SHIPBROKIN AND CHARTERING PRACTICE By LARS GORTON (Professor of Law ane legal consultant) ROLF THRE (Legal Adviser) ARNE SANDEVARN (Marketing manager) SECOND EDITION LONDON, LLOYD’S OF LONDON PRESS LTD. Legal Publishing & Conferences Division, 2630 Antllery Lane, Bishopsgate, London. EI 7LX 984® LIBERHERMODS, MALMO, SWEDEN 1984 All vights reserved. No part of this publication may be reproduced, stored in are ‘system, or transmitted, in any form or by any means, lectroni, mechanical, photocopying, ecording or otherwise, without the prior permission of Lloyd's of London Press Led. FIRST PUBLISHED 1980 ISBN 0-907432-62-8, Printed in Great Britain by Holmes & Sons (Printers) Linited, Andover, Hampshire AUTHORS’ FOREWORD This book was originally based upon a project launched by the Swedish Shipowners” [Association in conjunction with Herm ods, a Swedish publisher. The volume (called in Swedish Defrakining) was intended as a basic textbook for persons working in shipping (brokers, exporters, agents, shipowners, sea and land personnel). The first ‘edition of the English version was rather different from the Swedish basic book. “This second edition has been rewritten in cortain parts and adjustments have been made to adapt it to occurrences during the last few years, We have received a number Of letters giving us new ideas, and we have had the opportunity to diseuss with several persons diflerent problems which have arisen. We thank ail those who have shared ‘vith us thei experience inthe field and will appreciate iif readers will continue to do 50 and let us know if there are parts which are superlluous, incorrect, too superficial, tte. Please send all such information to Lloytl's of London Press Ltd, ot directly to the authors at the following addeess: Sales Shipping Companies, S-106 09 Stockholm, Sweden. We fee that itis nevessary to emphasize that this book is a basic textbook which does not contain any detailed infortsation on interpretation of clauses. Nor does it tive any references to legal eases. The intention is merely that the reader should be piven a general idea of what chartering is about from an economic and a legal point of view, Lars Gorton Rolf thre Ame Sandevirn® LIBERHERMODS, MALMO, SWEDEN 1984 All rights reserved. No part of this publication may be reproduced, stored in retrieval ‘ystem,or transmitted, in any form or by any means, electron, mechanical, photocopying, recording or otherwise, without the prior permission of Lloyd's of London Press Ld. FIRST PUBLISHED 1980 ISBN 0:907432.63-8, Printed in Great Britain by Holmes & Sons (Printers) Limited, Andover, Hampshire AUTHORS’ FOREWORD “This book was originally based upon a project launched by the Swedish Shipowners' ‘Association in conjunction with Hermods, a Swedish publisher. The volume (called in Swedish Befraktning) was intended as @ basic textbook for persons working in shipping (brokers, exporters, agents, shipowners, sea and land personnel). The first edition of the English version was rather different from the Swedish basic book. “This second edition hes been rewritten in certain parts and adjustments have been sade to adapt it to occurrences during the lst few years. We have received a mumber Of letters giving us new ideas, and we have had the opportunity to discuss with several persons different problems which have arisen. We thank all those who have shared ‘vith us their experience inthe Field and will appreciate iti readers will ontinuc to do so and let us know if there are parts which are superfluous, incorrect, too superficial, tte, Please send all such information to Lloyd's of London Press Lid., or directly to the authors at the following address: Salen Shipping Companies, 5-105 09 Stockholm, Sweden. ‘We feel that itis necessary to emphasize that this book is a basic textbook: which does not contain any detailed information on interpretation of clauses. Nor does it tive any references to legal eases. The intention is merely that the reader should be tiven 2 general idea of what chartering is about from an economie and a legal point of view. Lars Gorton Rolf thre ‘Ame SandevrnINTRODUCTION Shipping is an international business and a person dealing with chartering has to ‘work with the conditions prevailing day by day in the international freight market. ‘A large number of customs and rules of the trade have been established through the years all over the world, and strict business ethics have developed which should be ‘hserved in the professional shipping business. Chartering work is essentially a form of exchange of information. It is really one fof the trades where the right information at the right moment is essential to be ‘successful. Everyone deating with chartering acts, to a large extent, a8 2 collector, judge and distributor of information. & great deal of the Now of information consists ‘of, €.g. notes on fixtures all over the world, “Making a fixture” means thatthe parties interested in a spacife ea transport, through negotiations, each a mutual agreement fon all details in a charter. “The parties involved in a charter deal are, on the one hand, someone who owns oF operates a ship (oviner, time chartered owner oF disponent over), and, on the other hhand, someone who requires a sea transport to be carried out (charterer). Both parties ‘normally negotiate through the intermediary of representatives called shipbrokers or booking agents. The owner of the cargo, the shipper or the consignee is frequently also the charterer. ‘The document drawn up after conclusion of the negotiations is eslled a charter party (C/P), oF if booking of general cargoes is concerned, a booking note (B/N). In ‘most cases the brokers representing the eharterers draw up the original documents, ‘whieh are often signed by the respective brokers on behalf of the parties (sometimes ‘only with the name of the brokers “As Agents only”), CChartering negotiations are carried out day and night and nearly always under pressure of time, Frequently it does not take more than a day from the time a shipping frder has been placed on the market until a fixture has been confirmed. The ‘negotiations are normally conducted over telephone and telex. In practice and by law all agreements, whether given in writing or by word of mouth, are of equal value. As early as the beginning of the century the expression “our word is our bond” was coined among those dealing with professional chartering. in London, For the sake of evidence, however, it goes without saying that itis Appropriate to have the agreements drawn wp ia writing.TABLE OF CONTENTS Authors’ Foreword no v Introtuetion : i CHAPTER 1. THE FREIGHT MARKET ' ~The dey earge market i ‘The balk and tweendecker market 3 ‘The container market 4 ‘The rojo market 5 ‘The ner market 3 ‘The small ship mart 8 Special markets 5 Heavy carters 9 Barges and Pontoons ° 10 z 0 The tanker market, 0 tne reefer market) ot n the eae enerier market : 4 me jssengermmarket : 15 the Sale and purchase wasket 5 CHAPTER 2. THE STATE OF THE MARKET = 6 CHAPTER 3. SHIPOWNING CONDITIONS AND MARKET ACTIVITIES 19 CHAPTER 4. INFORMATION CHANNELS Information network ana exchange ‘Order Positions Market reports Freight negotiations ‘Genera information Information ezatees ‘The Dalle Exchange BIMCO. : Information network Information coverage Means of communication Computers The time factor The roe of the broker andthe agent Shipbrokers and purchase broker ort agente(CHAPTER 5. CHAPTER 6. CHAPTER 7. Liner agents Prokers and agents conascted with owners — Brokerage MARKETING Attias in negation Marketing and relation to dhe customer Organization of a shipping ofice SALES CONTRACT, Sales conract—financ Incoterms hand attain baton th ent pes ‘pi la Ncoreias Documentary ere How the documentary ered works =the daciments “The Bill of Lading “Clean” ill of lading —Decimentation i modern transportation Bil of lading conventions “The compulsory nature of te ability ‘The scope of application ofthe conventions ‘The liabily system ies Cargo elie and time mits Limitation of Hability Shipownets lability as regards inspection and description of the goods ‘Some base features of the Hlambare Rules ‘The date of the bill of lading Substitute documents Liab against tied party UCP ana the Di of lading CHARTER FORMS eral remarks about chartering ince shiping ad tramp sl —Gharterag docaments ‘The charierparty és —Dilferent types of ehariesing ‘Voyage charter Consseutive voyages ‘Time charter| aroboat charter Contact of alfecighiment CHAPTER CHAPTER 8. CHAPTER 10. ARLE OF CONTENTS Management agreements Cost elements in chartering "Garter ehaine’™ FREIGHT CALCULATIONS Notations Calesations ‘Samming up and conclusions Special ealelaions PParticlar factors in conncction with eomiccutive voyages and ‘marginal calculations Liner ealeuations Recfer ealeulations CClesltion and time charter ‘Tanker calculations Reporting CHARTERING ROUTINES The period of tavestgation Voyage charter Time charter Liner booking ‘The reaction ofthe shipowner he period of negotiation ‘Main terms Details : Where shall the veel be delivered In what condition shall the vessel be delivered and redaivered? Allocation of costs at delivery and redeivery : The hire and payment of hive ao TFiing ofthe bite : Payment a: Late paymeni-—owners security : Dedvctions from hire : Payment of last instalment of hie ofthe "The ohne clan ‘The grounds for oF ire : ‘The threshold rule ‘The los of time ot ‘The los of money : Deduction of ofthire Oiher ablizations during eif-hire periods : —Damage and pre-ermination of the charter —Reotnes and alloeslon of costs : ‘Directions an instructions to the vessel. Log baoks Master’ position oo : Gnstomary assistance, Overtime : Allocation of costs . Information : . 2 Caro tailty : : 2 Tinbility to eargo owners 2 Allocation of lability betwen owoers and charters. cry CHAPTER 14 TABLE OF CONTENTS “w Damage tothe vessel 24 ‘Damage caused by bad weither, collisions and grounding“. 234 Damage eaused by cargo. 235 ther damage 236 Repair of damage 27 ‘THE CONTRACT OF AFFREIGHTMENT 238 Definition of Conteset af Atreightment 28 ‘Examplos : 28 (Characteristics and definition ofthe Contract of AMicightment 238 “Terminology SoG 29 ‘The documents 20 Intoreoa 80 240 Voleos a 240 General a 20 —aThe contract potiod 2a ‘Some diferent ways to agree about the period 2a Commencement and termination of the period. Bordeeine ‘between part periods 5 - m2 The cargo = 22 ‘Type of cargo ae . 32 Total quantity of cargo or Quanity fed oF net fixed. 1A oF TB 2 Charterer’ ebligation to offer cargo, 2A or 2B 2s ‘vines obligation to carry cargo. 3A or 3B 244 = The vessel i ae Me nomination procedure 2a the individual elawes ; 245 CConcLUDING REMAN : 246 Siliography 27 Appenis T Gencon 20 "Appendic I Linertime BS 252 ‘Appendix IH, Contineitl, . 