Ship Chartering and Ship Management

Ship Chartering and Ship Management

Below, we explore how Ship Chartering operates within the realm of Ship Management. We begin by outlining key aspects of ship ownership, detailing the structure of shipping group organizations and their interactions with Chartering and Shipbroking. Next, we define the Ship Management role and discuss its distinctions from ship ownership. We also describe Ship Management services and the various managerial models employed. The significance of Commercial Management in shipping, particularly its connection to Chartering and Shipbroking practices, is emphasized. We focus on highlighting some of the most crucial commercial decisions made by Shipowners and Ship Managers, particularly from a Chartering viewpoint.

SHIP OWNERSHIP

Legally and strictly speaking, a Shipowner is an individual or legal entity that possesses a ship. More broadly, ship ownership might also encompass the functions of Ship Management and Ship Operation, as it’s common for both Shipowning and Ship Managing companies to be part of the same shipping group. From a Chartering and Shipbroking standpoint, it’s vital to recognize that the term Shipowner refers to the party representing the ship’s interests in a Charter Party, whether under a Voyage Charter or a Time Charter.

Shipowners vary greatly. Some manage just one ship, while others operate large fleets. Some focus on specific types of ships (Fleet Specialisation), while others maintain diverse fleets (Fleet Diversification). The choice between Spot Charter and Time Charter depends on the Chartering Market’s conditions, the Shipowner’s strategies, expectations, and policies, as well as broader social and international geopolitical influences. Although single-ship companies are common in bulk shipping, Liner Shipping often requires cost reductions through cooperation among Ship Operators, leading to pooled resources and shared ownership or management.

Business confidentiality and the complexity of penetrating the Corporate Veil of a shipping company are key reasons for the prevalence of Single-ship Shipowing Companies. It is generally challenging under most legal systems to prove that multiple ships and their owning companies are part of the same Shipping Group or Shipowner. Tax avoidance and cost control are why many shipowning firms are based Offshore. Current trends in management push for more transparency in the structures of shipping groups, such as through holding companies, corporate frameworks, and publicly traded shipping companies, which are now more prevalent than before. Audited financial statements are standard business practice.

A contemporary Shipping Group in the ocean-going market might consist of several offshore, Single-ship Shipowning Companies, with each ship owned by a unique, purpose-specific company. Additionally, the Shipping Group would likely include a Ship Management company owned by the group, managing its fleet, and possibly a holding company that holds the shares of the shipowning companies. This holding company might be listed on an international stock exchange, such as the New York Stock Exchange (NYSE), Nasdaq, or Oslo Stock Exchange. The group could also contain various other companies, whether related to shipping activities or not, such as cash management companies, investment vehicles, real estate companies, etc.

Private Shipping Groups not listed on any stock exchange may opt to issue audited consolidated or combined financial statements, though they are not required to do so. In contrast, publicly listed companies must publish audited accounts. The definition of a Shipowner has evolved significantly over time. Today, various company structures are employed, including Sole Proprietorship, Partnerships such as Master Limited Partnerships – MLPs, and Corporate structures. Within the Bulk Shipping and Liner Shipping sectors, numerous types of businesses exist, each with unique organizational structures, commercial goals, and strategic objectives.

Below are examples of typical Shipping Group structures and their differences concerning Chartering and Shipbroking:

• Private Bulk Shipping Group: This group owns and operates a fleet of ten ships, including five MR tankers and five handy bulk carriers that trade globally. The group maintains a small office in Dubai managed by a Chartering Manager and a main office in Athens handling accounts and administration. Five MR tankers operate under Time Charters, and the five handy bulk carriers trade on the spot market. Ships are brokered through a select few Competitive Shipbrokers with long-standing trusted relationships. Ship Agents are appointed in each port on an individual basis. As handy bulk carriers operate on the Spot Market, Charterers are located worldwide, using various Standard Voyage Charter Party Forms depending on the cargo. Conversely, the tankers aim for Time Charter employment, attracting a smaller, more specific group of clients, primarily major oil Charterers who use their own Tanker Charter Party Forms.

