Introduction to Shipping Revision

Question 1

What are the components of a legally binding contract?

Answer 1

Offer – specific expression of willingness to enter into the contract and its specific terms
Acceptance – the offer is accepted on exact stated terms, converting the offer into an agreement
Consideration – for the agreement to become a contract, the person to whom the offer is made must give something in return for the offer (this can be notional, e.g. some town building rents being 1 peppercorn). This may be at some point in the future, such as x days after signing etc
Legality – the contract must be legally enforceable; contracts cannot relate to unlawful activities

Question 2

Define breah of contract

Answer 2

Breach = one party does not fulfil what they agreed to in the contract

Question 3

What can the injured party do in the case of a contractual breach?

Answer 3

If it was a major breach, the injured party may withdraw from the contract and claim damages

Even if the breach is less major and the injured party does not withdraw from the contract, they can still seek damages

Damages = the loss caused to one party due to a breach by the other; this is sometimes stipulated in the contract, e.g. demurrage costs – these are called liquidated damages

Question 4

Define tort. What are the main types of tort?

Answer 4

• ‘Tort’ = liabilities even where no contract exists and no crime was committed, but there was civil wrongdoing
• Refers to an act or omission that results in one party damaging another where no contract exists
• Types of tort:
  Negligence/failure in duty of care, e.g. an escape of oil from a ship damaging nearby property
  Trespass causing physical damage to property
  Defamation; libel (written) or slander (verbal) which cause damage to reputation
  Conversion - allowing goods to pass into the hands of an unlawful owner (may be a criminal case of theft)
  Deceit (may be a criminal case of fraud)

Question 5

How is the carriage of goods at sea legally unique? What are the main contracts involved in this?

Answer 5

Transportation of goods by sea is legally unique as;
They are the ship’s sole responsibility
No one besides the crew will have access to them
The two relevant contracts are charter parties and liner bills of lading

Question 6

What are the implied terms in a charterparty?

Answer 6

Implied terms for shipowners:
* Vessel is seaworthy
* Ship will proceed with reasonable dispatch
* Ship won’t make any unjustifiable deviation (note that regardless of other terms, deviations to save life are always justifiable)
Charterers:
* Not to ship dangerous goods without the knowledge of the shipowner
Time charters:
* Only use the vessel between good and safe ports

Question 7

No specific international conventions regarding time charters exist - what kinds of conventions designed for voyage charters may still be written into a time charter?

Answer 7

• BoLs covering the cargo carried will be subject to the Hague or Hague-Visby rules; clauses incorporating this are called Clause Paramount
• General average subject to York-Antwerp rules, which details how general averages are applied and calculated; the incorporating clause is known as the New Jason Clause
  (General average is an agreement that if a ship takes action to avoid peril, all parties contribute to the cost of this action)
• Other clauses not covered by international conventions but are often included are both-to-blame collision clauses and war clauses

Question 8

What are the key legal uses of a liner BOL?

Answer 8

• Receipt for goods
• Evidence of contract
• Document of title

Question 9

In what ways does a liner BOL act as reciept for goods?

Answer 9

• This receipt covers qty in the body of the b/l and quality, as shown by ‘in apparent good order and condition’
• In the case of FCL, qty/qlty is in the hands of the shipper – the b/l will include the container number and seal number, and the words ‘ said to contain’ when describing the cargo; this means that the consignee has no claim against the carrier provided the exterior of the container and seal remain intact (unless they can prove damage caused by poor handling)
• With LCL, qty + qlty is the carrier’s responsibility (as with any breakbulk or conventional cargo)

Question 10

Describe a liner BL’s use as a document of title

Answer 10

• Title = Right to ownership with or without actual possession
• As no one can access the cargo whilst on board, the b/l becomes a negotiable document (it can be bought and sold); there is no limit to the number of times the cargo can change hands whilst on the ship
• Payment is always done via LC, meaning the secondary part of document of title comes into play, as banks hold it as security; whilst in this status, the b/l is marked as ‘to order’ rather than for a named party, making it an ‘open’ b/l, meaning title belongs to whoever holds the b/l (even if they accidentally find it; however this would be a crime of stealing by finding)

Question 11

How can agency be created?

Answer 11

• By express agreement
• By implication/conduct
• By necessity, e.g. a person is entrusted with another’s property and a definite and/or commercial need arises to deal with said property and it is impossible to obtain the owner’s instructions

Question 12

What is an agent?