256 ‘Appeadis 1V; Asbatime : 238 ‘Appendix V, Esxonvey 84 2 ‘Appendix Vi, Letter of Credit—the finetion of the Bil OF Trading eI 288 Indes on 289CHAPTER 1 THE FREIGHT MARKET “The freight market is not a uniform market where the trend is entirely up or down, 1c consists rather of a number of different part markets that are not necessarily dependent on each other but ean often develop very differently. The freight market does not have a homogeneous connection with a specific geographical area but rather ‘with ships that ean carry similar types of cargoes. “The current trend of 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 level which a certain type of vessel can obtain in various standard trades, The freight market i, of eourse, dependent on the state of the world {rade market but is sometimes strongly influenced by circumstances ike war, widespread strikes, bad harvests, iecbound waters, ete, Another important factor ‘whieh affects the freight market is the granting of government subsidies to shipyards, Contact between the diferent freight markets may be more or less extensive. This ‘depends on the type and size of ships, the commodities involved, and to a certain fextent on the distance of transportation. Each freight market has, however, diferent interested parties and has thus often separate networks of information and information channels ‘The world fleet of merchant ships consists of some 35,000 vessels, with a total tonnage of about 700 milion tons deadweight, About half of this total tonnage ‘comprises ships of under 10,000 tons d.w. Tankers represent only about 7,000 unis, but account for about half the total tonnage, Disregarding some 2,000 vessels ‘employed in other markets, the number of ecean-going ships inthe dry eargo market is still large—roughly 9,000 to 10,000 units ‘The most important freight markets are: the dry cargo market the tanker market athe reefer market the ear carrier market the passenger market "The dry eargo market With respect to types of trade as well as types of ships the dry cargo market isthe most diversified, Some parts ofthis market may at times show a market picture which is quite different from the dry eargo market in general What are common to the various sectors are information centres and information channels. To be able to. consider alternative employment for the ships, to judge2 SIMPBROKING AND CHARTERING PRACTICE rnewbuilding requirements, (0 develop new types of vessels, to attempt solutions to transportation problems and to seek new trading opportunities, the dry cargo ovners rust follow what is happening within the dry cargo market as a whole and what happens from day to day in important shipping centres like London, Oslo, New York, ‘Tokyo and Hamburg. This is done through specialized shipbrokers as well as through direct contacts between owners and charterers. The charlerers, also, have to follow what is taking place within the whole dry eargo area to be able to obtain optimum solutions to their transportation problems, View orer deck oa but cir (22.785 soar) aug wih rasan saben ofthe ves ‘ened on pee 38) nets tow of bees THE FREAGHET MARKET 3 “The dry cargo market may be divided into the following sectors —bulker eweensdecker —r0jt0 Sinor small ships special. The bua and “tweendecker market “The vessels operating in this market vary in size from about 10,000 fons up to 126,000 tons, and although a division into size class cannot be very distnet, there are certain differences which are recognized in day-to-day market discussions. A “tween- ‘coker means generally a vessel of 10-16,000 tons with her own gear of derricks and/or Cranes and with one tweendeck throughout, In bulk carriers there isa elass of smaller Sine vessels, of about 16-20,000 tons, very often employed in the logs seetion of the Timber trade {log eavriers). These ships have their own gear like the big group of riers within the 20-38,000-ton bracket, and are referred to as “handysize ‘Daring the past few years a new class of bulk carrer fas emerged. ‘These ships ean best be teseribed as enlarged handysize vessels of about 40-48,000 tons, mostly built with good gear and sophisticated hatch arrangements. In the next big group of bulkers, taking a step up in size, we find the so-called “panmax bulkers", which means vessels representing the largest measurements allowed in length, beam and “Uraught for passage through the Panama Canal in loaded condition. The deadweight range is about 58-75,000 tons, These ships are gearless and are busy in the main train, coal and ore trades, One may also (alk shout x special class of big ore carrie, Fanging in size between 100-120,000 toms. Within the bulk seetor one has to follow the variations in supply of the important bulk eargoes like coal, grain, ores and concentrates, serap, stel, cement, phosphates and fertilizers (Owners of specially equipped vessels also have to keep in touch with the market for the shipment of for example, umber, woodchips and ears. Modern bulk carriers, with Icchnically sophisticated equipment, can also be used for the transportation of initized cargoes of various kinds, like paper and pulp and also for containers, ete {All ships able to carry these commodities are competitors within the same market tector. This means that when making voyage calculations one has to calcutate on all4 SUIPBROKING AND CHARTERING PRACTICE ‘the various cargo combinations or chartering alternatives and set the freight oF daily hire at a level with the eurrent market conditions within the entire market sector in question Ships fted with specialized equipment or designed for a particular area have to {ook to their own specific setion of the market in order to charge the extra rate on {op of the current Freight rate which is required to pay off investments in equipment ‘and construction. Examples of these are vessels equipped with their own grabs for discharge of bulk commodities (“sel-dischargers"), vessels specially constructed with the measurements and fitings required for passage through the St, Lawrence Seaway ring the season ("Lakes traders” or “Lakes-fited vessels”) and vessels built to e-class", which are suitable for trading into the Baltic of to Canada during winter conditions| Even the “tweendeckers carry bulk eargoes, but the number of such vessels in the bulker trades diminishes continuously in favour of genuine bulk carriers. The most important employment possibilities for ‘tweendeckers are, on the one hand, shipments of all kinds of bagged commodities, for example rie, sugar, coment and Fertilizers, ‘and, on he other hand, employment as supplementary or"extra” vessels for the regula lines. This latter possibility for employiment of conventionally built "tweendeckers has setually diminished more rapidly during the past few years, as most liner trades fare now fully containerized, and the eargoes not suitable for containerization or otherwise left over by the regular lines have not gone to the “tweendeckers to any great extent but have rather become an interesting market for modern handysize bulkers. The matket variations for bulkers and "wweendeckers follow each other to 1 great extent, Both groups of ships also normally use the same brokers, ulthough the individual shipbroker is often a specialist within ether sector. ‘The container market In the 1960s 4 widespread opinion prevailed that containerships of the Joflo type (Lin onjLi off) would totally knock out the conventional liners from the important trades. This did not occur and, instead, there developed pure container trades parallel to conventional liner traffic oF rather to a traffic of semi-liner character employing modern standardstype ‘tweendeckers as well as sophisticated handysize bulkers. ‘The container ship has found its place, especially in trac plying between highly industrialized areas witha technically advanced inland transportation system in both ‘he exporting and the importing areas. This trafic requires large investment in specially equipped vessels, port installations and-terminal equipment, Container ships are ‘often operated by joint venture organizations and pools, partly because of the high investment costs involved, {THE FREIGHT MARKET 5 “Nihon, «35,000 tou ew. eodainer vse capable of steaming at 30 nets ‘The time chaster market (T/C market) for container ships has proved to be the ‘market sector whieh is the first to react to a change in the state of the world trade ‘market. The container ships are subject to competition from modern “oweendeckers of standard (ype as those vessels, to some extent, can also carry containers. Competi- tion is alsa fel from bulk cartiers constructed to be suitable for container handling. ‘The market for container ships is limited and there is only small number of brokers who are specialized in the chartering of such vessels, ‘The rojro market For the rojta ships (Roll on/Roll off) the development has been very special during the past few years. From the beginning, these ships were typical short trade carriers in trades betwoen highly industrialized countries. Several cireumstanees have, however, caused these vesels Co participate as a natural part of ocean traffic.6 SMNPBROKING AND CHARTERING PRACTICE During the 1970s the movement overseas oF industrial products, machinery, vehicles ‘and building material increased considerably, espevally from Europe and the United States to the Middle East countries, as well as to West Africa from Europe. The ports in the importing countries had a low capacity at the time and therefore ran into serious congestion caused by too many vessel arrivals and the inability to cope with ‘the inereasing quantity of cargo. At the same instance the time had become ripe for the liner companies trading to these areas with conventional general cargo ships to renew their Beets, “Sibling” (5,708 tour) arf vessel wed maya eae One solution to these problems was the oeean-going rojto ship, a type of ship whieh can earry all sorts of commodities placed on whecled platforms or flats that may be handled by the use of forklift trucks and, of course, containers and trailers. “Vhus we ae talking about a type of vessel which does not require any port installation ‘other than a stretch of quay with a length equal to the width of the ship, where the ramp can be lowered for rolling on or off the cargo units, The handling is very fast and a vessel may be totally emptied of eargo within a few hours. ‘This has now led to the development of a completely new market with orders being, placed on a world-wide basis. There ave also brokers who now specialize and con= "THE PREIGIET MARKEF 7 centrate their detvities on rojro chartering. With the easing of the congestion problems previously mentioned (in some cases congestion has disappeared altogether) rojro ships are encountering competition from modern “tweendecker and bulker vessels fs well as from the pure containerships. The ooean-going rojro vessel has, however, dearly proved its worth and will provide competition both in the established and the new markets. The liner marker Liner traffic is « firmly controlled activity where remuneration is geared more to the long term rather than to single voyages, The freight rates in the tariffs are by Uefintion ot subject to the large variations that characterize the so-called open ‘market. Nevertheless, liner traffic is susceptible 10 market variations, depending on Availability of cargo and load fietors on each voyage. Loaded cubic ‘Available cubis Load factor== ‘hal fort indicates how much ofthe avaiable ee capaci it make ae of “There is an intermittent need for time-chartered tonnage, which will be either expensive or cheap depending on the supply of ships and employment terms, tespecially the point of redelivery, When the market is low sueh extra vessels may be Cip-shartered at a low daily hire, but the availability of cargo for the scheduled sailing, which has to be performed anyway, may not be very good. During such market conditions the competition from so-called outsiders often gets stronger, as these may enter a liner ade for only a number of trips, accepting ioight rates that are lower ‘than the liner tariff ates just co keep the ships going until the open market conditions improve again, Liner vessels get the larger share of their cargo through contracted liner agents ‘who mostly do not work as shipbrokers in the dry cargo market. A liner eompany may also book basic part cargoes and interesting special commodities