CS0807ppt - Australian Maritime College AMC by lonyoo


									                        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

J.Fei                       AMC                                Semester 2, 2008
                 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

J.Fei                AMC                     Semester 2, 2008
              Commercial Shipping (M07)

Cost structure of shipping operations

Shipping operations


J.Fei            AMC                      Semester 2, 2008
                  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

J.Fei                 AMC                              Semester 2, 2008
                   Commercial Shipping (M07)

 Form of chartering
   Voyage charter

         theshipowner 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
         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.
               charters provide for demurrage and dispatch
         Voyage
         payments if the time in port exceeds, or is less than, lay time.

J.Fei                  AMC                                  Semester 2, 2008
                     Commercial Shipping (M07)

       Voyage charter

           Laytime: the total eligible time counted from the arrival of
           the vessel at the loading terminal until completion of loading
           and after the vessel’s 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.

J.Fei                    AMC                                 Semester 2, 2008
                        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.
           SHINCterms: Sundays, holidays including Christmas and
           Saturday – tanker trades
           SHEX WWD: Sundays, holidays excluded – weather working
           days – dry-bulk trades.

J.Fei                      AMC                                 Semester 2, 2008
                          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.
J.Fei                          AMC                                     Semester 2, 2008
                           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 vessel’s employment and bunker fuel;
                • is responsible for operational expenses incurred on the vessel’s
                  voyages such as port dues, pilotage, canal tolls, bunkers, cargo
                  handling charges and the like.
J.Fei                           AMC                                     Semester 2, 2008
                           Commercial Shipping (M07)

       Time charter

           Advantages of time charter for the shipowner
               From the shipowner’s 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
               The vessel will remain on hire even if delayed through port labour
J.Fei                           AMC                                    Semester 2, 2008
                            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.

J.Fei                            AMC                                        Semester 2, 2008
                            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.

J.Fei                           AMC                                     Semester 2, 2008
                           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.

J.Fei                           AMC                                    Semester 2, 2008
                          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
             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.

J.Fei                         AMC                                      Semester 2, 2008
                      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 principal’s interests and intentions.

J.Fei                      AMC                                     Semester 2, 2008
                         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.
J.Fei                         AMC                                      Semester 2, 2008
                          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.

J.Fei                          AMC                                   Semester 2, 2008
                           Commercial Shipping (M07)

       Charter party forms

              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
              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.
J.Fei                           AMC                                               Semester 2, 2008
                             Commercial Shipping (M07)

        Negotiating a charter party
        contracting parties’ names                  vessel’s name and particulars
        commodity/cargo details (weight,            which ports (and berths if necessary) the
        stowage factor etc.)                        vessel will load/discharge

        laydays (the day the vessel is first        cancelling (the date of contract can be
        available and amount of time for loading/   cancelled because of default)
        the rate at which the vessel will           the financial penalty in case of delays or what
        load/discharge and any variations to this   financial arrangements will apply if the vessel
        rate                                        takes a shorter or longer period to
        freight                                     sundry clauses (war, ice, strikes etc.)
        type of contractual form to be used         commission

J.Fei                             AMC                                               Semester 2, 2008
                      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.

J.Fei                      AMC                                     Semester 2, 2008

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