Chartering 101The Fundamentals of Ship Chartering6 October, 2015 John HarkRegional Director, North America / COO, Latin America – Bertling LogisticsAdjunct Professor, Brokerage & Chartering - Texas A&M Galveston
Overview
➢ Who’s Who in Ship Chartering – define the relationships ➢ The Carta Partite ➢ Language of the Field ➢ Chartering Finance/Estimates ➢ Incoterms ➢ The CRITICAL TAKEAWAY ➢ Questions
Who’s Who - Parties to the Charter
➢ “Owner” is a person, or company who has the right of possessionof the ship - this may be actual ownership or disponent ownership ➢ “Charterer” is the party that requires the service of the vessel ➢ “Broker”, as defined by Webster’s, is an Agent who arrangesmarriages or who negotiates contracts of purchase and sale
● Competitive, Exclusive, Owner’s, Charterer’s ➢ “Freight Forwarder” can be acting as a broker on behalf of theirprincipal or in fact be the principal / chartering themselves ➢ “Principal” is the party on who’s behalf the Broker or FreightForwarder is working
Carta Partite- What is the Charter Party?
“Divided Document” - it was customary, to ensure the document wasauthentic… to execute the contract two times on one piece of paper –then tear it into two irregular portions… that way when the twoportions fit together, one could prove the authenticity of it
➢ A contract for the hiring or letting of all or part of all of a vessel,it’s legal and is governed by all usual laws applying to contracts.
➢ Because of it’s nature – maritime – it is usually governed by
Admiralty Law and Jurisdiction.
➢ Charter Parties are usually referenced in all communicationsrelated to a trade:
M/T “Fraternity L” Charter Party dated 14 November 2009
Types Of Charter Parties:Bareboat - HireTime - HireVoyage - Freight
Standard charter party forms are modified and amended by rider clauses and
addendums in accordance with the agreement.
Commonly used forms:Conline Booking NoteGencon C/PNYPEAsbatankvoy
Carta Partite- The Charter Party Today
Preamble – contains main terms of the specific agreement
Law & Arbitration – defines governing region / laws for any action
Piracy – seeing a resurgence in use
War Risk – defines war risk events
Hardship – compensates a party for unexpected cost increases
Laytime / Demurrage – is the vessel loaded and discharged in the agreed upontime frame
Carta Partite- Common Clauses/Elements
➢ Indication – Owner indicates freight ideas
➢ Offer – Owner extends formal offer with clearly defined Ts/CsExample: “OFFER FIRM FOR ACCOUNT OF COALEX REPLY 1400 NY TODAYM/V RIPTIDE 50,000 DWT GLESS BLKR 2,100,000 CFT 13 KTS ON 34 + 2 DELYAPS HRDS OCT 15/30 TC TRIP VIA PANAMA CANAL REDEL S. JAPAN USDLRS8000 DAILY INCL OT BUNKER PRICES/QTIES TO BE MUTUALLY AGREED 2.5PCT ADDCOMM SUBJ DETS NYPE”
➢ Counter – Charterer counters offer ($, timing, Ts/Cs, etc…)
➢ Subs – Main Terms are agreed, deal is done Subject To… with a
timeline set for “Lifting Subs”
➢ Acceptance – anything other than a clean acceptance isconsidered a COUNTER or DECLINE – this is binding
Carta Partite- The Sequence of the Trade
Carta Partite- Subjects
➢ Subject Details➢ Subject Stem➢ Subject Reconfirmation➢ Subject Board of Directors Approval➢ Subject Management Approval➢ Subject Charterer’s/Supplier’s/Receivers Approval of Nomination➢ Subject Owner’s Approval of Charterer➢ Subject Port Captain’s Approval of Stowage➢ Subject Final Packing List / Cargo Details➢ Subject Sailing➢ Subject Open/Unfixed
The Language of the Field- Vocabulary Matters
The field of Brokerage / Chartering has it’s own language of thetrade… to be successful, you must be Bi-lingual / Multi-lingual
➢ Subjects➢ Main Terms➢ Details➢ Recap➢ LayCan➢ Demurrage➢ PDPR➢ SHINC / SHEX➢ C/P➢ Hire➢ Vetting➢ MOLCO / MOLOO➢ COA (contract of affreightment)➢ Ballast Bonus
Chartering - The Risks
Inherent risks anytime you enter into a time or voyage charter
Voyage ChartersDemurrageDetentionDead FreightCargo Damage
Time Charters
Covering the hireDelays and cash flowBunker escalation
Chartering Finance- Voyage Calculations
What is the benefit & to whom when estimating the value of a voyage:OwnerChartererBroker / Forwarder
Elements of a good voyage estimate:DetailsUniformity between estimatesCurrent cost info
Chartering Finance- Voyage Calculations
Tools of the trade
Distance TablesPort GuideSource of Current Bunker PricesCalculator, Estimating Form (Excel), 3rd Party Software
Chartering Finance- Voyage Calculations
Use a common standard to measure the return
“Daily Net Return”, more commonly called:T/C Equivalent or Time Charter Equivalent
T/C Equivalent = gross revenue-commissions-expenses
total voyage days
Revenue to OwnerFreight & Demurrage
Costs to Owner
FuelPort Calls (Pilots, Lines, Tugs, Dockage, Wharfage, etc..)CleaningCommissionsCanal Transit FeesLightering (if at owner’s expense)InsuranceCrewMaintenance
Chartering Finance- Elements of the Estimate
Applicable Details NeededPortsCargo details – tolerance, stow factorFreight Terms – FIO, Liner termsLoad and Discharge terms and ratesTaxesExtra InsuranceFreightCommissions
Chartering Finance- Elements of the Estimate
Lay out the voyage – present position , any ballasting
Determine the best route – fuel cost, canals, distance
Calculate time at sea – distance/speed/24= days at sea
Calculate time at port – cargo quantity vs load & disch rates
Review bunker plans – more fuel stops to carry more cargo?
Determine cargo intake of the vessel – min/max, stow factor
Chartering Finance- Steps of the Estimate
Determine the income/freight calculation for the voyage
Typically just multiply volume or weight by freight amountEx $55 per metric ton x 2000 metric tonsEx $55 per cubic meter x 1500 cubic meters
Concept of w/m (1000kg/1cbm) and revenue tons
Concept of Lump Sum
Deduct any commissions or applicable freight taxes
Chartering Finance- Steps of the Estimate
Chartering Finance- Steps of the Estimate
The steps generate the below components:
T/C Equivalent = gross revenue-commissions-expenses
total voyage days
Incoterms
International Commercial Terms – “Incoterms”
2 sides to watch – Commercial Sale and the Transport AgreementBe sure there are no gapsEx FOB, FAS, CFR as related to the Charter Agreement
Very few businesses involving large amounts of money are finalized on the
basis of a verbal telephone agreement
A Broker, Forwarder, Charterer or Owner cannot function without a goodreputation among their market colleagues
You must have sound judgment and the ability to handle multiple requirements
in a quickly changing market
You must be able to evaluate current events and their affect on your principal’sbusiness
It is a demanding business, 24/7/365
Critical TakeawayIntegrity, Integrity, Integrity
Questions
Feel free to contact me with questions / comments: John Hark281-774-2324 Office832-434-0164 Mobile
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