in order just to fill empty space. This is often done on charter-party terms through broker con nections in the open market, Imbalance in eargo volumes between the outward and homeward legs of a round voyage often makes the Tines competitors with the “aweensdecker tonnage working the open market from the same areas,5 SHIPBROKING AND CHARTERING PRACTICE Liner operators are usually more involved than other shipowners in the improve- ‘ment of cargo handling techniques and they often participate actively in developing those ports at which they call regulary. The small ship marker ‘As mentioned previously there isa large number of vessels of 10,000 tons and under ‘Most ofthis tonnage is engaged in short-sea and coastal trading, and this market has its own information system and channels of communication which function indepen- dently, the market variations not necessarily coinciding with those of the market affecting the occan-going tonnage. Many shipping companies carry on independent trading with smaller-sized vessels, but the trend is now to employ small single and "aweendeckers in some sort of regularly scheduled feeder traffic. The result is that these vessels find themselves in competition with other eartiers in the short-sea trade, including larger ships catrying parteeargoes as well as road and rail trafic “Marans Scan (6,380 rns da) i egptrcted and equipped for hey ite. The two decks can sng p50 ti tomes. Te el ated han We eed ‘One may find typienl feeder companies looking for employment in the open market depending on the easuat need. Tis, however, also common for oczan liner companies ota forwarding agent ot a charterer shipper who trades with his own products to lpetate feeder ships as a part of his transport scheme, Special markers In addition to the above-mentioned types of vessels there are quite a number of special ships which meet various special needs. Among such vessels the following ean be mentioned: Heavy-lfi carriers: Some companies have specialized in heavyctift eargoes and technically complicated transports where the movement between quay and ship is the most difficult part of the operation, For sueh purposes the vessels must be built withthe special demands on stability and constructional strength in ming. ‘Barges and Pontoons: These earrers are also used forthe transport of heavy material, For example built-up drilling rigs, but they are also used us floating quays, as feeders in shorl-sea traffie and as discharging platforms between an ocean-going ship and the ‘quay, nother example ofa specie sine "Seaman aceon curler of 8,30 tne dav. consraced for ‘te etlling i cor. ciel loadin decree capaci 1 200.000 mse tonnes Pe “rand ihe operation toatl Bone aTugs: The demand for towing vessels has increased with the increased use of barges land pontoons. At the same time, towing work for the merchant fleet is becoming ‘more Frequently demanded, Borge carters: Yn this context the system with barge carrying ships must also be ‘mentioned, for example the LASH system (Lighter Aboard Ship). This method is based on cargo being loaded into barges which are towed up (o and loaded into an ‘cean-going vessel, At the port of destination the barges sre again launched and towed, for example up a river, to the final place of reception. “The tanker market ‘One characteristic of the tanker market has been the comparatively small number of big charterers: the large oil companies. The number of private firms (often known as traders") and State organizations engaged in the chartering of tankers has, however, increased considerably after the oil crisis in 1973, The small number of loading areas {is also typical of the tanker market. ‘Tankers—especially those carrying crude oil—practically never get any return eargoes and are therefore normally foreed to proceed in ballast (o a loading area, ‘Many shipowners place their ships on time charter for long periods, but there is also an important spot market. Since 1950 there has beon a trend towards increasingly bigger tankers, a develop- ‘ment that has levelled out during the late 1970s. The largest ones are usualy called VLCC and ULCC (Very Latge Crude Carriers and Ulira Large Crude Carriers) Which are used for the transport of crude oil, while so-called Product Tankers in sizes between 20,000 and 60,000 tons deadweight and the smaller coaster tankers are used to carry refined produets, Since the late 1970s there has been a noticeable imerease in demand for Nandysize tankers within the $0-100,000-ton range From a technical point of view the sea transport of oil is carried out in virtually the same way all over the world, Tanker charterers, tanker owners and tanker brokers are also working with elaborate and standardized documents, the design of which bas ‘been influenced by the oil companies over the years and which may be used om a takedt-orleave-it basis. The negotiations for a tanker charter are therefore less complicated than, for example, negotiations in dry cargo chartering and are normally carried out within a short space of time. ‘The problems encountered in tanker chartering are, however, even greater than ‘those found in other forms of chartering. Tho at is to hit the right time for the fixture ata freight lovel wel in tune with che prevailing market. The daly Ouctwations, as well 4 the periodical changes, normally oceur very rapidly and with strong deflections Deck view oer @ BLECenker lant 350,000 tnd orth 8 362m, beans 197 fm. ‘which may cause the situation to change radically from one hour to the next. Due to the comparatively limited number of parties iavolved in the tanker market every occurrence has n great effect, which sometimes means that one single fixture may alfet the total state of the market for the day. ‘The combination carriers of Ore/Oil type and Ore/Bulk/Oil (OBO) have a special position, although not in the way intendec originally. The intention was that those Ships would perform combined voyages in a trade with, for example, dry bulk fargo in one direction and with tanker cargo For the return leg. Instead, the vessels ‘were used cither as pure tankers or as pure bulk carriers, depending on which market ‘ollered the best revenue at the moment, This development was also ereated by the dificulty in combining freight contracts and also by such practical problems as Costs for cleaning the ships” holds between the diferent commodities. Thus the combination carvers increase the supply of tonnage on the market where they are being worked Tor the moment and can therefore contribute to weaken an upward trend in freight levels oF to strengthen a downward irend,b SSHPBROKING AND CHARTERING PRACTICE Within the tanker market there are also special caries, for example solvent and parcel tankers for liquid chemicals of various kinds. These ships ean often carry a reat number of such chemical products of different kinds atthe same time, The size of this type of vessel about equals that of the product tanker, There are also small chemical tankers for coastal trading, A solvent tanker may also be used for the carriage ‘of refined petroleum products of various kinds, The gas tankers form a special clas and the vessels are called LPG (Liquefied Petroleum Gas) and LNG (Liquelied ‘Natural Gas) tankers in accordance with the product the ships are constructed to carry. Beside the combination carriers the conventional tankers may compote in the dry ‘cargo market, for example for the transportation of grain. ‘A field which is related to the tanker market is the Offshore sector, concerned with exploration and exploitation of oil in the open sea with more ot less permanently anchored drilling vessels and drilling rigs. Most recently a special freight market has {developed for sueh “ships” and for their offshore servants, the supply ships ‘The activity on the offshore market varies and consequcnlly so does the market for supply vessels. To some extent these ships can compete for curgoes with smaller tonnage in the short-sea trace and they may also be used for towing, work “The reefer market Dig scale reefer (refrigerated ship) trading is basicaly a worldwide operation, but this market is nevertheless very much a closed one. There are only a few owners, operators tnd reefer brokers who devote themselves to this Freight market. The charterers are often very large organizations, privately owned as well as governmental. In contrast {o what is normally the method in dry cargo chartering, a reefer charter is frequently rade directly between owners and charterers without the assistance of brokers. Nevertheless, there are many connections and similarities between the reefer and the dry eargo markets. Reefer ships are employed in contract trading to farge extent, but there is also an important spot market, The operation is strongly influenced by large seasor variations in the supply of eargoes. The reefer market is, however, also characterized by sudden changes and at the same time the contractual engagements require very striet and cateful scheduling, ‘The londing areas ure scattered all over the world but the discharging areas are concentrated mainly in Northern Europe and Japan, Bananas, fish and meat are transported the year round, while citrus and other fruits, vegetables and potatoes are seasonal. The demand for reefer tonnage normally reaches a peak when the products of the Southern Hemisphere are bound for shipment to Europe. ‘Tne PReaGier MARKET B Reefer trades are practically always one-way routes and generally speaking there is, 44 huge imbalance, not only geographically in the distribution of the loading/dis- ‘charging areas, but also seasonally with the so-called high season during the frst half of a year and a low season during the balance of the year. In addition to this there are weekly and daily variations in demand for transport depending on erop ‘outcome in the various areas. Sudden problems in some supplying areas may eause Grastie rerouteing of reefer vessels more or less overnight but at the same time the shipping programmes for the individual routes fellow very strict schedules and require perfect timing in arvivals and departures. OF course, reliable technical equipment and treat skill cargo handling and treatment during the sea voyage are also necessary Economy is achieved by reducing ballasting to a minimum and by always using 3 vessel's maximum cargo capacity. In order to reduce the time and costs in port, all the major reefer trades are now based on palletization. "Spring Bree 4 efor wth lating capacity of about 470000 ex. ft Comparatively large quantities of reefer cargoes, for example meat, are being carried by containerships in reefer-contaners, but also by combined resferdry ‘cargo ships in liner service or by conventional general eargo liners, When the freight“4 SIUPRROKING AND CHARTERING PRACT level of the dry cargo market is equivalent to that of the reefer market, the reefer ships may be used in the dry eargo market. It is eustomary for reefers to carry cars ‘and tractors and if the freight levels permit, even bagged cargoes, paper, lightweight tnitized cargoes, ee, The vestels will then compete with the “tweendeckers operating in the open market, “The ear carrier market ‘There are many similarities between the reefer market and the market for ear carrying vessels. The number of vessels employed on a world-wide basis is about 500 to 600. It is a very closed market using very little broker assistance and business is concluded mostly on the basis of long-term contracts between a few operators and exporting companies, The market variations, however, are generally non-seasonal And follow a rhythm of