Answer 12

• Agents work on behalf of principles where the work is not done by a department in the principle’s own office
• Their function is to bring their principles into contractual relationships with third parties

Question 13

What are the duties of an agent to their principle?

Answer 13

• Exercise due diligence
• Apply any special skills they profess to have
• To render account
• Not to make a secret profit – this is usually illegal. An example of this would be persuading counterparts to submit inflated bills to increase that agent’s commission

Question 14

What is the principle’s duty to their agent?

Answer 14

• To pay the agent as agreed
• To protect the agent against liabilities incurred in carrying out the principle’s orders, including reimbursing expenses the agent has incurred on the principle’s behalf
• To protect the agent against action (including legal action) that should be directed against the principle

Question 15

Define a cashflow crisis

Answer 15

Simple definition of a cashflow crisis – if debtors hold more of a company’s money than the company holds of creditors money
Creditors = people a company owe money to – the company is in effect borrowing some of the creditor’s money until their debtors pay them

Question 16

Why is cash flow important? How can it be maximised?

Answer 16

• Regardless of how profitable a company is, if it cannot pay for vital things such as loan repayments it will fail
• Negotiating extended payment terms to creditors whilst minimising the payment terms for a debtor will free up more cash
• Credit control is important to avoid slow payers becoming non-payers, leading to bad debts

Question 17

How can failing companies still appear to have good cash flow?

Answer 17

If a company’s balance sheet shows more money owed to creditors than debtors owe to it, its cash flow may appear good, however it may still be a failing company is this could be an indication of falling sales, leading to a loss in the following year (fewer people owing you money = fewer people paying for your services)

Question 18

Why are exchange rates important in shipping?

Answer 18

• Shipping is very international so exchange rates are important; e.g. paying wages in GBP, capital repayments in Yen, bunker/port currencies varying by locale, freight earnt in USD; if any one of these currencies has major fluctuations vs the others your costs/profits will also move
• For brokers this is important as freight is usually paid in USD meaning commission is based on a USD value; if their local currency is doing well vs the dollar, their commission earnt in dollars will equate to less of their local currency
• For owners, prompt payment collection is essential, as if the USD rises against their local currency between agreeing a voyage and receiving payment the income in their local currency will be lower

Question 19

What is a liner?

Answer 19

• A liner is a ship that goes from a port or range of ports to another port/range of ports on an advertised schedule – in the main liner trades this is based on specific days of the week. They are common carriers, meaning that anyone who can pay (+ agree to T&Cs) can ship on them
• Usually carries manufactured goods for multiple shippers in small consignments; this is called general cargo
• Individual consignments are not negotiated separately – the shippers must comply to the line’s standard T&Cs as set out in the BoL – the BoL here serves as evidence of contract (amongst other things)
• Besides the BoL there is little in the way of formal contracts, almost like a bus ticket
• The freight paid by the shipper for liner transportation is called liner terms – these include the full cost of loading/discharging at quay but doesn’t include terminal handling charges (moving the container into and out of the terminal)
• No specific time limits, demurrage or dispatch, besides demurrage payable if a container is delayed beyond a stipulated time

Question 20

Describe types of containers

Answer 20

Containers don’t just have to be boxes – anything that can be fitted with the 8 corner castings can be carried as a container. As well as the standard air/watertight box there exists ventilated containers, useful for products such as living coffee beans which require a throughflow of air. These vents can be closed. There are also insulated porthole containers
refrigerated containers
open-top containers for cargo that needs to be at a constant temperature; and insulated porthole containers
refrigerated containers
open-top containers (known as reefers) which draw a supply of electricity from the ship via reefer plugs. Cargo that is too heavy to be handled via forklift can be handled by crane into insulated porthole containers
refrigerated containers
open-top containers; these can then be covered with tarpaulin (soft top) or steel roof (hard top). Flat racks
platformscan accommodate awkward shapes/sizes and simple Flat racks
platforms can also be used (usually for items too large to load into a container)
Dry bulk containers
tank containers have holes in the top to pour in cargo (e.g. malt), andDry bulk containers
tank containers have been adapted to carry specialised liquids, e.g. chems/foodstuffs

Question 21

What are the benefits of containerisation?

Answer 21

• Minimises port time
• Automated load/discharge
• Intermodalism
• Cargo can’t damage other shipments

Question 22

What are freight forwarders and NVOCs?

