Shipbrokers’ Commission

Traditionally, in shipping business, each shipbroking company earns brokerage or commission at the long-established rate of 1.25% of the value of the freight, dead freight, demurrage, damages for detention, hire and ballast bonus (No commission on despatch money). Commission on demurrage is not always paid by United States major oil companies. Ship brokerage usual percentage rate of 1.25% may be altered by mutual consent of all groups of parties involved in the commercial transaction (shipowners, the charterers, and all the shipbrokers). The commission is payable to each shipbroker separately. The shipowner may give all his business to one exclusive shipbroker in return for a smaller commission (1%). The only usual exception is shipbrokers involved in the coastal trades, who generally do as much work as a deepsea shipbroker but, because the traffic is in much smaller vessels, the value of the freight is correspondingly smaller, so these shipbrokers usually earn 2.5% of the value of the freight.

Address Commission (ADCOM) is paid to the time charterer to cover the cost of managing the ship while she is on charter. Traditionally, address commission (adcom) is taken by the trader charterers on a voyage charter in order to cover the cost of their shipping departments, which are frequently at a different physical address from the trading office, hence the name. Such a commission is often hidden within the charter-party commission clause as (e.g.) ‘5% commission to Joe Bloggs, Shipshipbrokers, for division with others’. One of those ‘others’ might be the charterers, so for example, the division could be 1.25% to Joe Bloggs (shipbrokers), 1.25% to Mary Smith (shipbrokers), and 2.5% address commission to the charterers. The key point here is that the charterers do not want the buyers of their commodities to know that they are taking additional profit this way, so it is also called a ‘hidden commission’. In deepsea tanker chartering, address commission is not always requested and depends on the nature of the trade – some traders want 4%, others 1% or 1.25%, or 2.5%. This commission is usually deducted directly from the freight or hire, rather than the charterers paying the full freight or hire to the beneficial owners and then waiting for those owners to remit the commission back to the charterers. The only party benefitting from such a protracted transaction would be the banks involved because they take a slice of the money transacted as their fee.

Sale and Purchase (S&P) shipbrokers traditionally earn 1% of the sale value of the ship, which might seem excessively generous until it is realized that this large amount must cover (often many) months of broking work, including a lot of high telecommunication costs, lawyers’ fees, surveys, and possible travel expenses, as well as the time spent on all those deals which never materialized. Shipbrokers’ efforts are unrewarded unless there is a fixture or sale at the end of negotiations. Sometimes shipbrokers will agree to cut their own commissions in order to effect a sale or a charter, particularly in difficult markets.