thoie own with rather big differences—not so much in freight Jevels hut in demand for shipping space, So far the market eyeies have been of about two to four years’ doration. “The most important trades (1982) with fully assembled vehicles are from Japan (0 the United States and Europe, and from Europe to the United States and there is slso an inter-European tsade covering important volumes. Secondary trades in respect Of volumes catried are from Europe and the United States to countries in Africa and the Middle East and Central and South Ameviea and from Japan to the same areas, plus Australia, ‘Most vehicles are medium size passenger cass but lorries, trucks, factors and buses re also carried, This sector of the market is increasing. In addition and parallel to the trade of fully assembled vehicles there is an increasing volume of car parts, so-called “care knocked down” (CKD) for assembly in factories in the receiving Countries, These eargoes so Far have been earvied by the lines ‘The overseas transportation of vehieles in the big-volume trades is taken care of by very large purpose-built vessels, so-called “pure car carters” (PCC), each with a capacity of about 2,000 to 6,000 units. The leading/untoading of a PCC is done by roll onjroll off rsethods and is extremely fast Until the introduction of the frst PCCs in the late 19505 and thereafter throughout the 1960s, an important part of tho trafic was performed by so-called car-bulkers, ‘These vessels of ubout 20-30,000 tons are conventional bulk carriers ited with hoist- able or folding ear decks ofa lightweight construction, giving a vessel a ear-carrying capacity of some 1,000-2,000 units. The ears are mostly handled by a lift onjlift off Imethod which is slower and more Hiable to incur damage 10 the eargo than rojr0 handling, Such vestels can entertain combination contracts by taking normal bulk commodities one way and ears on the return run. “THE FREIGHT MARKET 1s FFor various reasons—one being that shippers of cars normally refuse shipment by To/lo-tannnge when rojra is available—such car-bulkers are no longer being built 1nd those that still exit are disposing of their car decks and are trading only in the dry cargo bulk market Smaller volumes of cars (from just a few up to about 100-150 per shipment) are taken care of by the lines at liner tari foights, but for trades where the volumes ‘re increasing up (0 anything between 200 and 900 units per shipment the charterers will Tequently employ reefer tonnage, which, with many "iweendecks (“mult eckers"), eam provide the deck space required. “The passenger market “The big passenger ships in transoceanie liner traffic have now practically vanished. The large size tonnage with accommodation only for passengers is now primarily engaged in ervsing. Most passenger vessels are operated in short-distance trad with consecutive trips on tight schedules. These ships mostly have a capacity for rolling foods and they are a supplement tothe rojro ships operating in the same trading area. ‘The market for pascenger ships is very much dependent on seasonal variations and the working of those vessels in the open market is often done with the assistance of the ‘brokers specialized in rojro chartering. ‘The sale and purchase market ‘An important part of shipping eoncerns the sale and purchase of ships. The general Freight market and the so-called second-hand market for ships have a considerable mutual influence. It is important to follow the day-to-day level of the second-hand market as well as the state of the freight market for a speciic type of vessel ‘The owners watch the offers from the shipyards of newbuildings but also the supply of vessels on the second-hand market, as well as the development of serap prices for fold ships, Such details give useful information about the supply of tonnage for a fow yoars ahead and may havea decisive influence on the long range development of the freight market. During a period of low market activity itis especially interesting to observe if the existing tonnage is laid up, is sold for trading under low-cost Nags, or Js serapped. ‘The sovond-hand market varies largely in conjunction with the freight market for each specific type of ship. Theoretically, an oviner would buy ships during a low market period and sell vessels when the freight market rose, Owners, however, tend to-do the reverse and there are several reasons for this. Among other things, this has to do with the need during a period of recession to sell in order to strengthen the liquidity positionCHAPTER 2 ‘THE STATE OF THE MARKET There is 4 difference between the Finer-bound freight market and the open freight market. The latter market is the market where tonnage is fixed voyage by voyage: the so-called spot market—where the buyers of sea tansport find the additional tonnage required to comply with all the oceasional increases in demand of transport “The open market also includes a time charter sector tnd the important sector covering other more long range contractual engagements of various natures. thas been ealeulated that about 702% of the volume of goods transported at sea in the world is fixed in the open market. The balance is taken care of by the liner services in ther strictly directed and scheduled trafic with controlled freight terms and Conditions and freight levels. Ics estimated that the spot market volume is about five the total open market volume, This sector gets an increasing supply of ships uring periods of yeneral economic recession, when there is a lew demand for sea transport, “The open market is influenced by the “law” of supply and demand, but it would be an over-simplifiation to state that the market is generated and directed by this. The variations in freight levels are very large and this is esiy seen in the diagram showing the tanker market fluctuations during a quarter of a century. The diagram ‘would largely be the samme if notations are made for one ofthe important dry cargo commodities, for example coal Various events of worldoride portance often havea great tle on itv THE STATE OF THE MARKET 7 ‘An illustration will show how operative forees work in practice in a miniature market. If for a specific loading date within a limited area there are 10 ships open for employment, but there are only nine cargoes offered, Uhen itis very Tikely that none of the vessels will obtain a higher freight rate than the lowest rite any one ofthe respective shipowners is willing to accept, In the reversed situation, where there are 10 cargoes available but only nine ships one can expect every ship which is fixed to obtain better terms than the preceding one. Factors influencing the general freight situation and the development of the open market are, except for the general state of the world economy, sudden changes in demand for specific commodities, an economie boom within special limited market areas, sate of war, closure of important routes, crop failure, extreme congestion in important ports, oversupply of specific types of ships, unusually late or early closure ‘of ieebound waters, ete 1t is practically impossible to predict with any degree of certainty future develop~ ‘ments in the eight market, In general, periods of low freight market conditions are substantially Jonger than periods when high freight rates can be obtained, ‘There is really no such thing as @ “normal” market level and it would be more accurate to say that the Freight market constantly oscillates between extremes. Certain factors, for example political involvement in the shipping Fld, sometimes make it possible For those concerned in the main bulk trades to anticipate a reduction in the open market's share of the (otal ransport volume to the advantage of enclosed, strictly controled, transportation systems. There are always, even during periods of general economic recessions, areas where there is a more oF less temporarily high demand for tonnage. In 1977, for instance, there was a great excess of tonnage in the dry cargo and tanker markets. A tendency to improvement in the state ofthe dry eargo market was counteracted, for example, by continuing deliveries of bulk eartiers from the shipyards. At the same time, however, there was a strong demand for ocean-going rojeo vessels and reefer ships, which thus ‘obiained very high time charter rates. Other Factors which contribute (o the uncertainty in Forecasting and which have had and will have a decisive influence on the freight market development are changes in economic conditions in countries ike the USS.R., U.S.A., China and Japan. For example, the US.S.R. is an important consumer of grain and when there is a had harvest in that eountry huge quantities have to be imported and consequently shipped. Information about such matters tends to hit the shipping market suddenly, chou not quite unexpectedly ‘During a general low freight market period every sign is noted which may indicate a change towards an increase in demand for sea transport, such as the state ofthe general18 SHPDROKING AND CHARTERING PRACTICE ‘economic world market, the development of the general political situation, the market trends within special sectors, for example stel output, the production of ears and the ‘outcome of the harvest in important consuming areas. When there seem to be smal but firm indications of higher freight rates shown simultaneously by most important ‘market indicators, an expectation is created which in the beginning is weak but which grows stronger and stronger among the partis in the shipping business. Iti in the infeests of charterersand shippers to try to belitle such signs of forthcoming changes, ‘hile shipowners then take an attitude of wait and soe. It becomes evident that there is substance in these market trends, charterers get more and more active in the time charter markets trying to secure long term contractual engagements at low freight levels. Thereby the supply of tonnage on the spot market will decrease and the freight levels generally start 0 rise slowly. If there arises a sudden increase in demand for tonnage in a special trade, as for instance the grain trade between the US. or Canada and the USS.R., a scarcity ‘of tonnage will eccur in other areas and in other trades dependent on the same types and sizes of ships. The rising trend in freight levels will then become further aecen tated, At this moment certain psyehologieal Factors will slart Co contribute to the evelopment of the market. Charterers, in fear of running into a situation of acute scarcity of tonnage, will try to conclude their shipping arrangements as soon as possible. Owners ean ask for inereasingly high freight rates and if, im addition, a sudden political criss arises, then those interested in the shipping market may find {hemiclves in areal freight boom: ‘A consequence of such a development is often that the owners of older vessel whieh have been laid up during the low market period will start trading their ships again instead of sending them to the scrapyards. Little by litle owners and charterers will now start realizing that they dispose of transport eapacity which is too big and whieh is at the same time too expensive, They will now start to offer part of the previously time chartered tonnage for employment on the spot market or for time charter engagements, Another factor which will affect the market with a delay of some two or three years is that a number of owners will now order newbuildings whieh if they have bad luck, will be delivered during the next period of a low freight ‘market thus perhaps contributing to 4 further deterioration in the provailing level