Role of Address Commission in Deduction

Address Commission is typically dealt with in charter parties as an agreed deduction from freight, some charterers argue that the Address Commission is used to ‘pay for’ their shipping department therefore there is no industry standard as to what the level of Address Commission will be. In the dry cargo trades we see some as high as 5% and in the tanker trades frequently 1.25% but sometimes higher. A simple example of how this would affect the freight payable is:

Vessel loads 32,000mt of cargo at US$40.00per mt

Address Commission 2.5% is payable by owners.

Freight on 32,000mt x US$40.00per mt = $1,280,000.00

Less 2.5% Address Commission = $32,000.00
Net freight payable = $1,248,000.00

Some would argue that this is simply a discount granted by owners to charterers and to achieve a lower cost it would be better to do away with the Address Commission altogether. In practice when fixtures are reported on the market it is the ‘headline rate’ that is reported and little, if any, information is known about the commission structure. The result is that it is very unlikely that the charterer who does not take an Address Commission will pay a lower freight rate than the charterer who does.