• Shipping Corporate: A Liner Company specializing in container shipping, operating 40 containerships (twenty owned and twenty chartered-in from independent Shipowners) from a sizable modern office block with approximately 900 staff. All major decisions are made by the main Board of Directors (BOD), which includes 12 executive members and representatives from major stockholders. Besides the headquarters, the company manages a broad network of local offices and agencies, either owned or operated on an “Exclusive” basis, overseeing operations at various global ports. The headquarters features large departments dedicated to ship operations, marketing, documentation, secretariat, personnel, and legal affairs. The Liner Company employs 2,500 individuals—1,500 shore staff and 1,000 sea staff. Ship space and cargo transport bookings are managed by Shippers or Freight Forwarders (FF) through the company’s Liner Agency Network, confirmed via “Booking Notes”. Liner shipping clients are numerous and widely distributed globally.

• Shipping Division: This division belongs to an international grain trading company, responsible for transporting 20% of its grain shipments in company-owned bulk carriers. The division is tasked with acquiring and managing these vessels. A divisional board handles daily decisions, but significant actions such as the sale and purchase (S&P) of bulk carriers or strategic decisions require approval from the main Board of Directors (BOD). Any capital expenditures exceeding $5 million also require board approval. The shipping division currently operates a fleet of 34 capesize bulk carriers and 63 panamax bulk carriers. With the company chartering in 70% of its transportation needs, the division maintains an in-house Chartering Team to ensure grain cargoes are transported on modern, well-maintained bulk carriers owned by top-tier independent Shipowners. The Chartering Department has the autonomy to choose between Spot Market or Time Charters based on the company’s needs, market outlook, and prevailing conditions. The company consistently uses its own Standard Charter Party Forms.

• Public Diversified Shipping Group: This group is a holding company that controls a fleet of over 100 various types and sizes of ships, each owned by its respective single-ship owning subsidiaries. Financial oversight is concentrated at its New York headquarters, while technical management, manning, Ship operations, and Chartering are handled from more cost-effective locations such as Athens. Listed on Nasdaq, this group is predominantly owned by institutional investors and closely monitored by investment analysts specializing in shipping. Despite recently fending off a significant takeover attempt, the management remains under pressure to enhance the return on capital employed. Chartering activities are managed through a mix of In-house and Competitive Shipbrokers. Ship Agents are appointed individually at each port of call. The group employs an advanced credit control system to assess the creditworthiness of its Charterers, preferring to work with reliable, First-Class Charterers worldwide. Depending on market conditions and opportunities, ships are chartered either on Spot Charters or Time Charters. The In-house Chartering and legal division are highly experienced in selecting the most appropriate Standard Charter Party Forms for each situation.

• Semi-Public Shipping Group: This Norwegian shipping group started with purchasing small tankers in the early 1940s. Though the holding company is listed on the Oslo Stock Exchange, the founding family retains a controlling interest. Since the 1980s, the group has expanded into more sophisticated markets, including the ownership of refrigerated ships and the transport of specialist bulk cargoes like motor vehicles and forest products, securing significant market share and a reputation for quality and reliability in these sectors. To enhance managerial control and investment opportunities, the tanker operation was spun off into a separate entity. The group operates a large fleet of modern merchant ships from its sizable Oslo office, designed for high performance across different markets. It consistently seeks to secure Time Charters or Bareboat Charters with First-Class Charterers for extended durations, especially during strong Freight Market periods, aligning with the group’s relatively conservative profile to boost cash flow visibility and stability. The group maintains a few Charterers as long-standing partners across all markets, using Standard Time Charter Parties for specialized ships and preferring Charterers’ Charter Party Forms for tankers. Each market segment the group operates in is supported by a small, dedicated In-house Shipbroking team.

 

SHIP MANAGEMENT

Ship Management is distinct from ship ownership, as clarified by its definition.

Ship Management Definition

Ship Management refers to the provision of a single or a range of services by a Ship Management company, which operates independently of the ship’s ownership.

This involves professionally supplying services under contractual terms in exchange for a fee known as the Ship Management Fee. The Ship Manager is tasked with ensuring that the ships always comply with international rules and regulations, are operated safely, cost-efficiently, and profitably without harming the environment, and are maintained well enough to remain seaworthy and preserve their asset value as much as possible.