Answer 22

Freight forwarders take and aggregate LCLs themselves, charging a premium for the convenience but less than the minimum costs liners charged. This lead to the development of NVOCs – non vessel operating carriers (in the US they must be called NVOCCs, including the word ‘common,’ indicating they offer their services publicly)
Today NVOCs specialise in house-to-house transit globally – the biggest handle more FCL than major shipping lines. They buy liner space (aka ‘slots’) in bulk and re-market them to supply chain managers. Generally their FCL pricing will be less than the liners’ themselves – some NVOCs have stopped offering LCLs entirely

Question 23

Describe the security risks associated with containers

Answer 23

Containers and the efficiencies they bring are integral to global commerce, however there are some associated issues; containers are the transport of choice for smuggling and tax evasion, including avoiding duties on cigarettes and alcohol; and smuggling endangered species, weapons and illegal immigrants. These issues alongside the fear of terrorists transporting WMD (weapons of mass destruction) have prompted the US to insist on much more vigorous safety checks; some countries now allow US officials to inspect their containers in port before being loaded
In 2007, the US passed a law requiring all containers be scanned for WMD before being loaded if heading to the US – this was supposed to come into effect by 2012, however has not yet been implemented as the scanning technology is still being developed, and many ports do not have the space/means to accommodate

Question 24

What were liner conferences and how did they operate?

Answer 24

Liner conferences are price fixing cartels; they operated as almost complete monopolies, which they reenforced by giving loyal shippers rebates and cancelling payments/penalising shippers who used non-conference ships

Question 25

What measures were implemented to prevent liner conference price fixing?

Answer 25

In 1982, a UN code was implemented that implemented a code of conduct for liner conferences; this was designed to ensure that shipping lines of developing countries would be able to secure a fair share of the cargo market, however by this time containerisation had progressed to such an extent that conferences no longer enjoyed a dominance in any single trade, removing the need for the code
Conferences still exist, and although they no longer carry their former power, they still aim to bring order to liner routes. They are tightly regulated and closely monitored by the federal maritime commission in the US and European commission’s directorate for competition
Tariffs are still produced and updated, however in most trades a measure of negotiation in freight rates is normal – usually on a per-box basis irrespective of cargo

Question 26

What are liner consortium agreements?

Answer 26

Lines have formed joint services, where each line provides an agreed number of ships and in return get allocated a % of slots in each sailing, regardless of who actually owns the boat. This is because a single line generally can’t afford enough ships to operate the same route on the same day on a weekly basis (as is standard)
In some cases, consortium members may still get slots allocated without providing a vessel just for being a member
Consortia emerge and disband cyclically with the strength of liner trade + the lines involved

Question 27

How did liner consortia come about?

Answer 27

Consortia were originally developed by groups of lines operating along similar routes, e.g. Europe to FE. Lines within such a group may join with another set of partners operating in another part of the world, e.g. Europe to US, leading to the formation of alliances where groups of lines come together from all 3 of the world’s major cargo trade routes; Europe > FE, Europe > US, and FE > USA to provide a global integral service

Question 28

Discuss the movement towards liner consolidation

Answer 28

Since the 2008 crisis, liner services have been under increased financial pressure whilst being economically incentivised to provide ever-larger vessels to reduce costs and reduce environmental impact – with the likelihood of much further consolidation within the industry via mergers/acquisitions remaining low, alliances/consortia are the only way that lines can continue to achieve greater economies of scale

Question 29

Describe a modern major liner operator

Answer 29

Today’s liner operator is likely to contain the following elements;
* Membership of a consortium, alliance and possibly conference;
* Fixed-day sailings;
* A network of its own offices and/or agents supplying service to customers with intense publicity/sales activity;
* Engagement in major E/W trade(s) with subsidiary trades N/S (either direct via themselves or a feeder service)
* Inland and distribution operations by rail, road or barge to provide full door-to-door service

Question 30

What’s the difference between a liner and a break bulk BOL?

