Shipowner Firm Offer
A shipowner makes an offer to a charterer or vice-versa, this is known as a Firm Offer. A very important aspect of the ethics of shipbroking is the treatment of Firm Offers.
The code of ethics of the Baltic Exchange, of the Institute of Chartered Shipbrokers (ICS) and of all other sensible shipbrokers prohibits the making or the holding of more than one firm offer at one time.
When negotiating, it is not possible to hold two firm offers. When a shipbroker acting on behalf of the Shipowner makes a firm offer, the ship cannot be offered elsewhere at the same time.
Equally, a Charterer cannot make an offer to two ships at once, otherwise he could be obliged to provide two cargoes.
All offers, therefore, have a Time Limit attached. Time Limit must be clear in what place or time zone, the time limit is to apply, for example 10:00 PM London time.
This system has advantages for both Shipowners and Charterers, as each party knows that the other is interested in their business and that a contract or fixture will follow, provided they can agree on all the terms.
Furthermore, both Shipowners and Charterers know that they are not in competition with another party. In other words, the Shipowner knows that the Charterer is not talking to another Shipowner and the Shipowner knows that his is the only ship which the Charterer is fixing.
It is possible to offer a ship or cargo subject open or subject unfixed, thus indicating that negotiations are being conducted with other parties. Many Shipowners or Charterers refuse to do business on this basis.
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What is a Firm Offer in Ship Chartering?
A Firm Offer in the context of ship chartering refers to a definitive proposal made by a charterer or shipowner that outlines specific terms and conditions for the charter of a vessel. This offer is binding for a specified period, meaning that the party making the offer cannot withdraw it during this period. The main characteristics of a firm offer include:
- Details of the Offer: It typically includes details such as the charter rate, duration of the charter, loading and discharging ports, laycan (the period during which the charter must start), and any special terms or requirements.
- Binding Nature: Once made, the offeror is bound by the terms of the firm offer for a set period. This means they cannot retract the offer or alter the terms within this period, allowing the offeree (the party receiving the offer) time to consider and accept the proposal without the risk of it being withdrawn.
- Acceptance Period: The firm offer will specify the period during which it is valid. If the offeree accepts the offer within this period, a binding contract is formed under the terms of the offer. If the offer is not accepted within the validity period, it expires and is no longer binding.
- Negotiation Basis: Firm offers serve as a basis for negotiation in ship chartering transactions. They provide a clear framework within which both parties can negotiate the final terms of the charter party agreement.
- Formation of Contract: Acceptance of a firm offer according to its terms results in a binding contract between the parties. This acceptance must be unconditional and must be communicated to the offeror within the validity period of the offer.
Firm offers are a common practice in the shipping industry, particularly in the chartering of vessels, as they provide a secure framework for negotiations and help facilitate the efficient formation of charter party agreements. They are crucial in the planning and operational phases of shipping, ensuring both charterers and shipowners have a clear and binding understanding of the terms of engagement before committing to the significant logistics and expenses involved in maritime transport.
The use of Firm Offers in Ship Chartering serves several important functions:
- Risk Mitigation: By creating a binding commitment for a specified period, both parties have a level of certainty. The charterer knows the vessel will be available under the specified terms, and the shipowner is assured of a commitment from the charterer, reducing the risk of lost opportunities or last-minute cancellations.
- Market Efficiency: Firm offers contribute to the efficiency of the charter market. They allow for quick decision-making since the terms are clear and binding for a certain period. This efficiency is crucial in the shipping industry, where market conditions can change rapidly.
- Clarity and Transparency: A firm offer outlines the terms of the charter clearly, reducing the potential for misunderstandings or disputes. This clarity is essential for smooth operations and legal compliance in the complex field of maritime logistics.
- Negotiation Tool: While firm offers are binding, they also serve as a starting point for negotiations. In some cases, the offeree may request modifications to the terms, leading to further negotiations. However, the firm offer ensures that these negotiations occur within a structured and committed framework.
- Legal Implications: In legal terms, a firm offer can be seen as an irrevocable offer under certain conditions. Depending on the jurisdiction and the specific terms of the offer, the law may provide that an offer, once made and received, cannot be withdrawn until the end of the specified period. This legal backing further ensures the seriousness and commitment associated with firm offers in ship chartering.
- Strategic Planning: For both charterers and shipowners, firm offers are an essential tool for strategic planning. They allow companies to secure transportation capacity and negotiate terms that align with their operational and financial strategies, facilitating better forecasting and budgeting.
In the dynamic and complex world of international shipping, the mechanism of firm offers plays a pivotal role in ensuring the smooth execution of chartering agreements. It balances the interests of shipowners and charterers, providing a foundation for trust and cooperation in a highly competitive industry.