Ship Management encompasses critical functions such as the manning, training, and appointment of ship and shore-based personnel, advising on the most suitable type of ship to purchase and financing methods, providing ship’s supplies and stores, advising on ship registration, trading, operations, and commercial employment, maintenance, and more. Thus, the term ‘single or a range of services’ refers to either a comprehensive set of services or just one specific service provided by the Ship Manager to the Shipowner. These services are categorized into main groups such as Technical Management, Crew Management, Commercial Management, and Ancillary Management Services, and the organization and grouping of these services can vary widely.

These managerial activities are either handled by a management company within the Shipowner’s shipping group or outsourced to specialized Third-party Ship Management Companies. These third-party entities primarily handle efficient manning (crewing), chartering, and maintenance of ships. Outsourcing Ship Management allows shipping companies to concentrate on core competencies, access top management practices, and enhance competitiveness through the adoption of new technologies.

A Ship Management Company being separate from the ship’s ownership indicates that it is a distinct legal entity from the Shipowning Company. In cases of Third-party Ship Management, the offices of the Ship Management Company might be located thousands of miles away from the Shipowner’s domicile and in a different time zone from where the ship typically operates. Often, there is no common shareholding interest between the Shipowner and the Ship Manager, although in practice, common shareholding interests are frequent when Ship Management and Shipowning Companies are part of the same shipping group. Regardless of the relationship, the Ship Management Company operates as a separate cost center and delivers equitable services to all Shipowning Companies (Shipowners) under a clearly defined contract and detailed budget agreed upon by both parties.

The agreement between a Shipowner and a Ship Manager, even if they are part of the same group, is known as the Ship Management Agreement. One of the most recognized and widely used contracts in this field is the BIMCO (Baltic and International Maritime Council) Standard Ship Management Agreement, referred to as SHIPMAN 2024. SHIPMAN 2024 is a template that can be modified as necessary to meet the specific needs of each Ship Management Agreement.

SHIP MANAGEMENT SERVICES

Ship Management encompasses a broad range of services that fall under several categories: Technical Management, Crew Management, Commercial Management, and ancillary services, each crucial to the financial health and operational efficiency of a ship. Chartering, a key component of Commercial Management, significantly impacts both revenue generation and cost structures for a vessel. Conversely, Technical Management, Crew Management, and Ancillary Services play vital roles in controlling a ship’s expenses, particularly the main category of Operating Expenses (OPEX). These Operating Costs, which include crewing, insurance, maintenance, and repair, constitute one of the two fixed cost categories in ship management—the other being Capital Expenses (CAPEX), which cover loan installments and interest payments from ship acquisition through debt financing. Additionally, Variable Costs such as Bunkers (Fuel), Port Dues, and Canal Dues are major cost factors. The distribution of costs between the Shipowner and the Charterer varies by charter type. The decisions made in Ship Management ultimately influence the profitability margins, cost levels, and the quality of transportation services provided by a shipping company, thereby shaping its market profile.

SHIP MANAGEMENT SERVICES

Technical Management Services:

  1. Maintenance/Repair
  2. Inspection
  3. Budgeting
  4. Purchasing (Spares/Stores)
  5. Performance Monitoring
  6. Reporting
  7. Safety & Quality (S&Q)
  8. Drydocking
  9. Certification
  10. Emergency Contingency
  11. Insurance of Hull and Machinery

Crew Management Services:

  1. Selection/Engagement
  2. Manning Levels
  3. Certification Control
  4. Performance Appraisal
  5. Payroll
  6. Travel
  7. Welfare
  8. Drugs and Alcohol Training
  9. Insurance of Crew
  10. Reporting

Commercial Management Services:

  1. Marketing/Advertising
  2. Voyage Estimating
  3. Chartering
  4. Operations/Bunkering
  5. Post-Fixture
  6. Freight/Hire Collection
  7. Laytime Calculating
  8. Port Disbursements (PDAs)
  9. Accounting/Payments
  10. Master General Account (MGA)
  11. Shipbroking/Agency
  12. Investment/Disinvestment

Ancillary Management Services:

  1. Consultancy
  2. Insurance of Ships
  3. Legal/Claims
  4. Financial
  5. Audit

Each of these services contributes uniquely to the overarching aim of optimizing operational efficacy and financial stability in ship management.

