offers.
Ship Chartering Negotiations must be performed with care and attention to detail, as there must be total agreement between the Shipowners and Charterers for an enforceable contract to come into being.
Firm Offer checklist should be carefully kept and re-confirmatory emails summarising the final contract should always be sent to both the Shipowners and Charterers. Some Shipbrokers confirm each offer and counter-offer in this way.
Shipping is an international business and, although most Ship Chartering Negotiations are executed between parties fluent in the use of the English language, honest errors do occur and are best identified at an early stage. Verbal communication during Ship Chartering Negotiations should always be re-confirmed back to the instructing Principal.
Firm Offer Details for Voyage Chartering Business:
1- Reply by: Place and Time Limit
2- Account Name: Charterers Name and Background
3- Ship Name: Ship Description such as Flag, Built Year, DWT, LOA; Beam; Draft, GT, NT, Grain Capacity, Bale Capacity, Number of Holds and Hatches, Gear.
4- Position and Estimated Readiness: Current Position of the Ship
5- Cargo Description and Cargo Quantity: More or Less Options
6- Loading Ports/Berths: Always Afloat (AA)/NAABSA
7- Discharging Ports/Berths: Always Afloat (AA)/NAABSA
8- Laycan: Laydays/Cancelling Days
9- Loading Rate: Weather Working Day SHINC-SHEX
10- Discharging Rate Weather Working Day SHINC-SHEX
11- Freight Rate: Where, When, and How Freight is paid
12- Demurrage Rate and Despatch Rate:
13- Loading/Discharging Costs: FIO (Free In Out) to Shipowners
FIOS (Free In Out Stowage) to Shipowners, FIOST (Free In Out Stowage Trimming) to Shipowners,
14- Address Commission: ADDCOM
15- Shipbroker’s Commission: 1.25%, 2.5%, 3.75%
16- Charterparty Form: GENCON 94
17- Subjects: Subjects Details, STEM (Subject to Enough Merchandise),
Subject Shippers’ or Receivers’ Approval
Offers and Counter Offers practice in Time Chartering are identical to Voyage Chartering, except that Time Chartering Offers are tailored for the main features of a Time Charter.
Firm Offer Details for Time Chartering Business:
1- Reply by: Place and Time Limit
2- Account Name: Charterers Name and Background
3- Ship Name: Ship Description and Consumption
4- Position and Estimated Readiness: Current Position of the Ship
5- Delivery: APS, DOP, DOLPS, Passing Singapore
6- Laycan: Laydays/Cancelling Days
7- Duration: Approximate Time Charter Period
8- Redelivery: APS, DOP, DOLPS, Passing Singapore
9- Trading Area: WW – World Wide, Pacific Basin
10- Intended Trade: Scrap Trading, Trip with Grain
11- Cargo Exclusions: Excluded Cargoes such as HBI, Clinker, Dirties
12- Hire Rate: Daily Hire Rate paid Semi Monthy, DWT paid Monthly
13- Ballast Bonus (BB): Gross Ballast Bonus or Net Ballast Bonus
14- Bunkers: Bunker Prices and Quantities
15- Address Commission: ADDCOM
16- Shipbroker’s Commission: 1.25%, 2.5%, 3.75%
17- Charterparty Form: NYPE 93
18- Subjects: Subjects Details, Charterers’ Approval
What is Ballast Bonus (BB)?
In Time Chartering, Ballast Bonus (BB) is a sum of money that the Charterers agree to pay to the Shipowners for steaming the ship in ballast to the point of Delivery. Ballast Bonus (BB) is quite common for Dry Bulk Ships because trade in many cargoes is usually in one direction only and the Shipowner cannot find a suitable Voyage Charter to place the ship in a position acceptable to the Charterers. So, the Shipowner has to pay to reposition the ship.
When ships are scarce, Charterers are usually keen to contribute to the Shipowner’s costs by paying for a ship they especially require. Therefore, Charterers pay Ballast Bonus (BB) to steam the ship in Ballast to the Delivery Port. Conversely, when there is an abundant supply of ships in the position, the Shipowners may not be able to negotiate a Ballast Bonus (BB). Therefore, the Shipowners must absorb the costs of Ballast Legs themselves.
There are tactical reasons to view when examining Ballast Bonus (BB). Firstly, a Ballast Bonus (BB) is exclusively payable once the ship is delivered into the Time Charter, so if for any grounds the ship fails to catch the Canceling Date, the Charterer does not have to accept the ship and consequently, the Charterer is relieved of the liability to pay the Ballast Bonus (BB).