of the market. A recession in the shipping market is now predictable although its precise timin may not be possible. Owners will show an inereasing interest in fixing their ships For Tong term engagements and fieight levels will move downwards. Charterers will hold ‘vt to obtain ever lower freight levels and as suddenly as the freights started to rise {o very high levels, the market will now drop. CHAPTER 3 SHIPOWNING CONDITIONS AND MARKET ACTIVITIES les keeping themselves well informed at all times, a great deal of flexibility is required from companies and organizations engaged in shipping. Apart from the Gaily Muctuations in freight levels and other trading conditions depending on the supply-demand situation, there is a constant development towards new techniques in shipbuilding and propulsion, cargo handling and terminal operation. Due (0 the cverchanging conditions for international commerce the overseas trading patterns fare changing and new cargoes and loading-discharging areas will be developed— Sometimes this wil quite drastically diminish the importance of previously very active ports and cargo movements. Such changes will occur over periods of a few years ‘or maybe several times during a vessel's technical lifespan of 15 to 20 years. Trres- pective of the freight market being very active or depressed there are seasonal changes in volumes to be shipped and there are also variations in quantities of certain important commodities being bought or sald, So the operators of lets of vessels have to gear themselves to be able (0 take advantage of new opportunities simply to survive and stay of in the business of shipping. In order to maintain maximum flexibility on both a daily and a long-term basis— and thereby stay safe and sound economically—owners have to renew their fleets At intervals, They have to operate the number, types and sizes of vessels necessary {0 mnect the minimum requirements of their contract engagements. They have to hice extra tonnage and fo reschedule the fleet whenever their shippers or charterers require or because of other temporary or sudden changes in demand for shipping space inthe market sectors where the owner participates oF intends to enter. This means that any owner who runs a Mleot of ships will operate owned vessels as a more or [ess permanent base, plus an additional quantity of time-chartered tonnage to suit the Iarket requirements over a period of time, He will also operate supplementary Tonnage hired on a spot basis to meet temporary increases in cargo offerings and to fill unexpected gaps in liner oF contract schedules. Obviously the shipowning side is involved in buying and selling activity which proceeds parallel to the chartering side of shipping. ‘The way in which a shipowner operates the vessels under his control will vary aocording to trading intentions, economy, current market conditions and to an increasing extent according to political regulations enforesd by governments. This description ofthe shipowner’s world will enable us to list the activities going on in the day-to-day work on the shipping market as initiated by owners and operators» [NUPRROKING AND CHARTERING PRACTICE Securing employment for owned vessels from the open market by fixing full or partcargoes on either a voyage-by-voyage basis or by Jong range contract engagements —Securing bookings of so-called parcels—mostly smaller consignments of various commodities—with a view (0 filling vessels employed in a liner service with fixed calls for loading and discharging and following a timetable with a pre-fxed and advertised geographical rotation (“itinerary”) —Time-chartering tonnage for “period” (anything from three months to five years ‘or even longer) to supplement the owned fleet of vessels to match the expected ‘market requirements, the contract commitments and the standards of a liner service engagement and generally (0 obtain maximum effleieney and economy lover a petiod of time —Time-chartering tonnage on a voyage-by-voyage basis (“tip charter") oF for short periods to meet sudden market developments and temporary increases in volumes to be shipped under a contract or liner engagement. —To let ("time charter out”) owned or time-charlered tonnage to other owners or ‘operators for longer or shorter periods against a fixed daily hire, for those parties to operate the vessels in the open market or in the liner trades. Ordering newbuildings or buying second-hand tonnage and selling vessels to other owners or scrapping in accordance with the company’s replacement programme and in Tine with current market developments and conditions. CHAPTER 4 INFORMATION CHANNELS Information network and exchange ‘Those who are engaged in chartering are important consumers and distributors of information. The exchange of information is a basic prerequisite for chartering and shipping departments, brokers, and agents in order that they pet to know the prevailing supply and demand of sea transport services, The continuous flow of information and the treatment and evaluation of the material is necessary for judgment of the situation and the trends of the freight markets. The various means of information exchange and sources of information will be described in detail befow. (Onder is the common denomination for every request for transportation of aspecitic cargo from one port to another. An order may also concern a requirement from an ‘ower ora shipper of eargo to time charter a ship for short or long duration. Between charterers and their brokers and between owners and their brokers and between the firms of brokers such orders ate circulated one by one or by lists covering a number of orders. The party requesting chartering service is said to “place an order on the market” and will then await reactions from the tonnage that may be interested in the order. OPEN A/C NEW ZEALAND CHARTERERS WITH FOLLOWING CONTRACT: YTTLETON/VANCOUVER 1 MILLION TONS P.A. BULK LIMESTONE MONTHLY SHIPMENTS COMMENCING JUNE FIRM INDICATIONS FIOT 2000/5000 GENCON cjP 375 PCT PASTUS REQUIRE GEARED TONNAGE L —___ ‘onoen: A charierer from Dew Zealand seks owner for contract of efrghiment covering he f ‘i tof a2 SIIPRROKING AND CHARTERING PRACTICE OUR DIRECT CHRTRS SAGUENAY/ALCAN OPEN FOR T/D 350.000, BALE WITH MIN 25 T H/L DEL HAMBURG 15/16 APRIL FOR TRIP TO WESTINDIES ‘omen Saucy Alea eck a teoudecker for a vee from Hamburg 0 the West Ii, COOK OPEN FIRM 20/2200 HSS GULF/EC MEXICO ‘MAR 24/2 APRIL 6.75 FIO 5/1000 WHAT CAN U OFFER ‘onben: Cook asking for ore on agri eare fom U.S. Gulf to Mesic. ACCT COBELFRET OPEN FOR FOLL TC TRIP 25/30.000 TONNER GRDIGLESS DELY PERU OR W.C. CENTRAL AMERICA PPT/20 MARCH CANCLNG. TRIP REDEL DOP NCSA MAX LOAGO/MAX BEAM 78° MAX DIST WL/TOP HC 26° NYPE 2,5 ADDRESS PASTUS ‘onoen: Cablft open Jor tne chartering of vse with certain resveions regard type and Positions i. information mentioning where and when vessels are expected to become available (open) for new employment, are circulated by owners and operators as & guide to brokers and charterers, The intention is that these position lists will generate suggestions for employment of the ships mentioned, INFORMATION CHANNELS 2 OWS CAN FIX AROUND USDL 4,500 DELY SOUTH JAPAN LAYCAN 25 JUNE/20 JULY NORDIC WASA 26000 T CARGO CAPACITY ene” PROPOSE? sow Ane info et wn adhere ala ve! any ao Market report ae circulated by the big shipbroking companies to owners, charterers, other brokers and agents, giving a eoncentrated picture of the prevailing situation For the day or the week. By comparing the conclusions made in the various reports, with one's own judgment of the situation it i possible to form a fairly accurate picture ofthe stale of the market in the scctors of particular interest. A comprehensive market report (Gee page 115) contains comments on (primarily) the largest markets, i. dry cargo and tanker, but also, for example on the sale and parchase of ships. Often the market development within the different areas is commented. on Separately, for example for the Atlantic or the acti, or for different commodities, for example grain, cca, ore, ot. Generally the diferent tonnage sizes are also dealt with separately. The comments are illustrated by examples of recently made representative Fixtures.4 SMIPBROKING AND CHARTERING PRACTICE Freight negotiations. The most important pieces of information are exchanged during Current negotiations between the partes involved. In these the parties participate in influencing the state of the market themselves and the information which they gather Felating to the business in question is important as the doseription of the agreement reached. For a judgment of the state of the market and the influence on the market evelopment this type of information is oF equal importance whether a Axture is concluded or not, The various elements of a chartering negotiation, ie. general discussions, indications, offers and counter offers, etc, will be dealt with more extensively inthe chapter covering chartering routines. General information. Other necessary information concerns costs forthe operation and despatch of vessels, for example costs for the handling of certain cargoes in various ports, port dues and charges associated with the ship's eal, costs for eanal passages, notes about bunker prices, etc. Information about congestion, formation of ice, ‘opening and closing of eanals and other important passages, notes on maximum ‘draught allowed in ports, ships’ cargo handling equipment and capacity for different commodities, and availability of labour constitute other valuable pees of information, Various sudden occurrences and general economic circumstances have a decisive effect on the development ofthe international shipping market Information centres. London, New York and Tokyo are of primary interest as information eentres but also Oslo, Hamburg, Paris and Piraeus play an important role in the distribution of shipping information. Shipowners who operate theit ships Worldwide are in daily contact also with shipping centres in many other countries ‘The Baltic Exchange in London isa unique and very old institution for the exchange ‘of shipping information, Brokers and charterer’ representatives moet there regularly fora few hours around noon to distribute cargo circulars and to exchange information jn confidence. The prevailing state of the market is diseussed—formal freight negotiations take place and fixtures are concluded BIMCO (The Baltic and International Maritime Conference) in Copenhagen is an ‘organization dealing With various matters of interest to international shipping. There is one important department dealing with the design and development of shipping documents. Many of the common printed charter-party forms have in one way oF the cther been approved by BIMCO. BIMCO may also at any time be asked to provide information on, for example, congestion in a certain port, port dues and charges, port regulations and practice (Rules ofthe Trade), etc. If somebody in shipping circles has ‘been repeatedly and deliberately violating the rules of the trade or otherwise has been acting improperly he may be offially reported to BIMCO. INFORMATION CHANNELS 2 DRY CARGO—VOYAGE CHARTER RATES: Those raph ov ood easmple of infomation aelable 1 the partes operating inthe shiping wor The idles stoning the eps an anne of te daenrge marke ore period of ti ane ed “non ba welknensipbroting company bn London6 SIUPRROKING AND CHARERING PRACTICE Information network 1 of great importance for shipowners, charterer, brokers and agents to establish f network of contacts which catches all interesting opportunities and by which ‘adequate information is quickly transmitted, Different brokers specialize indifferent ‘markets or market sectors, By communication with those brokers who are specialists in the chartering of, for example grain, and who have good and direct contacts with the big grain houses in London, Paris, Hamburg and New York respectively, an owner ‘can keep well abreast of the availability of grain cargoes world-wide. He can also get ‘current information through the brokers about the Freight levels that may at any time be interesting to the potential charterer and— which is no less important—he can got information about the freights asked for by competing tonnage: In this way the owners follow continuously all the market sectors of interest, asically, charterers find their information in a corresponding way. For them itis important to communicate with brokers who have contact with all owners operating suitable ships and wha have an interest in the cargo oF trade in question. ‘What as been said above is valid primarily for tonnage operated in the open market, ‘The information network for liner trading has a somewhat different set-up. The individual owner, the pool or the liner conference maintaining a traffic in a certain trade, havea numberof liner agents as part of the serves, These agents divide the areas generating cargoes for booking in geographical areas of interest within which the individual agent Keeps in contact with the customers, ether direct or through sub- agents andjor Forwarding agents. The agents and the shipowner normally enter into ‘formal agreement, by which the agents are guaranteed certain rights and benefits but the agents at the same time agree not to book any cargo or otherwise work For the account of competing lines or outsiders (a so-called exclusivity agreement). Similar agreements are usually made between liner agents and forwarding agents. In principle, the liner owner cannot himself fix his tonnage with eargo from the area covered by the agreement without indemnifying his agent. This is also the case even, ifthe agent has not worked up or suggested the business or the order inthe ist place By this system a shipper or charterer who presents his shipping requirement to a contracted forwarding agent or liner agent does not cover the total market, since his ‘order will only be presented to the liner owner in question, Information coverage efore we take a closer look af the role of the broker and the agent in chartering activites it may be useful to mention the importance of information coverage. From the ovner’s point of view one might perhaps think that it would be eonvenient not to use an intermediary, but instead keep a direct contact with interesting charters. Such INFORMATION CHANWELS n contacts do exist but then it is often a question of a very limited market where a reasonably good view can be maintained through a small number of contacts. In the dry cargo market this is not possible since owners would then miss important and ‘on certain occasions, maybe erucial market information In order to keep the chartering staffs small as possible, and to reduec his business inquiry expenses, the owner may even decide to channel all information through fone or two brokers only. These brokers will then act as more or less exclusive agents for this owner and alone will be responsible for the necessary information, i. ‘collecting, treating and evaluating material to present to the owner. The disadvantage with such an arrangement is that the owner gets information which is trimmed and important judgments are then made by the middle-man instead of by the owner himself, ‘The other estrome is the owner working through a very large number of broker contacts without especially favouring any of them. Possibly one would thereby get most of the orders circulating in the market and the same order may be reeived from number of different sources. Such an arrangement may, however, result in the work in the owner's office becoming slow and laborious. Another disadvantage is that the ‘owner may also find that none ofthe brokers wil put in the amount of effort which an exclusively appointed broker is suppased to {In principle, the same approach is applicable from the charterer’s point of view but atthe same time the charterer’ postion is somewhat diferent. Especially with respect to the important commodities, the charterets do keop a fairly careful check on tonnage availablity and fight levels through contacts between themselves, For various administrative reasons they may also decide to separate their shipping {depariment from the original body ofthe company and name it their exclusive agent ‘vith authority to seek tonnage for and to fx the company’s earyoes. A charterer oF Shipper of general eargoes must communicate both with liner agents working in the trade concerned and with brokers who are dealing with suitable tonnage inthe open market, Means of communication People engaged in day-to-day chartering work have to use various (echnical means fof eomminiention, Very often quick-acting push-button gadgets are connected to the telephones which have the most frequent telephone numbers. programmed to international contacts, and these may be put through automatically by means of ‘country-to-counry code system. By just pressing a key a Tine will be opened auto~ ‘matically to the person or eompany wanted.Ey SHIMDROKING AND CHARTERING PRACTICE In the shipowner’s marketing departments, at the brokers and in the shipping departments, working business opportunities, the new chartering opportunities for the day, the present state of the market and the market development are currently discussed on the basis of the inflow of information. This face-to-face contact is so important that persons working the same or adjacent market sectors often prefer 10 be seated in the same room, although the environment may be very noisy from time to Lime. The telephone isthe most frequently used medium for the daily diseussions ‘with intermediaries and principals and negotiations are frequently carried out over this instrument. Taformation about orders, pasition lists, market reports and various ‘other matters are primarily recvived by telex, which is also generally used during the resotiations Important printed material which the parties in a negotiation have to study, for ‘example contract forms and pro forma charter-partes may, if the matter is urgent, be transmitted from one place to another by telecopier. This is principally 2 copying ‘machine which is conneeted to another similar copier through the telephone network. Letters, signed charter-parties, circulars and pieces of information of less urgent nature are, oF cours, distributed by mail Computers ‘The computer is now in use almost everywhere in the shipping world. Besides common usage computers are also serving marketing and ship operations/ralfc ‘departments. Tn ship operations work the computer is used especially for storing information and iis currently updated with regard to ships" positions, cargoes carried and bunkers, ete ‘The shipowners technical departments—in close liaison with the traMe departments —use computers for ealeulations of optimal speed under variable conditions and for ‘drawing up tables and graphs, for example on speed und consumption. Some ship- ‘owners operating big Mests of vessels use computers to calculate the optimum usage fof the entire Neat on the basis of inputs of currently updated information on ships! positions and cargofcontract requirements, thus facilitating the scheduling and rescheduling work. In marketing departments various computer systems ure used! for ealeulations related to chartering work. The small table calculators equipped with memories and interchangeable programme units are fed with current data on distances, vessels’ particulars, various costs, freight rates, et, and such information, stored on magnetic tapes or dites, may be run together with a standard voyage programme, and thereby ‘within les than a minute produce a reading ofa print-out of the pre-calculated voyage result IMFORMATION CHANNELS 2» “The capacity of table computers is sufficient for individual brokers or shipping managers to have day-to-day calculations based on a limited number of ships in standard type trades, but for more extensive data'storage and elaborate data. pro- cessing shipowners and shipbrokers are now investing in computer terminals with high capacity storage and programming facilities. ‘A common type of ferminal may consist of the programming and memory units builtin together with a scanner where inputs and results are read, plus a builtin or separate Keybourd—the whole package is of about the size ofa medium size television set. This is normally fed with information and operated by the individual broker or by 2 small group of brokers working together within the same market sector. In such computer terminals a large amount of data on positions, cargoes, particulars of vessels ‘and ports and general market information may be stored, Whenever required infor- Imation can be obtained quickly against various parameters. Tn this case each terminal js individual and operated independently from each other. However, information displayed on the scanner ean normally be punched out on a tape which may be fed into another terminal as and when such an input is required “The big shipowning companies sometimes have a special computer or caleulations partment, where the company's big central computer unit is operated by data professionals. In the marketing, scheduling, operations and technical departments there are seanners and keyboards through which relevant information for each {epartinent ean be obtained nd new information can be fed into the central storage init. The computer specialist can assist in making sophisticated programmes for various sorts of employment calculations, for optimizing the scheduling of the fleet, For optimizing fuel economy for individual vessels and voyages, for calculating cargo intake (considering restrictions in ports and properties of cargoes) with a view to ‘obtaining maximum efficiency and economy. When a voyage is finished the actual result may be run together with the pre-voyage calculations to find differentials whieh will again be stored to be used in future caleuations on similar employments “There are also world-wide information systems in use that provide useful infor mation, like worid-vide coverage of various types of important cargoes, positions of all vessels registered with, for example, Lloyd's Register of Shipping, so that a shipbroker who isa subscriber to the system can easily gt a seading on his seanner of the actual state of matters he is immediately concerned with, He can himsdelt feed the system with now inputs by using the Keyboard, so that this new or amended information may immediately be read all over the world. “The usage of computer systems as described above is rapidly increasing and makes ‘work more efficient in many areas. Being programmed and fed with relevant infor- ‘mation the computer certainly works and distributes information very quickly.3» SIIPBROKING AND CHARTERING PRACTICE However, there are certain dificulties in keeping the systems completely updated with relevant information at all times. Brokers and shipowners are avoiding (oo laborious find costly programming by using computers mainly for basic standard voyage talculations and basic leet scheduling on the processing side, while the high capacity Computer systems for data storage and distribution of information is extensively in use ‘The time factor Let us look at some of the ways in which