1- TECHNICAL MANAGEMENT SERVICES

The main goal of Technical Management is to ensure safe, environmentally responsible, and cost-efficient ship operation that complies with international regulations. This encompasses comprehensive maintenance and repair of the vessel, structured into several service areas, including:

  1. Supply and management of all necessary stores, spares, lubricants, chemicals, and other miscellaneous items needed daily to keep the ship in Seaworthy and Cargoworthy condition. This includes inventory control and supplier management. Additionally, the stores department ensures the availability of special foods to cater to the diverse dietary preferences of multinational crew members.
  2. Regular inspections are conducted by a Superintendent who visits the ship to assess the maintenance level, operational performance, and technical condition of the ship’s structure and equipment. These inspections also ensure Crew Members adhere to company policies and help resolve any technical or operational issues.
  3. Repair and drydocking of the ship encompass pre-docking activities such as preparing drydock work lists and evaluating shipyards based on quality, cost, payment terms, and delivery and redelivery costs. Drydock management also includes overseeing operations and approving any unbudgeted items or services.

Costs for repair and maintenance might include scheduled routines like onboard works or programmed drydocks, and unscheduled repairs, whether major or minor. Costs for stores and supplies cover a wide range of items, from Marine and Deck Stores (like paints, ropes, safety gear) to Engine Room Stores (like greases and electrical items), and Steward’s Stores (including cleaning materials and recreational items). Lubricating oils represent a significant cost factor in this category. Typically, Repair and Maintenance Costs account for 15–20% of total Ship Operating Costs, with stores, spares, and lubricants contributing another 20–25%. It has been observed that during periods of low Freight Rates, Shipowners might delay maintenance, which, combined with an excess of repair capacity, can keep these costs relatively low in depressed markets.

2- CREW MANAGEMENT SERVICES

The chief aim of Crew Management is to supply a well-trained and experienced crew, of the nationality specified by the Shipowner, to ensure safe, efficient, and economical ship operation in line with international standards. Crew Management encompasses several service elements, such as:

  1. Crew selection, which involves managing extensive data on seamen’s records and application forms.
  2. Coordination among various personnel involved in crew sourcing at different locations, typically including the Ship Master, Crew Manager, and recruitment officer, along with other stakeholders like Port Agents and medical practitioners.
  3. Evaluation of Crew Members’ performance throughout their employment and implementing strategies to minimize human error. Reducing human error can be achieved through better communication, training, fatigue management, and addressing conditions that contribute to errors, such as reducing commercial pressure on seafarers through improved shore-based management.
  4. Crew training and career development.
  5. Management of drug and alcohol use.
  6. Handling of medical issues.

Crew-related expenses, including Wages, overtime, victualling, and travel/repatriation costs, are influenced by external factors like crew nationality and the ship’s trading status. Manning costs constitute 35–40% of total Ship Operating Costs, significantly impacting Ship Management.

3- COMMERCIAL MANAGEMENT SERVICES

Commercial Management of ships is closely linked with Chartering and Shipbroking, involving various Ship Management Services related to a ship’s employment:

  1. Pre-fixture services are provided during the stages of Chartering Investigation and Chartering Negotiation. This includes the evaluation of Chartering alternatives, commonly referred to as Voyage Estimation, which falls under this service category.
  2. Fixture services occur during the Fixture stage of either a Voyage Charter or a Time Charter. The Commercial Manager negotiates the necessary terms and conditions, finalizes, and signs the agreed Charter Party, representing the Shipowner’s interests.
  3. Post-fixture services (Operational services) are enacted once the ship’s employment is set. The Commercial Manager directs the Ship Master to execute the charter. This phase ensures the ship fulfills its commitments, managed by the Commercial team and executed through Chartering Shipbrokers. It includes Bunker (Fuel) Management, selecting Port Agents, monitoring revenue streams like Freight, Hire, Demurrage, maintaining ship accounts, reviewing invoices (Port Disbursements Account – Port DAs), resolving charter-related disputes, and handling other specialist matters such as drydocking or accidents. Additionally, it involves Laytime Calculation, a critical Post-fixture process with significant commercial and legal implications closely tied to the Chartering and Shipbroking sectors.
  4. Marketing services enhance Chartering Policy and aim to boost the shipping company’s profitability and customer retention. These are implemented throughout the marketing process.
  5. Services related to purchasing (new or second-hand ships), selling (for scrap or second-hand), or the Lay-up of ships are also part of Commercial Management.