Secondly, the Shipowners and Time Charterers might agree upon a Higher Daily Hire Rate and No Ballast Bonus (BB). However, there are two issues with a Higher Daily Hire Rate and No Ballast Bonus (BB):
1- The Shipowner may steam the ship on a Long Ballast Leg but may not be able to recover all the costs from a Higher Daily Hire Rate if the Ship Charter is for a short period, or if the ship is redelivered very early for any reason.
2- The Charterer may want to keep the Daily Hire Rate Low because the Charterer does not want to signal to the Dry Cargo Chartering Market that the Charterer is keen to pay premium Daily Hire Rates for ships.
Chartering Offers and Counter Offers
Chartering Offers and Counter Offers are governed both by legal dictates as well as by a code of professional conduct.
Legally, after a Shipbroker makes an Offer, Shipbroker is free to withdraw the Offer any time before its acceptance by the other party or before any time limitation on the validity of the Offer expires.
Professionally, a Shipbroker is expected to keep the Offer, unaltered, until it is either Counter-Offered or Accepted or until the Offer’s Time Limitation is expired.
Legally, while Chartering Negotiations continue, a Shipbroker can alter what has already been agreed.
Professionally, while Chartering Negotiations continue, if a Shipbroker alters what has already been agreed, this is frowned upon, although it may be that such back-broking (back-trading) is acceptable if terms subsequently revealed during negotiations substantially affect what has previously been settled and which one party ought to have disclosed to the other at an earlier stage.
In Dry Cargo Chartering Market, market players often hear the phrase Counter-Offer. During Chartering Negotiations, Shipbrokers use an Accept-Except basis which implies that a Shipbroker expressing Accept-Except is ready to Accept the other Shipbroker’s Offer with only a few alterations. Nevertheless, legally, when one Shipbroker makes a Counter Offer, that Shipbroker is refusing the Offer and making the following Firm Offer. Therefore, until both Shipbrokers have compromised on all and every detail, there is no Charterparty (Shipping Contract). Shipbrokers are free to walk away from the Chartering Negotiations. Just because the Shipbrokers have commenced negotiating, this in no way binds Shipbrokers to continue although to break off capriciously and without notice whilst it may be Legally Permissible. However, this would not be counted as an Ethically Acceptable Practice.
There are two rules of vital importance in Chartering Negotiations:
1- Shipbrokers must always act within Authority
2- Shipbrokers should not offer the same ship or cargo to more than one Shipbroker at the same time
Warranty of Authority
Shipbrokers are supposed to enjoy the full authority of their Principals. Shipbrokers should never act without that full authority. Shipbrokers must ensure that they have the full authority for all Offers and Counter-Offers made on the Principals’ behalf.
If a Shipbroker does not have Full Authority for an Offer made, that Shipbroker may be legally liable in an action brought by an injured party receiving and accepting an Unauthorized Offer. Such an action would be based on a Breach of Warranty of Authority. The Shipbroker warranties, guarantee that the Shipbroker has the authority to make the contract.
Breach of Warranty of Authority Types:
1- Breach of Warranty of Authority with Negligence
2- Breach of Warranty of Authority without Negligence
In the case of a Breach of Warranty of Authority with Negligence, a Shipbroker mistakenly or intentionally makes an Erroneous Offer.
In the case of a Breach of Warranty of Authority without Negligence, a Shipbroker merely passes on an Incorrect Offer, however, still a breach for which the Shipbroker is responsible.
In either case, a Shipbroker is Legally Liable, however, for a Breach of Warranty of Authority without Negligence, the Shipbroker is entitled to Legal Recourse against the party passing the Shipbroker the Mistaken or Erroneous Offer. In practice, Legal Recourse may not succeed particularly in such an International Dry Cargo Chartering Market concerning many different regulations. Even if the Shipbroker is legally successful under one or more regulations, the chances of complete financial settlement may be restricted.
Breach of Warranty of Authority Example:
Shipowner ──────── Shipbroker X
Shipbroker Y ─────── Charterer
If a Shipowner offers his ship to Shipbroker X at $100 per tonne, Shipbroker X passes the Firm Offer correctly to Shipbroker Y. Shipbroker Y erroneously or mistakenly passes the Firm Offer to the Charterer at $99 per tonne. The Charterer accepts the Firm Offer. There is no contract between the Shipowner and the Charterer, but the Shipbroker Y could be liable for an action for Breach of Warranty of Authority with Negligence.