time is relevant ‘In ashipping company whieh operates world-wide the chartering work may continue {ay and night because ofthe time difference between the countries. Iti also important to remember that competition implies that both owners and charterers can normally choose among a number of alternative business partners. These may also be domiciled at diametrically opposite places on earth. ‘During negotiations every offer and counteroffer is submitted with atime limit For reply within which the party offering or countering is committed. If no reply from the ‘counter party i received within the time allowed then the fist party is free to start firm negotiations with any other party. The time for reply is often short, i.e. anything from immediate reply up 10 4 couple of hours. Normally, the partes try (0 avoid staying firmly committed overnight oF over a week-end, Tn a business opportunity ‘where firm negotiations have started the parties would normally try 10 conclude ‘without interruptions at least where the main terms are concerned Depending on the uncertainty when judging the state of the market at Tonger range there are seldom any fixtures made on a spot basis for shipments to be performed later than in two to three months” time. Among other things itis dificult to judge the tonnage postion and quite imposible to foresee the alternative chartering opportunities {uring a narrow period of time that lies a couple of months ahead, Liner companies {00 not normally alter thei tarifs without a pre-notiee. Its not unusual to work with notice times as long as six months. Even the liner companies, however, make reserva- tions when giving freight quotations a long time ahead of shipment for price changes that have (0 be inaugurated at short noties because of unforeseen circumstances, The role of the broker the agent ‘Again, the basic difference between tiner operation and tramp trafic must be remembered. In liner trate forwarding agents and liner agents play an important role in ereating the contract of carriage between the shipowner and the cargo owner. In tramp trafic the shipowner and the charterer will often be brought together by brokers. INFORMATION CHANNELS aL Brokers and agents have informative, intermediary and co-ordinating functions long the transportation chain, Due to their different work areas one may distinguish between shipbrokers in general and those concerned with sale and purchase, port ‘agency and liner oF loading ageney. LLezally, a distintion may be made between different types of representation. Thus, ‘an agent will normally represent one principal and act for him, whereas a broker should bring together wo partis and act for both of them. Tn shipping, the terminology is not very clearly defined and does not seem to be fully in Tine with the legal theory. Shipbrokers ‘As mentioned above, a shipbroker ordinarily specializes in a certain market or ina sector of a markot. In chartering, an owner and a charterer have an interest in the broker's sources of information, his particular knowledge, as well as his skill at negotiation, Normally, both partes will have their own broker—the over’s broker land the charterer broker. Thus, both patties negotiate through their representatives, ‘who should do their best to preserve ther respective principal’ interests and intentions Sometimes the broker will have a certain authority to bind his principal but often the regotiations will be carried out in elose co-operation between the principal and the broker, When the agreement has been concluded the broker will normally have authority €0 sign the agrocment, which he does sometimes “as agent only”, without tioning the party of partcs and sometimes “as agont for X. In the former case, cotta Tegal problems may arise as to who has really entered into the agreement. An ‘owner may choose 10 do his business through one sole confidential or exclusive broker, of he may prefer to work through a large number of brokers, who will then have equal possibilities to do the busines, ‘na market with such widely differing sectors as the bulk market and “tweendeck ‘market one broker eannot possibly cover all parts with his direct connections. He will then leave his order with other brokers who in their turn may have good connections with colleagues representing an interested counter party. A broker thus engaged in sfforts to bring logether an owner's confidential broker with the broker of a suitable charterer is engaged in competitive chartering and is called 9 conpetirive broker Cable brokers are those brokers who mainly lst orders circulated in shipping centees stich as for example New York, and then distribute the lists to brokers in other shipping centres, for example London, Tokyo, Oslo or Hamburg, These brokers ‘may be described as tying together America and Europe and in this capacity their ‘work is mainly that of a compatitive broker.2 SHIPBROKING AND CHARTERING PRACHICE All brokers endeavour to tie to themselves a number of principals (owners o ‘charterers) for whom they may work as one of some few confidential brokers. AS broker itis, ofcourse, an advantage to work on such a confidential bass, since thereby the broker may have a fairly secure employment, and a certain continuity in his ‘The function of the broker is (o represent one of the parties in charter negoti and he has to work for and protect his principal's interests in the following ways 1. The broker should keep both the owner and the charterer continuously informed about the market situation and the market development, about available cargo proposals and shipment possibilities, and should ia the best possible way cover the ‘market for given positions and orders respectively, 2. The broker should act slricly within given uthorities in connection with the negotiations. Sometimes the broker will have a fairly wide framework—a wide dliseretion—within which to work when cafrying out the negotiations, with an absolute limit which must not be excseded. 3. The broker should in all respeets work loyally for his principal and should carry ‘ut the negotiations and other work connected with the charter scrupulously and skilfully 4. The broker may not withhold any information from his prineipal nor give him \wrong information, Nor may he reveal his principal's business “seerets” and may not ‘ct to the advantage of the counter party in the negotiations in order to reach an agreement, ‘A firtas broker shouldnt advance shipment or ves! proposal hi principal ifthe Busines nol soul Tounded or Etre my be doubts about the cour party's honey or soleney, The broker sould alo pect hs picts intrest by Provetng orders which ave been worded wronghly or tcomqisly from being Enum they have been coreted or compte. The roker aso hs 4 to preserve his principar' reputation. Furthermore, the broker has a duty to take an active part inthe negotiations giving advice and recommendations with respect to appropriate offers, proposals and ‘compromises. He should also try to find out as much as possible about the activities of competitors in order to secure as many advantages as possible for his principal. A “mailbox” broker who only furthers information, offers, and counter offers without judging and processing them can hardly—and rightly so-count on a high degree of ‘appreciation from the owner or the charterer. |NFORMATION CHANNELS 3 "The broker's personality and temper play a eeriain role and somewhat jokingly a Listnetion is often made between freight brokers and charterparty brokers. The former is the broker who is always successfal in contracting somewhat above the ‘market level, but who will never risk the loss of business due to the details of a particular charter-party clause, The latter will eontract a¢ the actual market leve, but he will always (ry to phrase every single charter-pasty clause so that it will he as sudvantageous as possible to his principal. It must be stressed that a charter-party that has not been carefully drafted may cause one of the parties considerable losses. ‘A broker will hardly ever have fll liberty to “go out on the market” with an order to fix bes possible. Instead, he will normally have an authority to go out with certain specified terms and conditions, and if they are not accepted by the counter party the broker must get new instruetions, This will be repeated until both partes are in total agreement ‘When an owner of a charterer, having received an order or & position, demands additional information of wishes to look more carefully into the possibility of a charter agreement, he is regarded as being committed to this broker. If the owner wants to open up negotiations to have his vessel employed for the eargo mentioned in the ‘order it is regarded as good practice to work through the broker to whom the owner is already “committed”. Sometimes brokers try to commit a principal by advancing. the order by telephone and trying at the same time to discuss the potentialities of the order, Such a way of procedue is nol regarded as a first-class method. ‘Normally, the privilege of choosing a broking channel is considered to belong to the owner. But then again regard should be given to factors such as: Who fist placed the order or position ? Who has the most favourable commission, thus being the most “direct” connection? Is the broker “taking a chance” or does he make a reference £0 an etual need of a particular position? Which ofthe brokers seems to have the best fand most complete information and background with respect to the business in Guestion? Consideration is also normally given to whether previous connection ‘ith the same customer has been made through a certain broker with respect to similar Charters. Further personal relations naturally play an important role. Tn order to entice an owner to work “his way” the charterer’s broker may draw up the order in such « way that it more or less clearly indieutes that he has a close or particularly good relationship with the charterer. In this connection exclusive means that a broker will work alone on the order thus instructed directly by the charterer Direct means that there is no intermediary link via an exclusive agent oF via another broker. The order may in such a ease be worked on in parallel by several brokers in the same postion, The expression local eharrerers similatly indicates a geographically close connection with charterers. The word jriends may also be used under diferent cumstances by brokers to indicate a special erack (a special connection),M IROKING AND CHARTERING PRACTICE Such expressions may, when used judiciously, contain useful information. ‘Scamping”—which may exist—will normally be discovered rather quickly and brokers (and for that matter owners and charterers) who have become known a less serious or skilful may have certain difficulties in ridding themselves of such a reputation. Sometimes the owner and charterer, after having concluded one agreement through 1 broker, may do subsequent business directly with each other. Such dirset business ‘may be a consequence of a wish (0 avoid paying commission. Sometimes it happens that, for example, a competitive broker has presented an order which for some reason the owner's confidential broker has not received via his direct channel or which he has not observed. The owner may then be tempted to inform his direct channel about the order thereby “committing himself through this channel instead of giving the other broker chance, Such methods, too, are considered improper and not quite acceptable from an ethical point of view. “The shipbroker working fora charterer will also have as one of his