Shipbroking and Chartering Practice

Evi Plomaritou, Anthony Papadopoulos

• Publisher: Informa Law from Routledge
• Year: 2017
• ISBN:
  9781317424635
• Edition: 8
• Topic: Diritto
• Subtopic: Diritto marittimo

Now in its eighth edition, this classic text is a first point of reference for anyone looking to obtain an understanding of chartering and shipbroking practice. It provides hands-on, commercially-focused explanations of chartering business and invaluable advice on how the shipping market operates across a broad range of topics. The authors also deal expertly with the legal, financial, operational and managerial aspects of chartering, offering numerous case studies which clearly link theory to practice.

This new edition has been fully revised and updated to reflect the current trends in chartering practice, legal developments and standard forms of charterparties. New to this edition:

• Enriched with practical examples covering crucial aspects of chartering and shipbroking business, such as voyage estimations, freight conversions and tanker calculations.
• New material on day-to-day laytime principles, including "Laytime Definitions for Charterparties 2013", associated commentary and relevant examples.
• Shipping Marketing as a modern tool of improving chartering and shipbroking business.
• Expanded coverage of the economic background of chartering, including markets, vessels, cargoes, trades and fixtures.
• Freight rates for all vessel types from 1980 to 2015.
• Updated review of well-known standard charterparty documents (including NYPE 2015), together with clauses and wordings commonly applying to various charter types.
• Analytical glossary containing typical terms and abbreviations used in chartering negotiations.

This book is an essential guide for practitioners in private practice and in-house for shipowners and cargo houses, as well as those studying shipbroking and chartering.

Chapter 1

Charter market

Chartering is the part of international shipping business which broadly deals with the proper matching of cargoes’ transport needs and vessels’ commercial trading. Thus, this chapter starts by presenting in short a few basic definitions in respect of chartering, considered as a prerequisite knowledge to help reading throughout this book. Focus is then turned to the fundamentals of chartering; namely the vessels, the cargoes, the geography and the types of charter, showing how they are placed in the international transport scene to form crucial charter market segments. In respect of the cargoes, emphasis is given on cargo groups schemed according to their physical attributes, handling requirements, types of transport, loading factors etc. Concerning the vessels, analysis examines the various types and sub-segments structured, according to their size and characteristics, cargoes carried, commercial trades and market elements seen from a chartering viewpoint. The last but no less important aspect of charter market analysis concerns the financial element, namely the freight rates which are presented in the subsequent chapter.

1.1 Segmentation of the charter market

This section intends to present how the charter market may be structured according to a variety of criteria. Before proceeding to this type of analysis, a few critical chartering definitions will be presented.

1.1.1 Chartering definitions

A “charter” is the agreement for commercial employment of a ship. It is contracted between two involved parties, the “shipowner” and the “charterer”, the former representing the ship’s interests and the latter using the ship’s services either for a specific cargo voyage or for a period of time. In exchange for that, the charterer undertakes to pay a financial compensation called “freight ” or “hire” in accordance with the selected type of charter, as described below. The chartering agreement is confirmed by the chartering contract which is called “charterparty”. From this short definition of a charter, the type of vessel employment which concerns the provision of liner services may rather be excepted and the reasoning will be clear later on in this chapter (see section 1.1.3).

In order to facilitate the understanding of this book, the reader should always bear in mind that the commercial employment of a vessel may basically be distinguished in four major “charter types or forms”¹ (for an in-depth analysis the reader should refer to chapters 7, 11, 12 and 13):

• Voyage (Spot) Charter: A short-term type of charter. The shipowner undertakes to carry on his ship a specific cargo quantity between specific ports, in other words for a specific voyage. The charterer is obliged to pay the “freight” which is typically calculated in USD per tonne² of cargo carried (see appendix 16 about measurements).
• Time Charter: It may be a short, medium or long-term type of charter. The shipowner concedes the use of his ship to the charterer for an agreed period of time. The owner keeps the commercial operation of the vessel (crewing, insurance, repair and maintenance, supplies and stores), whilst the charterer undertakes the commercial employment (except navigation) of the vessel (i.e. nomination of ports, payment of voyage costs etc.). The charterer is obliged to pay the agreed daily “hire” in regular intervals, for example in USD per day, payable every 15 days or monthly in advance.
• Bareboat or Demise Charter: It is a medium to long-term type of charter. The shipowner charters the vessel’s hull and machinery for an agreed period of time. The charterer undertakes the full control of the ship (crewing, insurance, repair and maintenance, supplies and stores, as well as the commercial employment), as he was the shipowner. The charterer is obliged to pay an agreed daily “hire” in regular intervals to the owner, for example in USD per day, payable every 15 days or monthly in advance. The shipowner undertakes only the vessel’s capital cost (for an analytical cost breakdown per type of charter see section 7.6).
• Contract of Affreightment (CoA): It is a medium to long-term, hybrid type of charter. The shipowner undertakes to serve charterer’s needs by carrying specific quantities of homogeneous cargo, in specific dates and within an agreed period of time (e.g. four shiploads of steam coal per year), in specific voyages, with no determined ship. The charterer usually pays the “freight” in USD per tonne of cargo carried in each executed voyage. It is considered a “hybrid” form of charter.

