Commercial Shipping M07

1
Commercial Shipping (M07)

• Learning objectives
• Discuss the mechanics of chartering a vessel
• Have a working knowledge of voyage, time and
  bareboat charter, and the advantage and
  disadvantage of each
• Explain the advantage of contract of
  affreightment
• Describe the advantage of using BIMCO standard
  documents
• Explain the main function of the Baltic Exchange

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Commercial Shipping (M07)

• Forms of chartering
• Voyage charter
• Time charter
• Bareboat (demise) chartering
• The negotiation process
• Shipbrokers
• Charter party
• Charter party forms
• Chartering in the freight market

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Commercial Shipping (M07)

• Cost structure of shipping operations
• ?
• Shipping operations
• ?

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Commercial Shipping (M07)

• A shipowner an individual or company that
  invests the capital funds in vessels to meet the
  shipping needs of end users.
• A charterer the end user of shipping

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Commercial Shipping (M07)

• Form of chartering
• Voyage charter
• the shipowner provides the vessel and her crew
  while the charterer supplies the cargo. The ship
  can be chartered to carry as much cargo as it can
  between one destination and another.
• The shipowner receives a freight payment for the
  movement of cargo between two or more ports and
  out of this the shipowner pays all voyage
  operating costs.
• Voyage charters provide for demurrage and
  dispatch payments if the time in port exceeds, or
  is less than, lay time.

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Commercial Shipping (M07)

• Voyage charter
• Lay time the total eligible time counted from
  the arrival of the vessel at the loading terminal
  until completion of loading and after the
  vessels arrival at the receiving terminal until
  completion of discharging the cargo.
• Notice of readiness submitted when all matters
  are settled with Customs and public health and
  port authorities and the vessel is ready in all
  respects for loading or unloading.

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Commercial Shipping (M07)

• Voyage charter
• Demurrage paid by the charterer to the shipowner
  for detention of the ship.
• Dispatch paid by the shipowner to the charterer
  for releasing the ship earlier. In cost terms
  dispatch is generally half demurrage.
• SHINC terms Sundays, holidays including
  Christmas and Saturday tanker trades
• SHEX WWD Sundays, holidays excluded weather
  working days dry-bulk trades.

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Commercial Shipping (M07)

• Contract of affreightment (CoA)
• similar to voyage charters except that CoA does
  not designate a specific vessel. Instead, the
  charterer contracts with the shipowner to make a
  number of round trip voyages between two ports
  (or a range of ports) at a stated rate.
• an ideal and convenient option for a seller or a
  buyer to ensure reliable shipment of commodities.
  
• avoids fluctuations in the freight market and
  thereby making more accurate calculations and
  avoid disastrous differences in costs.
• more flexibility, the shipowner does not have to
  commit the vessel to the exclusive service of any
  one charterer. A portfolio of CoA can act as a
  hedge to ensure a minimum level of revenue income
  that supports fixed operating and financing
  charges while exposing the fleet to the profit
  potential of the spot market.

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Commercial Shipping (M07)

• Time charter
• A charterer hires a ship for a set period of
  time, usually for months or several years.
• Shipowner
• receives previously agreed sums of hire money,
  instead of freight.
• is responsible for running expenses, including
  all costs and risk of vessel operation (e.g.
  manning, insurance, repair and maintenance,
  lubricant, consumables).
• Charterer
• arranges the vessels employment and bunker fuel
  
• is responsible for operational expenses incurred
  on the vessels voyages such as port dues,
  pilotage, canal tolls, bunkers, cargo handling
  charges and the like.

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Commercial Shipping (M07)

• Time charter
• Advantages of time charter for the shipowner
• From the shipowners standpoint the ship is
  employed for a definite period of time, with
  regular income to the shipowner and the minimum
  of risk.
• Time charter provides the shipowner with a good
  cover against a decline in freight rates.
• The shipowner does not have to worry about the
  day-to-day trading of the vessel as far as
  bunkers, port charges and cargo expenses are
  concerned.
• The vessel will remain on hire even if delayed
  through port labour troubles.

