Dry Cargo Chartering Flashcards
Where are the most significant dry cargo chartering hubs?
London (until recently all dry cargo chartering took place on the floor of the Baltic exchange), New York, Hong Kong, Hamburg, Oslo and Tokyo
What are the main types of charter party agreement?
Voyage charter (this includes COAs) and time charters (including bareboat charters)
Describe a voyage charter
- A merchant ship agrees to carry a specific qty of a specific cargo from point A to point B
- Paid for on a $/t basis or lump sum; prices basis negotiation depending on present market conditions
- They can be a single voyage, several consecutive voyages on the same ship, or COAs
Define CoA and summarise their benefits
- Contract of Affreightment = the agreement to ship a specific qty of cargo over a period of time, basis a mutually agreed schedule
- Main benefits of this are that the charterer will have all of their requirements covered for the period in question, and the ship owner can use whichever ship is nearest to the load points rather than having to ballast back the same vessel each time (like in a consecutive voyage charter)
Describe a time charter
- The charterer hires the boat for a period of time rather than an agreed qty/route
- Generally paid as a $ rate per day; other factors to agree on include duration. Sometimes the duration can be for just 1 voyage, in which case the TC acts as a voyage charter however the charterer will pay a rate per day rather than $/tonne (this grants the charterer more flexibility at the cost of incurring addl port/bunker costs)
- The ship owner still operates the ship and provides the crew, but the charterer gives orders on where to go and is responsible for bunker/port/etc costs – this makes the charterer the ‘disponent owner’ (legal definition is ‘deemed to be the owner but not actually the owner’) except in a bareboat charter
Describe a bareboat charter
- A type of time charter where the owner does not operate the ship or provide crew
- Legal terminology = demise charter
- Generally for exceedingly long time periods
- A way of having the benefits of ownership without needing to raise the initial capital
Describe standard forms and their use
- Private forms are most frequently used – standard CPs are rarely used exactly as printed, and instead charters will make changes as required for specific scenarios
- Most forms are very old and are generally revisions of forms originally compiled in the 1800s, e.g. the Americanised Welsh coal charter party ‘Amwelsh’ (1896). This is because ship owners tend towards conservatism, favouring well established forms that have had every part of them tried and tested in courts of law – however these must be heavily amended to comply with modern conditions
- Some forms in niche trades were put together by chartering groups and therefore favour the charterer, or conversely BIMCO (Baltic and International Maritime Council of Owners) compile, approve or adopt agreements in their favour. Bias can be corrected via negotiations to agree to change certain wording
- One of the most widely used forms is the Baltime, which is an example of the box layout, or the Gencon, which can be used in trades where there isn’t a specific standard form suitable
Describe the chartering market
Chartering is achieved via commercial negotiation between a ship owner and charterer via shipbrokers in a free international market governed only by supply and demand. This means there is considerable flexibility in what to include in a CP, however numerous standard CPs forms have been created, usually catering to a specific trade
What key things need to be included in time charters and voyage charters?
Time charters: details of the ship such as speed and fuel consumption; any trading limits/limits on cargo (placed by owner); time and place of delivery and redelivery
Voyage charters: where from/to; cargo; freight rate; time limits (inc. NOR and BOL)
What time limits exist in a voyage charter and what are their importance?
** Time limits are one of the most important elements of a voyage charter, and include;**
* When the ship must be present to load
* Laytime (loading/discharging time)
Ship owners minimise laytime so they can maximise the number of journeys a ship can do in a year, earning more money
When laytime limits are exceeded, the charterer pays demurrage ($/day basis)
* Bonuses for charterers returning ships early; usually ½ the daily demurrage rate/day – known as dispatch money
* Agreement on how/when NOR is given (factors such as port congestion, clearance from the port etc complicate this) and agreement on how soon after NOR the charterer must start loading
* Laytime is one of the most legally debated elements of a voyage charter (hence demurrage teams etc)
SHEX = Sundays and holidays excluded from laytime. SHEXuu = unless used, SHEXeiu = even if used (e.g. if it takes 4 days longer than the agreed laytime to discharge from Friday – Monday, they’ll only be charged for 2 days as Sat/Sun are excluded)
Describe a voyage charter BOL
In legal terms BoLs act as a receipt for goods, evidence of a contract and document of title (where title transfer takes place) – remember the acronym RED
* Receipt of goods
* Evidence of contract
* Document of title
Voyage CPs contain details on what form the BoL should take and how many are issued
BoLs are important; they contain information such as details of the cargo, the terms on which it’s being carried, who’s entitled to take possession and at what point (usually discharge)
Besides time limits, BOL information and ship information, what needs to be included in a voyage charter?
- Clauses covering essential proceadures, such as who’s responsible for paying for and arranging cargo handling and who has the choice of port agent
- Clauses covering unexpected eventualities, such as wars, strikes, or weather
- Cancellation proceadure should the vessel be unable to load as agreed
- ‘Clause paramout’ - this includes internationally agreed laws of carridge; either Hague or Hague Risby. These only apply if specifically included
- Other protection clauses for both parties, e.g. if the cargo causes damage to the owner’s ship or if the ship damages the cargo
- Lien clause; sets out the conditions under which the ship owner can sell the cargo in the case of unpaid freight/demurrage
Describe the process of a chartering negotiation
- Generally initiated by shipowners opening ‘bidding,’ followed by offers and counteroffers until an agreement is reached
- Once the contract is confirmed it becomes a ‘fixture’
- The two parties will generally communicate via brokers, however large companies will have internal departments which act as brokers.
What types of external brokers are there?
- Exclusive brokers – the principle places its business on the market through only one broker
- Competitive brokers – the principle spreads its business across many brokers, who compete with one another to be the first to find an acceptable contract to the principle
Principle = owner or charterer
What is an initial offer and what do they need to include for voyage charters?
- An initial offer is a firm offer with a set time limit (usually a few hours; long enough for brokers to pass to their principles but short enough to protect against mkt flucctuations)
They need to include; - Vsl name/identifying features (IMO)
- Cargo/qty
- Load/disch ports
- Freight rate
- Laydays/cancellation clauses
- Demmurage/dispatch
- What CP form will be used
- Broker commision
- Other clauses are covered under ‘otherwise subject to details’
Replies from brokers will often state ‘accept – except’ followed by the terms their principle seeks to alter. In reality this means the first firm offer has been declined and they have countered with their own firm offer – at this point there are no obligations for either principle unless the other accepts their counter-offer within the specified timeframe
Once both parties have reached an agreement it is confirmed (usually verbally) with ‘that’s a fixture’