If a Shipowner offers his ship to Shipbroker X at $100 per tonne, but in this event Shipbroker X erroneously or mistakenly passes the Firm Offer to Shipbroker Y at $99 per tonne. Shipbroker Y passes the Firm Offer at $99 to the Charterer. Again the Charterer accepts the Firm Offer. Again, there is no contract between the Shipowner and the Charterer, but the Shipbroker Y could is still liable for Breach of Warranty of Authority. However, Shipbroker Y could be liable for an action for Breach of Warranty of Authority without Negligence.
Shipbroker Y may have the right to proceed legally (Legal Recourse) against Shipbroker X for passing an Erroneous Offer. However, Shipbroker Y may encounter difficulties in gaining reasonable compensation.
If the Shipowner and Charterer insist on the contract being fulfilled in which case the Shipbroker’s liability would be for the difference between the authority given by the Shipowner and the acceptance given by the Charterer. In this case, $1 per tonne would be compensated by the Shipbroker.
Breach of Warranty might be on an item far less easily apparent than a dollar difference in the freight and may, consequently, not come to light until the ship’s voyage is well developed. The Principle remains the same in that the Shipbroker from whom the injured party received the Erroneous Offer is responsible for the damages the Principal suffers.
In the case of Breach of Warranty of Authority without Negligence, the Shipbroker being held responsible will have acted at all times in Good Faith and meticulously passed on such offers as the Shipbroker received from the Errant Shipbroker. It is unfair, nevertheless, it would be to the injured party if action against the Shipbroker was not the accepted legal route especially as the Shipbroker who started the breach may be in another country. The Injured Principal was quite innocent and what the law is stating is that the Shipbroker has to satisfy himself with the Bona Fides of those with whom the Shipbroker is dealing.
Usually, conservative Shipbrokers buy Insurance Cover for their company against both types of Breach of Warranty of Authority.
Excluding part cargoes, a ship cannot be under a Firm Offer for two or more cargoes at the same time. If both Firm Offers were accepted, the ship could not carry both cargoes at the same time.
Likewise, a Charterer cannot offer the same cargo to more than one ship at the same time. Even if a Shiproker is sure that the Principal’s Firm Offer would not be accepted by the other party, only one Firm Offer at a time can be made.
In Dry Cargo Chartering Market, when demand pressure is intense, and when conceivably more than one option shows itself, it may become extremely difficult to pick the most suitable option for a Principal, because it may be that by focusing upon one ship/cargo, a better alternative may slip away. However, Chartering Negotiations cannot be conducted through offering to more than one party at a time. An original Firm Offer must have lapsed or must be withdrawn, before a second Firm Offer is made to the alternative business or, at least, a Counter-Offer received and declined. A Shipbroker may have to fulfill the duty effectively on such stressful occasions and act in the best interests of his Principal.
On the other hand, it is conceivable to negotiate a ship or a cargo on the basis of being Subject Open or Subject Unfixed. In this manner, the other Shipbrokers get straightforward guidance that alternative Chartering Negotiations are being performed. However, some Principals would be unwilling to negotiate on this basis as the alternative business may take priority. It is professionally unethical to misleadingly counter to another party on the basis of being Subject Open or Subject Unfixed when not, in fact, under Firm Offer to another party.
Freight Indications and Hire Indications
In Dry Cargo Chartering Market, indications of fixing levels may be exchanged. Indications may be made in the form of Offers by including dates when a ship or a cargo may be available, the Freight Rate a Principal is ready to pay or to accept, the cargo quantity, etc. Furthermore, there may even be a Counter Indication or Firm Indication.
Nevertheless, an Indication is not an Offer. An indication is merely an Advice and an indication is not binding on the party making it. Furthermore, several indications may be made for miscellaneous ships or cargoes at the same time. An Indication is simply an Advice of the approximate terms and conditions upon which a Principal is ready to undertake business, or from which level that Principal is ready to deal.
It is unethical to imply that a ship or a cargo is held Firm when a ship or a cargo is not Firm. To secure an offer or a counter-offer from a Principal and indications should not be manipulated in this manner any more than should actual Offers.
Usually, when Shipbrokers circulate a cargo, Shipbrokers include the type of Charterparty on which an eventual fixture will be based such as NYPE 93, Gencon 94, etc. Furthermore, Shipbrokers include the type of Charterparty in initial Firm Offers or Firm Counter-Offers.