The term “charter market ” refers mostly to a common place where various types of charters are fixed, whereas the term “freight market ” describes the freight rate levels of these fixtures. However, both terms may be interpreted as synonyms in general. The “freight market” or “charter market”³ may be simply defined as the whole system of freight rate determination by making charter fixtures. The analysis of such a system should comprise four components: the geographical place of the market; the persons and legal entities acting in that; the methodology and business practice of the market; and finally, the rationale of the market, namely the reasoning behind acts, behaviours and processes, as well as the inter-change among persons and conditions within the market. More specifically, the “charter” or “freight” market may be defined as one or all of the following⁴:

• The geographical place where charter fixtures are made, freight rates are determined and sea transport is bought, sold and executed.
• The individuals and the legal entities which, by expressing their different shipping interests and acting in various ways to achieve their goals, they finally interact to “close fixtures” (i.e. vessel charters) and form the freight rate levels.
• A system composed of interdependent persons, entities, factors and conditions, which through financial mechanisms and business procedures, leads in making vessel charters and forming the freight rate levels of international sea transport.

Within the shipping business practice, “chartering” may be simplistically defined as this act or procedure which deals with vessels’ commercial employment, cargoes’ international transport and in many times the appropriate matching of them. Furthermore, “shipbroking” is the act and the mediating profession which facilitates the business contacts between shipowners and charterers in order vessel charters to be fixed (the role of shipbrokers is analytically presented in section 3.5). From the above, the significance of cargoes and vessels in forming shipping market segments becomes obvious.

1.1.2 Charter market segments

The charter (freight) market is not a uniform market following a single trend. Instead, it consists of a number of different part-markets, which are not necessarily dependent on one another and can often develop very differently. The charter (freight) market does not have a homogeneous connection with a specific geographical area but rather with ships that can carry similar types of cargo. The trend or state of the market is determined by the balance between the supply and demand of shipping services of various kinds. A measure of the state of the market is the freight rate level which a certain type of vessel can obtain in various standard trades or charter forms. The freight market is dependent on the state of world trade and influenced by a plethora of global factors (see further chapter 2). It should be mentioned also that there is an inter-relation between the new-building market, the second-hand tonnage market and the freight rate level, although these are not synchronised in detail. This also means that, like new-building, scrapping also affects the freight market.

To define shipping markets a small part of the timeless “Rochdale Report” written in 1967 may be quoted as follows: “Shipping is a complex industry … the conditions which govern its operations in one sector do not necessarily apply in another … it might even be better regarded as a group of related industries. Its main assets, ships themselves, vary widely in size and type; they provide the whole range of services which are needed to carry passengers and a great variety of goods, whether over shorter or longer distances”.

The shipping market and the charter market accordingly are constituted of separate segments differentiated as to the type of cargo, the type and size of ship, the trade routes, the type and duration of charter.⁵ More specifically:

1. According to the type of cargo, the charter market may be broadly divided into the dry bulk cargo markets, the liquid bulk cargo markets, the specialised cargo markets and the general cargo/container markets. Moreover, according to the various kinds of commodities, the above mentioned markets are sub-divided further into sub-categories (see section 1.2).
2. According to the type of vessel, the charter market may be broadly divided into the bulk carrier markets, the tanker markets, the gas carrier markets, the chemical carrier markets, the combined carrier markets, the containership markets, the ro/ro markets, the reefer markets, the general cargo vessel markets, the multi-purpose vessel markets, the offshore markets and the specialised vessels markets. Moreover, according to the size of vessels, the shipping and charter markets are further sub-divided into sub-categories (see section 1.3).
   Table 1.1 shows that the world cargo fleet consisted of over 58,600 vessels with a total tonnage of about 1.7 billion deadweight tonnes (dwt, see glossary), as of January 2016. Tankers (including chemical tankers) represented about 13,800 units of 548 m. dwt accounting for 32% of the total cargo tonnage. About 7,700 units of these tankers were smaller than 10,000 dwt in size. Bulkers represented about 10,700 units of 776 m. dwt, accounting for 45% of the world cargo tonnage. There were also almost 5,250 containerships of 19.7 m. TEU⁶ or 244 m. dwt, amounting to 14% of the total capacity in tonnage terms. Gas carriers amounted to almost 1,800 vessels of a small percentage in tonnage terms, as their cargo carrying capacity is commonly measured in volume terms (cubic metres). Apart from pure bulk carriers and containerships, there are also other types of vessels carrying dry cargoes (multi-purpose, general cargo, ro/ro, car carriers and reefers) which amounted to almost 21,000 vessels of 86 m. dwt collectively as per January 2016. Finally, over 5,400 vessels of 10 m. dwt were activating in the offshore market (this number includes only AHTS and PSVs which support the offshore market, but excludes platforms, drillships and other types of vessels used for oil extraction). All numbers were mentioned only to show an indication of the world cargo fleet breakdown at a specific moment in time, not for a current market update. Regarding that, the contribution of expert market data providers should always be sought.
3. According to the type of trade routes, the charter market may be divided geographically into many segments, for example the Black Sea – Mediterranean Sea suezmax tankers market, the Pacific or the Atlantic basin capesize market etc.
4. According to the type and duration of charter,...