Sometimes, Shipowners may subcontract all other management aspects to a Third-party Ship Management Company, retaining control over the Commercial Management. This includes interactions with Shipbrokers, fixing Voyage Charters or Time Charters, and overseeing the marketing process.

4- ANCILLARY MANAGEMENT SERVICES

Ancillary Management Services primarily manage Financial Matters such as advising on financial account publication or monitoring the credit risk of prospective Charterers, as well as overseeing special technical projects like consulting for the construction or conversion of ships and supervising the related activities.

Insurance services, handled by the Ship Management company, are another aspect. Insurance for ships typically includes Hull & Machinery (H&M) Insurance, which covers loss or damage to the ship itself, and Protection and Indemnity (P&I) Club Insurance, which covers third-party claims against the ship. These categories represent about 90% of Insurance Costs, with the remaining expenses covering War Risk Insurance (WRI), Freight Demurrage and Defense Insurance (FD&D Insurance), among others. Insurance costs generally make up 8–10% of total Ship Operating Costs.

This category of Ancillary Management Services may also include handling legal claims or auditing financial accounts.

SHIP MANAGEMENT MODELS

The relationship between the Shipowner and the Ship Manager is complex, and here we briefly describe the most significant types of Ship Management Models.

One key decision is whether to keep Ship Management in-house or to outsource it to an independent Third-party Ship Management Company. This choice involves more than just cost considerations; it also pertains to how much control and decision-making the owner is willing to relinquish, posing strategic and counter-party risks.

1- Traditional Ship Management Model

In the Traditional Ship Management Model, the Shipowner establishes an in-house Ship Management system, retaining full responsibility for both Ship Management and Ship Operating. The Shipowner hires personnel to operate directly under their management, typically sharing office space and staff with the shipowning companies of the group. This model includes a structured organizational approach to handling all aspects of ship operation and management, adhering to the ISM Code (International Safety Management Code) and securing the necessary certifications for the office and each ship. This model is prevalent because it maintains privacy in decision-making, often leading to the terms “Shipowner” or “Owner” being synonymous with the Ship Manager. For clarity, we refer to the “Shipowner” as also encompassing the roles of Commercial Manager or Operator of ships, unless specified otherwise.

2- Third-Party Ship Management Model (Outsourcing)

The Third-Party Ship Management Model involves contracting the ship’s management to a specialized Third-party Ship Management Company such as V.Ships (V.Group), Bernhard Schulte Shipmanagement (BSM), or Wilhelmsen. This model outsources all daily management functions, including Technical, Crewing, Operations, Commercial (Chartering and Post-fixture), Accounting and Financing, Safety, and Quality. The Third-party Ship Management Company takes operational control and reports back to the Shipowner, who retains final authority and financial responsibility. This model is often chosen by entities like banks, pension funds, or investment groups that own ships but lack shipping expertise. It’s crucial for such owners to engage competent Third-party Managers to secure a return on their investment.

Additionally, complexities in shipping operations, legislative changes, safety concerns, and advancements in communication technologies have prompted some Shipowners to prefer working with Third-party Ship Management Companies that manage large fleets. This can provide more cost-effective management services than those possible within smaller, private shipping groups. For Shipowners with smaller fleets, managing costs effectively can be challenging due to the lack of economies of scale. These Shipowners might find it economically viable to engage Independent Third-party Ship Management Companies to reduce operating costs. These companies offer comprehensive services across all necessary departments, leveraging their scale to potentially reduce costs and improve service quality.

For medium-sized Shipowners, the dilemma often lies in choosing between the control of using their own staff and the cost savings from employing a Third-party Ship Management Company. Some may opt to outsource only parts of the management function, maintaining a blend of in-house and third-party services.

In summary, Shipowners might choose to outsource Ship Management for various reasons:

  • Cost savings through economies of scale.
  • Investment flexibility, which allows for strategic adjustments such as investing, divesting, or diversifying.
  • Benchmarking to evaluate operational efficiency and cost-effectiveness.
  • Compliance with international maritime laws and regulatory requirements.
  • Lack of in-house expertise in ship operation.
  • Efficient resolution of operational issues by the management company.
  • Enhanced quality and reliability of services.
  • Increased speed and flexibility in service delivery.