It is uncommon for a contract to be based upon a blank copy of the named Charterparty Form. In Dry Cargo Chartering Market, it is customary practice to base Charter Negotiations either on a Proforma Charterparty prepared by Charterers including any particular clauses applicable to Charterers’ trade or, more commonly, for negotiations to be based upon terms agreed for an identical Previous Fixture Charterparty.
If a ship is an extremely specialist ship, the Shipowner may have his Charterparty Form.
Usually, when Chartering Negotiations are underway and have successfully reached conceivably, the Main Terms phase that the Charterparty upon which the Charterer wishes to base the fixtures is made available to the Shipowner’s Shipbroker. This may be due to the domicile of the parties concerned, or down to a natural reluctance to go to the trouble of exchanging documents when it is by no means certain that the negotiations will show signs of reaching a successful conclusion and so warrant an exchange. Furthermore, it may be regarded as poor Chartering Negotiating tactics to appear too enthusiastic to give or to receive a Proforma Charterparty at too early a stage in Chartering Negotiating.
Today, most Shipbrokers, Charterers, and Shipowners maintain copies of Standard Charterparty Forms on computers together with the Proforma Charterparty Forms customarily utilized in their businesses. Online BIMCO Charterparty Editor makes the exchange of Charterparty Forms so much easier.
Firm Offer Time Limit
It is crucial that Offers and Counter-Offers not only express the Time by which a reply is expected, but also the Place where any reply must be made within that Time Limit. The Time and Place for a reply to an Offer or a Counter-Offer must be straightforward. For example, “for reply in London latest by 1300 Hours Local Time 3rd March”. Any Counter-Offer made in London to meet this deadline will have to be insufficient time reasonably to permit it to be relayed to London before 1300 Hours Local Time thereat. Shipbrokers should not use ambiguous expressions such as For Prompt Reply or For Immediate Reply. Sufficient time has to be allowed for communication to be made with the Principal.
Chartering Negotiations Subjects
Predominantly Shipbrokers make Offers and Counter-Offers with Subjects, such as Subject Stem, Subject Shipper’s Approval, Subject Receiver’s Approval, etc. In Dry Cargo Chartering Market, during Chartering Negotiations, even so-called Firm Offers have Subjects incorporated in Firm Offers, although strictly speaking, they cannot then be Firm Offers. A real Firm Offer is qualified of being accepted by a straightforward affirmative with no additional negotiation or clarification required.
Subject Stem (Subject to Enough Merchandise) is a term about which there has often been controversy as to its origin even its particular meaning.
Subject Stem (Subject to Enough Merchandise) can best be described by an example. Assuming the Charterer has an agreement to buy two million tons of grain over a period in ships of around 70,000 DWT. The Charterer cannot have such an amount sitting on a quay waiting for a ship to be chartered and so the Charterer must prove that the cargo can be carried down to the port to coincide with the offered ship. If it is in order the Shipper will notify the Charterer that the STEM is confirmed therefore allowing the Charterer to lift that Subject.
The reason for the Subject Receiver’s Approval is for an identical purpose, the Charterers need to check whether a ship in that particular position can be accommodated.
Unfortunately, in Dry Cargo Chartering Market, during Chartering Negotiations, Subjects are occasionally abused. There are many cases where a fixture is made before the cargo is even bought or sold. However, Charterers that are abusing accepted codes of ethics usually get found out and will be ignored by reputable Ship Operators.
Under English Law, there is No Fixture until All Subjects are lifted. Consequently, from Shipwner’s point of view, it is desirable to set a Time Limit on the Lifting of any Subjects agreed upon. From the Charterer’s point of view, the Charterer wants to Lift the Subjects in a reasonable time or risk losing the ship to other competing businesses. A Time Limit on Subjects also provides less opportunity for an unethical Charterer to continue unobtrusively pursuing more affordable ships whilst supposedly lifting the Subjects.
Time Limit on the Lifting of any Subjects should be sufficient, reasonable, and practicable, or else a Charterer may simply need to request extensions of time to comply with these requirements. Nevertheless, this Available Time to lift Subjects might be misused by Charterers, and Shipowners are usually uneasy about being too tolerant by allowing too many Subjects for an indeterminate duration. Particularly, when negotiating with previously unknown and untested Charterers. On the other hand, Charterers may quite legitimately require a substantial length of time, particularly when getting reconfirmation of a cargo’s availability on specific dates in another country.
Nevertheless, it is not always Charterers who place Subjects in Chartering Negotiations. Where Charterers are unknown to Shipowners, Shipowners may make any Firm Offer Subject to Approval of Charterers by Shipowners. Shipowners will enquire about Charterers’ background and history, likely seeking references from other Shipowners with whom the Charterers have chartered a ship in the past. Furthermore, Shipowners may demand a bank guarantee in support of the Charterers. Bank Guarantees are pricey and oftentimes hard to arrange.