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Commercial Shipping (M07)

• Time charter
• Disadvantages of time charter for the shipowner
• Although the master and crew are appointed by the
  shipowner, control of the vessel is lost to a
  certain extent, including, subject to cargo
  limitations, the nature of the cargo loaded in
  the vessel and the voyage undertaken.
• If the freight market rises, the shipowner is
  unable to take advantage of it, and the charterer
  gets the benefit instead.
• The vessel may not be in a convenient position
  for the shipowner to perform maintenance work on
  it. This disadvantage applies only in the case of
  a long-term charter.

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Commercial Shipping (M07)

• Time charter
• Advantages of time charter for the charterer
• The charterer can trade the vessel as if owned,
  subject only to charter party limitations.
• The vessel can be hired on a long or short term
  basis, and this provides a good cover if the
  freight markets go up.
• Liner companies can take tonnage on time charter
  and so supplement their own sailings if the
  volume of trade warrants additional tonnage.

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Commercial Shipping (M07)

• Time charter
• Disadvantages of time charter to the charterer
• The charterer is committed to the payment of hire
  over a period of time, and there is a risk of a
  fall in trade.
• The charterer may be limited by the terms of the
  charter in the range of trading. This point
  should be taken into consideration when the
  charter is negotiated.

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Commercial Shipping (M07)

• Bareboat charter
• Lease of a ship from the owner to the charter.
  The shipowner delivers the vessel bare to the
  charterer.
• The charterer may operate the vessel with his own
  hired crew or contract the operation out the
  charterer bearing all risks of operation.
• The charterer is free to re-charter the vessel
  (re-chartering does not relieve the charterer of
  any obligations towards the shipowner).
• A major concern of the shipowner is the
  monitoring of the physical condition of the
  vessel. Stringent surveys will take place upon
  delivery, and strict clauses as to maintenance
  and condition are also included in the contract.

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Commercial Shipping (M07)

• The negotiation process
• two negotiating parties involved in chartering a
  charterer (shipper) and a shipowner. Shipbrokers
  are usually employed to investigate the market
  and conduct the negotiations.
• In most cases, both parties will have their own
  brokers and negotiate through their
  representatives, who should do their best to
  preserve their respective principals interests
  and intentions.

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Commercial Shipping (M07)

• Charter party
• A contract in which a shipowner agrees to place
  their ship, or part of it, at the disposal of a
  charterer for the carriage of goods from one port
  to another port on being paid freight, or to let
  the ship for a specified period, the remuneration
  being known as hire money.
• States in written form the agreement between a
  shipowner and a charterer and factually records
  the agreement and the terms and conditions that
  have been negotiated.
• Can take any style and be drawn up by any
  individual or corporation, although common
  practice tends to form standard charter parties.

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Commercial Shipping (M07)

• Charter party forms
• Standard charter party forms voyage, time and
  bareboat
• make it easier for charterers and shipowners to
  conduct business as only exceptions and additions
  are to be negotiated.
• The advantages of using such recommended charter
  parties
• in common usage
• convenient and widely available
• expressed in wording that has often been legally
  tested in court
• fair to both parties.

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Commercial Shipping (M07)

• Charter party forms (http//www.maritimeknowhow.co
  m/English/Navigation/Charter_parties.htm)
• Voyage charter party Uniform General Charter
  (GENCON)
• Time charter parties for dry cargo ships
• Baltic and International Maritime Conference
  Uniform Time Charter (BALTIME)
• Time Charter approved by the New York Produce
  Exchange (NYPE)
• Tankers have more choices and most major oil
  companies have their own standard forms.
• In the absence of any clause to the contrary, the
  place where a contract is made governs which law
  is to be applied to the case in the event of a
  dispute.

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Commercial Shipping (M07)

• Negotiating a charter party

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Commercial Shipping (M07)

• Chartering in the freight market
• The negotiation of charter parties usually take
  place through a shipbroker. The traditional
  centre for this activity is the Baltic Exchange
  in London. Other such centres exist in Hong Kong,
  New York and some other parts of the world.
• Negotiations during the process of chartering
  follow a protocol. The parties negotiating the
  charter need to be aware of the elements of the
  protocol.
• Baltic Exchange shipping information is the only
  source of independent, quality freight market
  data available.