Shipowner Firm Offer

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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:
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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

A “firm offer,” whether it pertains to cargo or a vessel, plays a crucial role in forming a binding contract, known as a charterparty, within the shipping industry. A contract becomes enforceable once a clear, definitive offer that includes specific terms is made and then unconditionally accepted by the recipient. While there are additional conditions for a contract to be valid, the focus here is primarily on the offer and acceptance as fundamental mechanisms for establishing a mutual agreement. Throughout fixture negotiations, offers and counter-offers are exchanged; an offer from one party, or their shipbroker, might prompt a counter-offer rather than acceptance from the opposing party.

From an ethical standpoint within professional practices, the term “firm offer” should be employed by a shipowner’s shipbroker during negotiation talks to signify that the vessel is being proposed exclusively to one prospective charterer at a time. Similarly, a charterer’s shipbroker might use the term to solicit specific, serious offers for cargo, indicating that the charterer is prepared and willing to engage in transactions. When a charterer is ready to proceed (“FIRM AND READY TO TRADE”), the shipowner may direct their shipbroker to present a FIRM OFFER, particularly if competition from other shipowners is anticipated. This demonstrates the shipowner’s intention to secure the cargo in question, rather than merely exploring potential business opportunities. Should the charterer find the offer appealing, negotiations commence; if not, a typical response might be to decline the offer without proposing a counter.

In the context of offering a ship for a dry cargo voyage charter, a FIRM OFFER should include essential terms such as:

  • The identity and location of both the shipowner and the charterer
  • The ship’s name and a detailed description
  • Detailed cargo quantity and description
  • Specific loading and discharging locations
  • Laydays and cancelling dates (“Laycan”)
  • Stipulated loading and discharging rates and conditions
  • Freight rates and payment methods
  • Costs related to loading, discharging, stowing, and trimming
  • Demurrage and Despatch rates, if applicable
  • Any special clauses to be integrated into the charterparty
  • Commission details
  • Preferred charterparty form, including major amendments

These components ensure clarity and commitment from both parties in the transaction, paving the way for a successful chartering process.

Firm Offer Example in Ship Chartering 1

Subject: Firm Offer for Chartering of MV Ocean Explorer

We hereby present a firm offer to charter the MV Ocean Explorer under the following terms and conditions:

Vessel: MV Ocean Explorer
Cargo: Bulk Wheat
Load Port: Santos, Brazil
Discharge Port: Rotterdam, Netherlands
Laycan: 20th – 30th March 2024
Freight Rate: USD 25 per metric ton, FIOST (Free In/Out and Stowed Trimmed)
Demurrage: USD 15,000 per day or pro-rata
Detention: USD 10,000 per day or pro-rata, if applicable
Commission: 2.5% on freight and deadfreight, payable to HandyBulk LLC
Special Conditions: Vessel to pass SIRE inspection not older than 6 months at the time of loading.

This offer is firm and subject to your acceptance no later than 1700hrs GMT on 1 March 2024, after which it will automatically expire.

Firm Offer Example in Ship Chartering 2

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

The “subject to charterer’s reconfirmation” clause allows charterers the flexibility to temporarily secure a vessel while they assess market trends or await the availability of more cost-effective tonnage options. This provision is notably burdensome for shipowners because it grants charterers the discretion to opt out of finalizing the agreement without needing to provide any justification for their decision not to proceed with the charter. Given the uncertainty this clause introduces for shipowners, it is advisable for any conditional agreement to be framed in more explicit terms that accurately describe the specific conditions or circumstances being considered. This approach aims to provide clearer expectations and reduce the potential for unilateral withdrawal without clear cause, thereby offering a more balanced arrangement between the parties involved.

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.

 

Abuse of Subjects in Ship Chartering

The term “abuse of subjects” in the context of ship chartering refers to situations where either party (charterers or shipowners) manipulates or unfairly exploits the subject clauses in a charter party agreement to their advantage, often at the expense of the other party. Subject clauses are conditional statements included in charter negotiations that must be satisfied before a charter agreement becomes fully binding. These conditions typically relate to approval from certain authorities, securing financing, or other operational prerequisites.

Abuse of subjects can manifest in several ways, including:

  1. Unreasonable Delays: A party may intentionally delay giving final approval or fulfilling their part of the subject conditions without valid reason, perhaps in hopes of negotiating a better deal or waiting for market conditions to change favorably.
  2. Backing Out Without Just Cause: A party may use subject clauses as an escape mechanism to back out of a deal without a legitimate reason, often after agreeing in principle to the charter terms, causing financial loss or inconvenience to the other party.
  3. Speculative Holds: Charterers may place ships on hold under a subject clause with no real intention of finalizing the charter, effectively removing the vessel from the market and preventing the shipowner from engaging with other potential charterers.
  4. Manipulative Negotiation Tactics: Parties may abuse subject clauses during negotiations, using them as leverage to pressure the other side into conceding better terms or rates under the threat of not lifting the subjects.
  5. Lack of Good Faith: The abuse fundamentally comes down to a lack of good faith in negotiations. Subject clauses are intended as safeguards for legitimate concerns, not as loopholes for strategic advantage.

The maritime industry recognizes the potential for such abuses and often takes steps to mitigate them, including:

  • Clear Definition of Subjects: Agreements may specify the conditions under which subjects must be lifted, including timelines and criteria for satisfaction.
  • Recourse Clauses: Contracts might include clauses that offer recourse in the event of perceived abuse, such as compensation for losses incurred due to unwarranted withdrawal from an agreement.
  • Good Faith Requirements: Emphasizing the requirement for good faith in negotiations and execution of the charter party can help deter parties from abusing subject clauses.
  • Reputation and Relationships: The shipping industry relies heavily on reputation and long-term relationships. Parties known for abusing subjects may find it harder to conduct future business as their reputation for fair dealing suffers.