Shipowners should be especially cautious where a Charterer is not referred to as FCC (First Class Charterer). Oftentimes, there is nothing sinister about a Charterer not expressing his name behind an order, this being just because the Charterer is concealing his involvement from market competitors, or, possibly, because a Shipbroker is quoting business passed to him from a Correspondence Shipbroker in whom he has faith will not deal with unscrupulous Charterers of a bad reputation and is happy to re-quote the business before obtaining a comprehensive knowledge of the background to the order. It is exceptionally unwise for a Shipowner to agree to fix the ship to an un-named Charterer.
If a Shipbroker has given an affirmation that the Principal is FCC (First Class Charterer) to the Shipowner and the so-called Principal has defaulted, Shipowner can take Legal Action successfully against Shipbroker who has given such an affirmation recklessly.
A Shipbroker does not even have to be one of the Shipbrokers involved to risk action being taken in the case of negligent or recklessly given advice. Legally, this is called Tort. As a Shipbroker, if a Principal asks for your advice and has the privilege to consider you to be qualified to give that advice, even if the advice is given complimentary if the enquirer acts on your advice and it goes wrong, you may be in trouble.
Unless the Principal is very well known to a Shipbroker to be FC (First Class), better by far to advise on your experience, for instance, “As a Shipbroker, we fixed a ship to the Charterer on ten months time charter and Charterer paid the hires on time every month”. As a Shipbroker, if you have no unmistakable experience to report, you should suggest that the enquirer makes his inquiries via more formal channels. As a Shipbroker, if you have had a bad experience with the Principal, you should pass on the truths just the same but in the same way. As a Shipbroker, you should not give an affirmation of excellence, if you are not confident about the Principal. Before giving pieces of advice, Shipbrokers should always remember that there are Laws of Libel and Slander.
When a Firm Offer has been made, all following Counter-Offers should be prefixed:
1- “We Repeat Our Last”
2- “We Accept Owner’s/Charterer’s Last, Except…”
3- “We Decline Owner’s/Charterer’s Offer and Offer instead…”
4- “We Repeat Our Last, Except…”
In Dry Cargo Chartering Market, during Chartering Negotiations, differences will gradually be eliminated and reconciled until either negotiation end in failure with neither side willing to concede on one or more issues or until an agreement is reached, albeit with miscellaneous subjects still be lifted. Traditionally, this may be termed having reached an Agreement on Main Terms or having reached the Subject Details Stage, leaving the Charterparty Form still to be negotiated between the parties. Ethically there is no reason why there should now be a serious obstacle to reaching a Firm Fixture.
Charterparty Form may incorporate one or more terms that substantially affect the Previously Agreed Main Terms of the Chartering Negotiation. The seriousness of the Details may not be realized until negotiation on charterparty terms is underway but it is incumbent upon Charterer’s Brokers to ensure, if possible, that the Original Chartering Negotiation leads to agreement on Main Terms containing All Main Terms. This would support avoiding disagreement over terms that substantially affect terms already agreed such as the Freight Rate. If an agreement is reached on Main Terms, but relatively Minor Terms are still negotiated.
Under English Law, there is No Binding Contract at the Main Terms stage of negotiations, nor will there be any such agreement until every detail of the Charterparty has been agreed upon and all subjects lifted.
Under American Law, there may be a Binding Contract once Main Terms have been negotiated and agreed upon unless both sides decide to withdraw from the Chartering Negotiations. However, unilateral withdrawal is not sufficient. Agreement reached on what may be interpreted as the important parts of a contract may well result in a Legally Binding Fixture, even though relatively minor details have not even been discussed, let alone settled, and even though numerous subjects remain to be lifted.
The solution to this issue would seem to be to elevate the Subject Details Stage from a legally insignificant process to an essential part of a contract. Negotiating on a Charterparty at an early stage so there is no discrepancy between the Main Terms and Charterparty details is one approach. Nevertheless, if parties to a negotiation under American Law prefer not to be committed to what may legally be interpreted as a Fixture before all details, major and minor, have been agreed, upon and all subjects lifted, parties should make this patently clear by the use of suitable wording. A sample of such wording would be “Subject to Charterer’s/Owner’s Full Approval of the Proforma Charterparty with Logical Amendments thereto”. Under American Law, a short, straightforward wording like Subject Details is not sufficient.