Answer 30

• In liners, the reverse of a BOL covers the T&Cs of carriage (usually this is Hague/Hague-Visby or Hamburg)
• Usually they are combined BOLs, meaning they cover all forms of transport, not just the ship. The carrier’s responsibility covers all transport regardless of mode, including those carried out by contractors
• Only liner BoLs act as proof of contract legally, CP BoLs will state it’s ‘in accordance with the charter party and all terms and conditions therein.’ This means that courts can settle liner disputes using only the BoL, whereas in charter issues the full CP will need to be produced
• Any party that buys goods covered by a liner BoL will be able to see immediately what the terms of the contract are, however when charter BoLs are exchanged the charter party rarely carries over. The new owner may not be aware of the full terms of the original CP. The law recognises this and may extend protection to the owner of a BoL which didn’t necessarily apply to the last owner because of a CP clause

Question 31

Besides BOLs, what documents are involved in shipping on a liner?

Answer 31

• Waybills
• Booking notes
• Shipping notes
• Mate’s receipts
• Manifests
• Packing lists
• Hazardous lists
• Indemnity letters

Question 32

What is included in a combined transport BoL?

Answer 32

• Name of consignor and shipper
• Where the carrier first received custody of the cargo
• Actual port of loading
• Where it will be discharged
• Final destination
• Description of cargo
• Terms of carry on the back of the BL

Question 33

Describe a combined BOL’s role as receipt for cargo

Answer 33

• A combined transport BoL’s role as receipt is twofold; it confirms the qty and condition of goods when received and means the consignee can demand the same qty/condition when they receive the goods
• The master of the ship will sign to confirm ‘received by the carrier from the shipper in apparent good order and condition’
• If a FCL is stuffed by the shipper, the cargo description with be amended with ‘is said to include,’ exonerating the ship of responsibility if not as described (provided the exterior of the container is still in good shape)

Question 34

Describe a combined BOL’s role as evidence of contract

Answer 34

• T&Cs of carriage are on the back of BoL
• The BL isn’t actually a contract – full contracts are not usually written for liner cargo, and verbal agreement is enough
• When contracts are needed, they usually take the form of booking notes

Question 35

How does a combined transport BOL function as document of titile?

Answer 35

• Title = ‘the right to ownership of property with or without possession’ (e.g. it’s yours regardless of who actually has it)
• This means whoever has legal hold of the BL may claim the cargo – if the BL changes hands lawfully, ownership transfers at that exact moment
• This means that buyers can resell cargo multiple times before it’s actually received providing the BL is exchanged each time – whoever the ultimate receiver is just needs to provide the BL to the line to claim ownership of the goods
• The seller can withhold the BL until payment is received, meaning that it can be security for payment

Question 36

How are combined BOLs used as security for LCs?

Answer 36

• Once a purchase has been agreed, the buyer will instruct their bank to arrange for a letter of credit to be available at the seller’s bank. When the cargo is shipped, the line/line’s agent will give a signed shipped BL to the shipper. The shipper then takes this to the bank that’s holding the LC (plus any other relevant docs). Once the bank is satisfied that the docs align with the LC (condition, qty etc), the shipper can collect payment of the goods
• The seller’s bank now holds the BL (as security of payment) and passes it to the buyer’s bank. The buyer’s bank can hold this BL as security until the buyer has paid
• Once the buyer has paid they can either use the BL to claim the goods or resell the cargo
• Banks only hold BLs as security and don’t want/need the legal obligations that go along with being the cosignee; the cosignee on the BL will be marked as ‘order;’ once the shipper has endorsed this, it means the BL is ‘open.’
• The name of the buyer/their representative will be entered into a ‘notify’ box so the line/line’s agent knows who need to contact in the event of any issues
• If the buyer doesn’t have the money, the bank will become cosignee and will obtain the best price possible for the goods (this is rare)

Question 37

What is a sea waybill and when are they issued?

Answer 37

• Cargo ships are very fast and only spend hours in port at a time, meaning cargo can arrive before its documentation – especially if banking systems are involved due to increased scrutiny for fraud
• To avoid this, the buyer and seller can agree to non-LC payment – if the buyer has no intention of reselling the cargo whilst on passage then a BL is not necessary and a sea waybill can be issued instead
• A sea waybill is similar to a BL in all respects however it’s non-negotiable once completed, meaning ownership cannot change until the original buyer takes possession of the goods
• To take possession, instead of providing a BL, the buyer just identifies themselves to the liner with proper evidence

Question 38

Describe the role of technology for the transfer of documents in modern liner trade

Answer 38

Container lines use computers to handle their BLs, waybills, freight invoices, manifests etc, meaning they can be exchanged electronically between the line’s offices and agents (and most ports)
Ports use EDI, electronic data interchange, to allow lines/their agents to input data concerning its vessels which can then be accessed by authorised port users including customs, terminal operators and harbour masters
BOLERO – Bill of lading electronic registry organisation – is aiming to digitise the negotiable aspect of BLs (aka the consignee). The number of companies using this is steadily increasing
ESS - Electronic Shipping Solutions – is an electronic BL system created in 2010. It was first adopted in oil and is growing in dry bulk. It is a web based interface with a central registry which stores documents such as BLs securely. There is a ‘lite’ version which allows masters full access to documents and allows them to sign BLs digitally (or issue a letter of protest if needed)

Question 39

Where are the most significant dry cargo chartering hubs?