Firm Offer in Ship Chartering
Subject: Firm Offer for Time Charter of MV Sea Journey
We are pleased to present a firm offer for the time charter of the MV Sea Journey under the following specified terms:
Vessel: MV Sea Journey, a Panamax bulk carrier, built in 2015, with a deadweight of 75,000 MT.
Charter Period: Approximately 12 months, +/- 30 days at charterer’s option.
Trading Area: Worldwide, excluding sanctioned countries.
Delivery: Singapore, laycan window 1st – 10th April 2024.
Redelivery: Charterer’s option within North Atlantic range.
Rate: USD 12,000 per day, on a time charter basis.
Payment: Monthly in advance, with the first payment due upon delivery.
Performance Clause: Vessel to guarantee a speed of 14 knots on 35 MT IFO 380.
Hire: Hire to be paid for every commenced day, 30 days in advance.
Insurance: Hull & Machinery, P&I to be covered by the owner. Cargo insurance to be covered by the charterer.
Survey: Vessel to be delivered freshly passed dry-dock survey.
Option: Charterer has the option to extend the charter for an additional 12 months at a rate to be mutually agreed upon 30 days before the expiration of the initial term.
This offer remains firm and open for acceptance until 1600hrs GMT on 20 March 2024, after which it will be considered null and void if not accepted.
Firm Offer Example in Ship Chartering 3
Subject: Firm Offer for Voyage Charter of MV Global Carrier
We hereby submits a firm offer for the voyage charter of the vessel MV Global Carrier under the terms outlined below:
Vessel: MV Global Carrier, a modern Capesize bulk carrier with a deadweight of 180,000 MT.
Cargo: Iron Ore, with a total quantity of approximately 170,000 metric tons, 10% more or less at charterer’s option.
Loading Port: Port Hedland, Australia.
Discharging Port: Qingdao, China.
Laycan: 15th – 25th April 2024.
Freight Rate: USD 9.50 per metric ton, payable upon signing of Bills of Lading.
Demurrage: USD 22,000 per day or pro-rata.
Despatch: Half demurrage on actual saved days.
Loading/Discharging Terms: Load 20,000 MT PWWD SHINC / Discharge 25,000 MT PWWD SHINC.
Agency: Charterer’s agents at both ends.
Surveyors: Appointed and paid for by the charterer at loading port and by the shipowner at discharging port.
This offer is firm and irrevocable until 1500hrs GMT on 1 April 2024 after which, if not accepted, it will automatically lapse.
Chartering Negotiations
Negotiations require meticulous attention to detail and thorough agreement on all terms between the involved parties to establish a legally binding contract. Traditionally, shipbrokers have documented the progress and specifics of negotiations in a “day book,” serving both as a reference for agreed upon terms and unresolved matters, and as protection in case of disputes, safeguarding both their and their principals’ interests. With the shift towards digital communication in contemporary office settings, emails, and instant messages now often substitute for the traditional day book. It’s critical that such digital correspondences are meticulously recorded and preserved for a significant duration, at least until the conclusion of the Charterparty and the resolution of all related issues.
Upon reaching an agreement, a Recapitulation (Recap) summarizing the final agreement should be circulated among all involved parties. Any verbal communications outside of chartering negotiations, such as orders to ships, must also be confirmed in writing to the instructing firm.
When a shipbroker is delegated to sign a Charterparty for a principal, they must clearly indicate their authority source, such as via phone, fax, or email, denoted as ‘As Agents only’ alongside the principal’s name. This specification ensures that, when signing under such conditions, shipbrokers are not personally liable for fulfilling the contract. However, if the principal’s name remains undisclosed, even the “As Agents Only” qualification cannot exempt the shipbroker from contractual obligations.
Firm Offers
A “Fixture” is established through the exchange of “Firm Offers” between shipbrokers representing their respective principals, a shipowner and a charterer. Once all terms and details are agreed upon and any conditions (“Subjects”) are resolved, it becomes a legally binding contract.
A “Firm Offer” should have a specified time limit and clear terms. Initial “Firm Offers” are generally based on the main terms and are made conditional upon the agreement of further terms and conditions of the charter, often including various “subjects” that need to be resolved before finalizing the charter agreement.
After agreeing on the main terms with “subjects,” it is the responsibility of the shipbrokers to ensure that both parties address and resolve these “subjects” promptly. It’s crucial to understand that a fixture is not considered finalized until all “subjects” are cleared.
Both a “Firm Offer” and a “Firm Counter Offer” can be rejected by the party receiving them. They then have the freedom to offer their vessel or cargo to someone else. This flexibility is critical for shipbrokers to remember because even a minor amendment proposed in a counter offer gives the other party the right to decline and exit the negotiation without further obligations. Shipbrokers must not issue a Firm Offer without explicit authorization from their principal.