Preventing abuse of subjects requires vigilance and a commitment to ethical practices from all parties involved in ship chartering. It’s also beneficial for parties to engage in transparent communication and seek to resolve any issues that arise from subject clauses amicably and fairly.

 

Warranty of Authority

A shipbroker, acting as the middleman between a shipowner and charterer, inherently guarantees that they possess the complete authority from a principal to negotiate based on the terms of an offer they forward. Should it later emerge that the shipbroker lacked this essential authority, they could face legal repercussions from the party who accepted the offer under the belief that the shipbroker was fully empowered to make such commitments. In situations where disputes arise, it is crucial for shipbrokers to refrain from making any statements that could be construed as an admission of liability or mistake prior to obtaining advice from legal or insurance professionals.

For shipbrokers engaging with new contacts, it is advised to consult the Warnings and Postings available on the Baltic Exchange’s website (www.balticexchange.com). The Baltic Exchange maintains a comprehensive database of complaints lodged by its Members over the years, providing valuable insights into potential red flags associated with certain entities.

It is imperative for Members to abstain from conducting business on behalf of any individual or entity that has been flagged on the Baltic Exchange. However, this precaution should not lead to the violation of any existing charters or contracts. Additionally, Members must not share any postings from the Baltic Exchange with non-Members, as unauthorized distribution could result in defamation lawsuits against both the Member involved and the Baltic Exchange itself.

 

Shipbrokers’ Commission (Brokerage)

Shipbrokers’ commission, or brokerage, is conventionally paid only on freight or hire that has been both earned and paid, unless there is a specific agreement to the contrary. In the context of a voyage charter, it’s common for parties to agree that the commission will also cover dead freight and/or any incurred demurrage and detention (waiting time) charges. Similarly, for time charters, the agreement may include commission on a ballast bonus. It’s a standard practice, though not without exceptions, for a charter party to include a commission clause. This clause dictates that the commission is to be paid by the shipowner to the shipbrokers identified as having facilitated the fixture.

The introduction of the Contracts (Rights of Third Parties) Act 1999 has modified the approach shipbrokers must take to legally secure their commission. Effective for contracts made after May 11, 1999, this legislation enables a third party, who, despite not being a signatory to the contract, is named within it, to enforce their rights under the contract. This provision allows shipbrokers to legally claim the commission specified in a Charterparty agreement, even if they are not a direct party to that agreement.

 

Shipbrokers’ Commission (Brokerage) Deductions

Commissions are typically the responsibility of the shipowner to pay, unless an alternative arrangement is explicitly agreed upon in writing and documented in the fixture recap, Charterparty, or an addendum. In some cases, during negotiations or after the fixture has been agreed upon, if all involved parties consent in writing, it can be arranged for the charterer to deduct the shipbroker’s commission and handle its payment. Under such circumstances, provided that the commission is indeed deducted as agreed, the obligation to pay the commission shifts from the shipowner to the charterer.

In the absence of a written agreement specifying otherwise, the charterer is obligated to pay the shipowner the full gross amount, with the exception of any agreed-upon address commission. This ensures clarity and fairness in the financial dealings between the shipowner, charterer, and shipbrokers, by explicitly stating who is responsible for the payment of commissions, thus preventing any misunderstandings or disputes related to commission payments.

 

Shipbrokers’ Commission (Brokerage) Continuation

The Baltic Exchange deems the occasional practice by shipowners or charterers of circumventing commission payments to shipbrokers on direct continuations of time charter parties or contracts of affreightment — where a shipbroker or shipbrokers were initially involved or entitled to commission — as unacceptable. To preclude disputes and potential legal repercussions, shipbrokers are advised to ensure that the original time charter party or contract of affreightment includes a clause explicitly stating their entitlement to commission not only on any hire or freight paid under the initial agreement but also on any subsequent continuation of the charter or contract. This recommendation underscores the importance of clear contractual terms to protect the interests of shipbrokers and ensure they are fairly compensated for their ongoing involvement or the enduring impact of their initial brokerage services.

 

Shipowners’ Firm Offer

A “firm offer” in the context of chartering signifies a precise proposal that includes the critical terms necessary for forming a charter party, a type of contract. This offer, when made definitively and accepted without conditions by the recipient, leads to an enforceable agreement.

The term is particularly employed by a shipowner’s shipbroker during negotiations to signal that the vessel is exclusively being proposed to one potential charterer at that moment, adhering to professional ethics.

While no two firm offers are exactly alike, they typically encompass the “main” or “essential” terms of the charter party. Depending on the charter’s nature—whether time or voyage—the firm offer could include details such as the involved parties, the vessel’s name, rates for hire or freight, the period of the charter, the specified cargo, the laycan (layday cancelling), and specifics on delivery and redelivery or loading and discharging ports. It also covers vessel specifications and any additional conditions considered pivotal by the parties, influenced by the charter’s specifics, the service provided, and the cargo involved.

HandyBulk LLC, leveraging these principles, has established a proficient brokerage department characterized by excellent communication skills, vital in negotiation processes. It is important for shipbrokers to remember that a “firm offer” or “firm counteroffer” may be rejected by the receiver, who can then seek alternative opportunities for their vessel or cargo. A firm offer, regardless of the minor nature of any proposed changes, enables the other party to opt out of negotiations without needing to justify their decision. Shipbrokers are reminded that making a firm offer requires the explicit authorization of a principal, ensuring accountability and authority in the negotiation process.