Answer 39

London (until recently all dry cargo chartering took place on the floor of the Baltic exchange), New York, Hong Kong, Hamburg, Oslo and Tokyo

Question 40

What are the main types of charter party agreement?

Answer 40

Voyage charter (this includes COAs) and time charters (including bareboat charters)

Question 41

Describe a voyage charter

Answer 41

• 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

Question 42

Define CoA and summarise their benefits

Answer 42

• 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)

Question 43

Describe a time charter

Answer 43

• 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

Question 44

Describe a bareboat charter

Answer 44

• 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

Question 45

Describe standard forms and their use

Answer 45

• 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

Question 46

Describe the chartering market

Answer 46

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

Question 47

What key things need to be included in time charters and voyage charters?

Answer 47

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)

Question 48

What time limits exist in a voyage charter and what are their importance?

Answer 48

** 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)

Question 49

Describe a voyage charter BOL

Answer 49

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)

Question 50

Besides time limits, BOL information and ship information, what needs to be included in a voyage charter?

Answer 50

• 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

Question 51

Describe the process of a chartering negotiation

Answer 51

• 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.

Question 52

What types of external brokers are there?

Answer 52

• 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

Question 53

What is an initial offer and what do they need to include for voyage charters?

Answer 53

• 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’

Question 54

What does ‘otherwise subject to details’ mean?

Answer 54

Under English law, if the details could not be agreed upon, there is no agreement
Under US law, if the other party accepted the offer subject to detail, then there is a binding contract and the parties must work out the details
Once negotiations reach final stages the charterer’s broker will set out all details – these are usually numerous as even the most recent forms often have deletions and additions (similar to tender docs)

Question 55

What is included in the initial offer for a time charter?

Answer 55

• Ship’s name + identifying details (eg IMO)
• Other vessel details including dwt, grain + bale cubic capacity, number of decks, number of holds + hatches, number and SWL of cranes
• Time period (e.g. 5-7 months or 2-3 years)
• Rate of hire (usually monthly or semi-monthly, but always in advance)
• Where the vessel is to be delivered to the charterer (usually a specific port) and where its to be redelivered to owner (usually a range of ports)
• Delivery date (including a cancellation clause if the vessel fails to be delivered within a certain timeframe, as with voyage charters)
• Speed and daily fuel consumption, expressed as X knots on Y tonnes of whatever fuel
• Charter form to be used
• Broker commissions

Question 56

What are the pros and cons for the charterer using a voyage charter over a time charter?

Answer 56

• Always a fixed price per tonne (or lump sum), so you know your financial exposure in advance
• Almost all risks are passed to the ship owner, especially delays due to weather/strikes etc
• CON: more premium price (basically the cost of passing the risks to the owner)

Question 57

What are the benefits to a charterer using a time charter rather than a voyage charterer?

Answer 57

• Flexibility on where to send the ship and when
• No demmurage
• Can ship many different commodities to various destinations that’d be too complex to set out in a voyage charter
• Can be used to supplement existing fleets, e.g. liners taking on more boats temporarily to cover seasonal increases in demand (there’s a whole industry of small TC feeder boats for this reason)
• Speculation; subletting the boat out on voyage charters if you believe you can make a higher return than the daily rate
• Usually cheaper than voyage charter

Question 58

What are the cons of a charterer using a TC rather than a voyage charter?