Subject Details
Negotiations concerning the specifics of a Charterparty, akin to discussions on Principal Terms, often proceed without strict deadlines for responses. Shipbrokers act on their principals’ behalf, exchanging offers and counteroffers until there’s mutual consent on all components that will constitute the Charterparty. Shipbrokers play a crucial role in ensuring their principals are consistently updated regarding the resolution status of any pending ‘subjects’ as they confirm the agreement’s particulars are set.
In the United States, court rulings have established that a binding agreement, or fixture, can be recognized once the main terms are agreed upon, even if the agreement remains ‘subject to details’. This perspective, however, is not universally accepted, especially within the London market practices. A notable decision by the Commercial Court in London, under English Law, clarified that no binding contract exists at this juncture. Therefore, it’s vital to recognize that negotiations anticipated to fall under U.S. jurisdiction cannot be nullified based on unresolved Charterparty details. In scenarios where agreement on these details proves elusive under New York Law, a tribunal is expected to adjudicate on the unresolved elements.
Summarily, shipbrokers should be mindful that in England, the term “subject to details” signifies the absence of a legally binding contract until such subjects are clarified and resolved, contrasting with the stance in the U.S., where a more definitive approach to the agreement of main terms might still bind parties to a contract.
Subject Stem
The term “subject stem” is utilized in chartering negotiations to provide charterers with a period to confirm with their shippers that the vessel can be accepted to load the agreed quantity of cargo within the specified laydays. This condition is specifically intended for assessing the availability of cargo. Historically, the acronym STEM stands for “Subject To Enough Merchandise,” indicating that the clause is activated to ensure there is sufficient cargo available for the shipment. This practice underscores the importance of verifying cargo availability before finalizing charter party agreements, allowing charterers to ensure that the vessel will not be committed without the guaranteed load.
Subject Shipper’s or Subject Receiver’s Approval
The “subject to shippers/receivers’ approval” clause is employed in charter party agreements to indicate that the deal is contingent upon the cargo’s shippers or receivers approving the vessel. This condition ensures that the vessel meets the specific requirements or standards set by the parties responsible for shipping or receiving the cargo before the charter agreement is finalized. It provides a safeguard for cargo interests, allowing them to assess and approve the vessel based on their criteria, ensuring it is suitable for transporting the intended cargo.
Subject Head Charterer’s Approval
The “subject to head charterer’s approval” clause is commonly used when the cargo involved is part of a relet or sublet arrangement. In such cases, the charterers must obtain approval for the vessel from their head charterers before finalizing the charter party agreement. This condition highlights the hierarchical structure in chartering agreements, where the original charterer may sublet the vessel to another party. Most voyage charter contracts include provisions for reletting or subletting, allowing the charterer some flexibility in managing the charter. This clause ensures that the head charterer agrees with the choice of vessel for the cargo, maintaining a level of control over the subletting process and ensuring that the vessel meets their standards and requirements.
Subject BOD (Board of Directors) Approval
The “subject to Board of Directors (BOD) approval” clause is implemented when the final agreement or fixture needs the endorsement of either principal’s Board of Directors before it becomes binding. This provision is especially relevant in situations where significant corporate oversight is required, typically for long-term period fixtures that may have a substantial impact on the company’s operations or financial health. It’s important to approach agreements containing this clause with caution, as the Board has the authority to decline the fixture without providing a specific rationale. This level of discretion underscores the need for thorough preliminary negotiations and the understanding that the deal’s completion hinges on this higher level of corporate approval, adding an additional layer of uncertainty to the chartering process.
Subject Charterer’s Reconfirmation
Time Limits on Offers and Subjects
When making offers in chartering negotiations, it’s crucial for both parties to understand that the stipulated response time is either determined by the offeror, who then has the authority to finalize a fixture if a response is received within that timeframe, or the response time is designated for another shipbroker or the principal involved. Special consideration should be given when the decision-making authority is located in a different time zone or when there could be potential communication delays. Without these allowances, there’s a risk of responses being considered “out of time,” leading to confusion where one party might believe a fixture has been agreed upon because they responded timely, while in reality, the party with the authority to agree was not appropriately consulted in time.
It’s also critical to specify exact response times for offers and for lifting subjects, avoiding vague terms like “one business day,” “close of business,” or “24 hours after fixing.” For clarity, responses should be requested by a specific time, such as “0800 (local time) Istanbul” or “0800 (local time) New York,” and it should be clear whether the response should be directed to a shipbroker or directly to the principal.
Furthermore, setting a response time with phrases like “reply in (15) minutes” should be avoided due to the ambiguity regarding the exact expiration of the timeframe. All deadlines should be reasonable, providing adequate time for consideration and response, thereby ensuring a fair and transparent negotiation process.