Shipbroking became a recognized shipping service in the early 20th century. Shipbroking was first established in London. In the early 20th century, London was considered a maritime and shipping center. Later on, shipbroking service spread into other important maritime centers such as Oslo, Paris, Hamburg, Madrid, New York, Tokyo, and Hong Kong. The advent of modern telex and automatic telephone services worldwide has allowed for a better flow of information about ships’ availability for sale and charter. Word of Mouth negotiating became the mode of business between shipbrokers who endeavored to establish an ethical affinity to keep the motto our word, our bond.
Later on, several reputable shipbroking organizations have been established such as Clarksons, Braemar, Howe Robinson, Simpson Spence Young (SSY), Galbraith, Barry, AmorBulk among others. Shiprokers specialize in one or more categories of the business:
- Shipowner’s Shipbroker: are appointed by shipowners to secure charters (ships or cargo) for their tonnage. Their main interest is to favor and protect the shipowner by negotiating the best terms and revenue
- Charterer’s Shipbroker: Under instruction from the charterer, shipbroker is expected to widely circulate the order for tonnage in an effort to secure a most favorable fixture for the cargo interests
- Intermediate Shipbroker (Competitive Shipbroker): Having neither shipowners’ tonnage to represent nor an order direct from a charterer, intermediate shipbrokers endeavor to insert themselves as middlemen into a shipping transaction
- Sale & Purchase (S&P) Shipbroker: requires the knowledge of ships, technical and classification as well as a broader base of ships’ valuation, ranging from newbuilding costs, second-hand market values and demolition prices worldwide. As above, the S&P broker usually works to represent one party, either buyer or seller, in a deal.
Other categories of shipbrokers include:
- Newbuilding Shipbroker
- Specialized broker (like Ro-Ro, MPP)
- Cargo Shipbroker (like grain, timber)
- Bunkers Shipbroker
- Demolition Shipbroker
Shipowners use shipbrokers’ services in order to cover all the market and to get the highest prices for their ships. Charterers utilizing shipbrokers to protect their interests receive a service paid for by shipowners.
Usually, shipbrokers are paid commission for their service that is calculated as 1.25% of the freight or daily hire. Depending on the charterer requirements, shipowner also may pay a fee to the charterer called the Address Commission (ADDCOM) which covers the charterer’s in-house chartering department costs. As a result, the total fees incurred by the charterer are reduced by the amount of the Address Commission (ADDCOM).
Sale and Purchase (S&P) Shipbrokers commission is usually approximately 1% percent of ship sale price.
Shipbrokers incur high communication costs in order to keep their clients equally well informed. High communication costs can only be offset by consummating fixtures or sale transactions. Experienced shipowners and charterers take full advantage of competent brokers. Relationships between shipbrokers and clients take considerable time to develop.
Shipbroker’s role includes:
- Monitor and circulate a list of open cargoes (orders) and open tonnage (positions)
- Match open cargoes (orders) with open tonnage (positions) and maintain a database of ships, positions, and orders
- Consolidate market intelligence and information in order to support their customers and help them make informed decisions
- Handle and assist communications between parties effectively and in strict confidence
- Deal with amendments to negotiations
- Draw up the charter party according to what has been agreed by both parties
- Deal with financial transactions such as freight payments, voyage balances, hires, off-hires, demurrages
Role and the experience of a shipbroker is of great importance in negotiations. Shipbrokers’ task is to guide their principals properly during negotiations. Shipbrokers always act within their authority and avoid misrepresentation. Shipbrokers avoid offering the same ship or cargo firm to more than one party at the same time.
Mere indication is not an offer. Indication is not binding on the party, which means several indications may be made for various cargoes or ships at
the same time.