Answer 58

• Daily rate of hire must always be paid regardless of delays
• Idle time must be paid if back to back voyages can’t be found

Question 59

Describe worldscale

Answer 59

• Wsc is able to calculate freight rates in dollars for almost any conceivable voyage (60,000 in total), taking into consideration round voyage distance, port costs and canal dues
• Bunker costs are updated yearly with the goal that the income per day of a vessel would be the same regardless of voyage
• This means that tanker owners are content to be more flexible with wide redelivery options as their daily rate when employed won’t be affected as much as a dry bulk carrier
• To accommodate market fluctuations, the wsc is followed by a number which represents a percentage (eg wsc100 = worldscale flat, wsc170 = 70% more etc)
• Wsc lends itself well to COAs as it allows for a long term commitment with reasonable flexibility for a charterer without the risk of paying for delays or breakdowns (as in the case of TCs)

Question 60

What is intertanko?

Answer 60

As oil companies’ fleets shrank, independent owners grew; they are represented by Intertanko (the International association of independent tanker owners)

Question 61

Describe the design of a crude carrier

Answer 61

• All have their own pumps which must be capable of fully charging the vessel in no more than 2 days
• Each tank has its own pipes/valves/instruments so specific tanks can be filled/emptied separately
• Their design also incorporates a system to remove viscous residues from the sides of their tanks; usually COW (crude oil washing) which operate like large sprinklers to wash residues towards the pump intake
• Those designed to carry the heaviest crudes have heating coils
• To accommodate crudes with volatile gases they also contain an inert gas system; this creates a layer between the top of the oil in the tank and the air to prevent possible reactions. This gas is generally scrubbed exhaust gasses from the main engine and most have an additional backup generator
• Crude oil tankers generally have to ballast more than other vessel types, and therefore they have developed an advanced ballast tank system; these are fully segregated from their cargo tanks to prevent pollution, and instead fill the void between the two hulls (they are double hulled)

Question 62

Describe the design of product tankers

Answer 62

• Split into clean/dirty
• Clean tankers are highly specialised in cleanliness and cargo segregation as their cargo may not be further refined/filtered at discharge – average around 60k dwt
• Dirty tankers are less specialised, and generally bigger, up to crude sizes

Question 63

Describe the tanker specific terms in SHELLVOY 6 v1.1

Answer 63

• Heating coils in lines 18-19
• Tank coatings in line 20 (it’s designed to be used with any liquid cargo - heating coils and coated tanks are rarely both applicable)
• Cranes to handle hoses in lines 21-22
• Previous cargoes in lines 29-33 (as this may be important to avoid contamination of prods/chems)
• COW and inert gas sytems are covered in lines 34-38 (COW is also covered in detail in clause 20, detailing the rights to request cargo washing and its impact on laytime)
• The vessel’s obligation to follow the **latest guidelines
  not usually a requirement in dry bulk) **and carry current publications regarding best practises are in lines 44-51 (notable as this is **latest guidelines
  not usually a requirement in dry bulk) **
• Laytime is covered from line 85 – this is notable because rather than $/day as with dry bulk, it specifies running hours (almost always 72) as due to their nature oil terminals do not stop for breaks as with SHEX. It also doesn’t include dispatch money (the bonus paid to dry bulk charterers if they return the ship early)
• Terms are also set out for pollution incidents

Question 64

What IMO conventions cover the compensation regime for damage caused by spills of persistent oil from laden tankers?

Answer 64

The 1969 international convention of civil liability for oil pollution damage (1969 CLC)
1971 international convention on the establishment of an international fund for compensation for oil pollution damage (1971 fund convention)

These were further amended in 1992 by two protocols broadening the scope and increasing compensation limits; 1992 CLC and 1992 fund convention. This came into effect in 1998, eventually replacing the older two altogether in 2002.

Question 65

What are the main differences in negotiating a tanker charter rather than dry bulk?

Answer 65

• Offer/counter offer system work the same
• Prices negotiated in % wsc
• Usually only 1 broker, rather than having an agent for both the owner and charterer
• Usually far faster; as all parties specialise in oil already, there are fewer T&Cs to agree, and as only 1 broker is dealing directly with decision makers on both sides, the time limit on offers is usually far shorter
• Unlike dry bulk, tanker chartering has never been face-to-face, and is instead desk based due to extreme specialisation of brokers (e.g. brokers will only work in crude OR prods OR chems)

Question 66

Describe the use of charterparties in tanker chartering

Answer 66

Increasingly, fewer charter parties are being fully drawn up and signed (or executed)
Instead a recap (fixture recapitulation) is sent to both principles, and if they agree that the terms are as discussed, this forms the legal documentation for the fixture
A full charter party is only drawn up if requested
The exceptions are Brazilian, South Korean and Indian charters, where a full C/P is generally required