 

3- Hybrid Ship Management Model

The Hybrid Ship Management Model involves a combination of in-house management and outsourcing certain functions to a management company. Here are some specific examples that demonstrate the versatility of Hybrid Ship Management arrangements:

  1. The Shipowner maintains control over key aspects of ship management, such as selecting senior officers, conducting safety audits, and overseeing dry-docking negotiations and operations, while delegating other routine Ship Management tasks.
  2. For a core fleet, the Shipowner operates a Technical Department but utilizes a Third-party Ship Management Company for a specialized fleet, ensuring appropriate technical management, like maintaining tank coatings and sourcing qualified crew specific to these vessels.
  3. If a Shipowner expands his fleet suddenly, perhaps through opportunistic acquisitions, and lacks sufficient in-house Ship Management staff, he may temporarily employ a Third-party Ship Management Company until he can hire additional personnel.
  4. Sometimes, a Third-party Ship Management Company may hold an equity stake in a managed vessel or have some form of equity partnership with the Shipowner.

In this model, a Shipowner could manage his companies himself or subcontract all or parts of operations like Ship Operation, Crewing, Commercial, or Technical Management to Third-party Ship Management Companies. In particular instances, the Shipowner might also subcontract the ship’s ownership through a Bareboat Charter, where the Charterer becomes the quasi-owner, fully responsible for the ship’s Operation and Commercial employment. It’s important to note that Bareboat Charters carry high risks for the Shipowner, as problems caused by poor ship operation or the Charterer’s insolvency can significantly impact him.

IMPORTANCE OF COMMERCIAL MANAGEMENT

Previously, we explored how Ship Chartering fits within Ship Management. It is clear that Chartering is a crucial component of Commercial Management. The key stakeholders in Ship Chartering include the Shipowner, the Charterer, and the Shipbroker. The Shipowner may transport cargo using his vessel (Voyage Charter) or lease out the ship (Time Charter). The Charterer needs the ship either because he already has or expects to secure cargoes for transport. Shipbrokers facilitate the connection between Shipowner and Charterer, crucial for executing a successful Charter Deal. Thus, effective Commercial Management and Chartering are vital for a Shipowner’s success.

Decision-Making in Commercial Management

Successful shipping operations require comprehensive information and high flexibility. Market dynamics like daily changes in Freight Rate Levels and trading conditions, influenced by supply and demand, are compounded by ongoing advancements in shipbuilding, propulsion, and terminal operations. Changes in international trade patterns can shift dramatically, altering the significance of traditional ports and cargo routes. These shifts may happen over a few years and reoccur throughout a ship’s commercial lifespan, typically 20–25 years, though some vessels may operate for up to 30 years or more. Regardless of whether the Freight Market is booming, stagnant, or declining, seasonal variations in cargo volumes also occur. In such a fluid commercial landscape, Shipowners, Ship Managers, Ship Operators, Charterers, Shippers, Shipbrokers, and Ship Agents must be adept at seizing new opportunities to stay competitive and survive.

To ensure optimal flexibility both daily and over the long term, and to remain economically secure, Shipowners might opt to update their fleets when they deem the conditions advantageous. Shipowners manage the quantity, type, and size of ships required to fulfill the demands of their Chartering contract obligations. When their Charterers necessitate additional capacity or due to temporary or sudden surges in the demand for shipping space in relevant market sectors, Shipowners may engage additional ships (Charter-in). This arrangement allows a Shipowner who operates a fleet to maintain owned ships as a relatively permanent base, complemented by a capacity of chartered-in ships (under Time Charter Parties or Bareboat Charter Parties) tailored to meet the shipping market and Charterer needs over time. Additionally, Shipowner might also employ extra ships on a Spot basis to address short-term increases in cargo offers or to cover unexpected vacancies in liner or contract schedules.

Clearly, the shipowning industry revolves around decision-making. Key commercial decisions include those about the investment and divestment of ships, their employment, and the timing of these actions. Thus, Ship Ownership—shaped by ship sales and purchases, newbuilding orders, and scrapping—as well as Ship Management and Chartering decisions are crucial for the entire shipping community. The decisions concerning investment and divestment are particularly critical for a Shipowner’s success. Nonetheless, regarding the Chartering business, Shipowner, Ship Operators, and Ship Managers must be capable of making essential commercial decisions, both strategic and operational.

The Chartering and daily ship employment decisions vary widely. Below are some examples:

  • Arranging employment for owned ships in the open market by securing full or partial cargoes on either a voyage-by-voyage basis or through long-term charter contracts.
  • Employing owned ships in so-called “industrial shipping” with a Charterer, under a Chartering agreement that lasts several years, such as Time Charter, Bareboat Charter, CoA (Contract of Affreightment), or Consecutive Voyage Charters, with a fleet specifically constructed and equipped to meet the Charterer’s requirements, serving as an integrated component of the Charterer’s business production and distribution chain.
  • Chartering-in Ships for extended periods under a Time Charter Party or a Bareboat Charter Party, or for shorter spans under a Trip Time Charter (TCT), aiming to augment the owned fleet of ships to meet anticipated market demands, uphold Chartering contract obligations, or maintain the standards of a Liner Shipping Service engagement, all while maximizing efficiency, economy, and Charterer satisfaction over time.
  • Time Chartering “out” owned or period-chartered Ships to other Shipowners or Ship Operators for varying durations against a Fixed Daily Hire, enabling those parties to operate the ships in the Open Chartering Market (Spot Market) or in the Liner Shipping trades.
  • In pure liner trades, securing bookings for so-called “Parcels” (typically smaller shipments of various commodities), aiming to utilize empty spaces on ships engaged in a Liner Shipping service, following a fixed itinerary.

 

 

Insights on Commercial Management from a Chartering and Shipbroking Perspective

In the realm of Chartering and Shipbroking, the significance of Commercial Management is paramount as it decisively shapes the specifics of a ship’s employment. This involves choosing the charter type, managing the distribution of costs between the Shipowner and the Charterer, setting the duration of the Charter Party, determining the Freight Rate or Hire Rate, defining trading areas, and the timing of these decisions. While other aspects of day-to-day Ship Management such as Technical Management, Crew Management, and Ancillary Services Management impact only the costs of managing a ship, Commercial Management directly influences both revenues and costs, thereby affecting a Shipowner’s profitability. For instance, in a Voyage Charter, Freight is paid on a per ton basis and the Shipowner covers the Voyage Costs (such as Bunkers, Port Dues, Canal Dues, etc.), whereas in a Time Charter, revenue is generated on a per day basis and the Voyage Costs are passed to the Charterer. Furthermore, while the Shipowner always bears the ship’s Operating Costs in a Time Charter, these costs are transferred to the Charterer in a Bareboat Charter. The choice of charter type is thus crucial to the financial outcomes for a Shipowner.

It is also vital to recognize the distinct roles within the shipping industry. Chartering primarily serves to match the cargo transport needs with ship employment options in a routine business environment. This process culminates in critical documents such as Charter Parties and Bills of Lading (B/Ls). For all market participants, understanding the roles and distinctions of others is essential. When entering into a shipping agreement, knowing the identity and role of the counter-party, the business they serve, and the interests they represent is crucial. For example, in a Charter Party, the representative of the ship’s interests might be a shipowning company or a Ship Operator, while the interests of the cargo in a Charter Party or a Bill of Lading might be represented by a Shipper, a Charterer, or a Freight Forwarder. This knowledge is critical for Shipbrokers to effectively represent and advocate for their clients in Chartering negotiations, helping to avoid problems, better understand situations, interpret business behaviors, and comprehend the extent of each party’s responsibilities.

Additionally, the state of the Freight Market and the ongoing need for cost control are significant when making Ship Management decisions. For example, during periods of low freight earnings and high oil prices, a Shipowner might opt for a Time Charter to pass the burden of high Bunker costs to the Charterer instead of bearing them on the Spot Market.

Commercial Management also includes two practical and calculative aspects of Chartering. The first is the Voyage Estimation process, conducted prior to Fixing a ship, which critically assesses the ship’s profitability. The second involves Laytime Calculation, a complex and legally significant aspect of Chartering that defines the period during which the Shipowner must make the ship available for loading or unloading without additional payment beyond the Freight. Laytime is often a contentious issue in Chartering practice.

In conclusion, Commercial Management of ships encompasses both operational and strategic components. The operational aspect includes making Chartering decisions and managing income streams, with Shipbroking playing a key intermediary role. Strategically, Commercial Management involves not only investment and divestment decisions, like buying and selling ships, but also includes marketing, a vital strategic tool in advancing a Shipowner’s Chartering policy.