duties, immedi- ately after the charter negotiations have been concluded, to make out the original charter partyin accordance with the agreed terms and conditions. Another important uty of both brokers is to follow up how the transport undertaking is performed so that the partis receive continuous information, that notices are given correctly, that freight and hire is duly paid, ot. Sale and purchase broker Corresponding standards and commercial ethies also apply tothe sole and purchase ‘roer ast his behaviour during the negotiations and how these are eared out. The final memorandhns of agreement and the followup of this type af commercial transaction dies, however, from the corresponding aetivtis in connection with chartering Port agents ‘The task of the port ayent is to represent the owner and for the owner's aecount assist the vessel in order that she will have the best possible despatch, The port agent should in all respects assist the master in his contacts with all local authorities, including harbour authorities, and he also has to procure provisions and other necessities, communicate orders and messages to and from the owners, etc. It is important that the owner employs a reliable and energetic agent. In tramp trafic, as mentioned, loading and discharging will often be for the charterer’s account. The charterer may then prefer to be entitled to appoint the port agent in order to further his interests. The question of appointing an agent may therefore be an important INFORMATION CHANNELS 35 etait in the charler negotiations, since the partes have (O establish whether the charter party shall stipulate ovner's agents or charrerer's agents. I charterer’s agent is to be appointed it may be an advantage from the owner’s point of view that the factual clause states, for example, “charterer's agent to be nominated, but if actwally painted by the ovner, the latter will do so only by authority of and for the account of the charterer”, Ifthe owner has to accopt the charterer’s agent he may protect his interests t0 a certain extent by appointing a husbandry agent, who will then assist the ‘master and [ook after the owner's interests in order thatthe charterer’ agent will not ‘ct to the disadvantage of the owner Liner agents Liner agents Form an important group of intermediaries in finer shipping. Whereas brokers and port agents seldom enter into written contracts with ther prineipals, liner gents have often entered into such written contracts. There are even some diferent ‘standard liner ageney contracts”. A liner agent functions as a kind of general agent for the line within a geographical area, Liner agents represent the owners in many sliffeent ways. Liner agents will have contact with eventual shippers and forwarding ‘gents within the area, they procure advertising about departures and arrivals, and rormally they will also do all the work for the line otherwise carried out by a port gent. The booking will normally be made without special negotiations through a ‘quotation in accordance with the tavff in foree, and as soon as the booking hus been noted and confirmed by the agent there is an agreement on the carriage of goods. ‘The agent will normally have, before every loading occasion, an allocation of space from the owner which he may book up without any further authorization from the owner, Certain cargoss of a dangerous type or unusual goods, heavy lifts, etc. ave, however, often excepted, meaning that for such cargoes approval must be oblained from the owner or the line in every single ease. Brokers ond agents consected with owners “Though some brokers are wholly independent itis common for at least the large shipping companies to have within their own organizations separate concerns working, as agonts (chartering as well as sale and purchase), brokers, and even forwarding ‘agents. Similarly, freight forwarders have sometimes gone beyond their traditional ficld and have engaged themselves in offering ocean carriage. Large brokers are also direely involved in owning or operating Neets ete. Having a liner agent and a broker in the same company is not always 2 guarantee that an order given to the liner agent will also be brought out into the open market, or vice versa. When the owner and broker are in the same company certain orders may be prevented from going out into the open market and instead they wil be reserved for the “house” tonnage, if the broker is not Fully dependent36 SIUPPROKING AND CHARTERING PRACTICE Brokerage Except for particular agency fees, agents and brokers will receive remuneration calculated as a certain percentage of the gross Freight igure, and the intermediaries involved will normally be entitled to remuneration only when the charter agreement, the sale and purchase agreement or the booking has been concluded andjor connected ‘contracts have besn signed. The broker's and the agent's income is thus totaly ‘dependent on the freight market and the sizeof the deal involved. Such size may be ‘ensured in ferms of the cargo quantity, the length of the charter period or the price fof the vessel, Normally every broker involved in a charter deal will get an amount corresponding to 14% of the gross freight. In sale and purchase deals the figure varies but is often 12%. The liner agent will normally get 3 to 5%. Port agents will, however, as indicated above, be remunerated by a fixed agency fee which varies considerably between different ports and also depends on the tonnage of the vessel. Unless otherwise agreed (which is very rare in practice) such remuneration— generally referred to as the “commission” —is paid by the owner and the total actual percentage for a certain dea, the total commission, should be specified in every order presented to the owner. ‘The commission paid to a broker ig called the “brokerage". This isthe broker's remuneration for his work and costs in connection with his activites. The brokerage will caver his expenses and give him a net profit. As mentioned, the commission or brokerage is always calculated on a percentage ofthe gross freight and, depending on what is agreed during the negotiations, sometimes a so-called ballast bonus and demurrage (which will be dealt with Inter on) may also be the basis of commission, in addition to the gross fright or the charter hie. Thus itis common in the dry cargo sector that every broker gets 14% and the relevant freight calculations will normally be based on 24% or 33% depending on the number of brokers involved. Ie is, however, rot uncommon for the total commission to be bigher, but in those cases a so-called ‘address commission will almost invariably be involved. In many trades and with time charters itis usual that part of the commission is “returning to the house" (address) Which thus in practice reduces the freight or hire to be paid, Sueh adidress commissions may be 5% oF more (heavy address). The reason for this system is sometimes suid ta be that the charterecs' shipping department for book-keeping purposes must show some kind of income from their activities, State trading countries regula include & 5% address commission in their orders. It is also quite common to find that a ehar- \erer’s broker, who is working on an exclusive basis for his principal, will be entitled ta 24% brokerage. As mentioned, the owners will pay all commissions and will therefore try fo cover such costs by a corresponding freight increase. ‘Several legal problems may arise in com as those of brokers. ign with the activities of agents, as well CHAPTER 5 MARKETING Attitudes in nego In essence, the purpose of marketing shipping services is to inform the business community of one’s presenee and ability. In thisconneetion i is important to recognize the dilference between a liner company's competitive situation and the situation for ‘an owner working in the open market. Ships operated in the spot market for example, must comply with the demands of, size and type and must also be suitable in other respects for the intended cargo, Furthermore, she vessel must be availabe inthe right postion atthe right time and ask for a Ireight level which is competitive in comparison with what other interested parties may offer. Ifthe employinent in question is for a longer duration on time Charter or contract basis then the importance of an owner's solvency, reliability and reputation for good performance will increase correspondingly. For the liner owner who is working with the same freight tariff in the same trade and maybe even with the same frequency of sailings as his competitors, regularity and reliability are the most important marketing features, i.e. he must keep to the advertised Schedules without sudden changes and delays. Other feutures are short transit times, food care of the cargo, eficent handling of cargo bookings, documentation and fettlement of cargo claims. Further means of strengthening the competitive position tan be by offering package solutions to transpert problems, such as the arrangement ‘of door-to-door transport The owners like the charterers, will create for themselves a reputation in shipping circles which is very quickly spread internationally. In the daycto-day exchange of information certain expressive wordings are used like “first-class people", “un- professional operators”, “hard traders", “difficult” or “tricky negotiators", “good performers”, ete. No one ean count on being refered to as first-class without having faracd such a classification in the first place. Being labelled “difficult” or even “ricky” indicates that the party in question is dilflult to deal with, by lack of flexibility or even lack of knowledge of the trade and for the later denominatio ‘even a touch of dishonesty. The same bad impression is given by the label “unserious! ‘while a reputation asa hard trader should not at all bea disadvantage if itis connected to.an otherwise good reputation where performance is concerned. On the other hand, itis less advantageous to be known as one who squeezes his counter party on every ‘ecasion whenever possible38 SINPRROKING AND CHARTERING PRACTICE THE “BALTIC WASA’ CLASS MIS*CELTIC ASA" MS*DELPHIC WARN" MUS“COTHICWASA™ ees Nantes TATNC I temp RCE TR EOS ep shee Sei BiB boo coplnt bo sesh omer” eam Bal Si nae | ferns ee rol afta Tee zven bie “Qunarssometins i:brochs fn whi hey pve deta abo dhe vessel, sangenivc » Marketing and relation to the customer For the owners working in the open market itis important fist of all 10 secure sueh broker contacts which can cover jointly, as completely as possible, the market Sector of interest Its not only a question of finding brokers who ean supply relevant and complete information, but the brokers must also provide the ability to present fnd offer the ships operated by the owner and his services ina serious manner and in such a way that the ships will be preferable to the charterer, Whenever an owner ie discussing an order with a charterer it is in fact a: new ‘opportunity to present to the company the services that are offered, and the type of ‘engagement the owner is interested in, These measures are supplemented by personal Visits to charlerers and organizations who might be interested in services that the ‘owners can offer, OF course it is also important to maintain and (0 deepen the contacts with old customers, for example through visits, This is being done both regularly asa matter of routine, and in connection with current business dals, and it iseustomary on those latter occasions for the owners to be accompanied by the broker ‘who assisted in working up the business or originally made the contact. Advertising ‘material such as folders, ec, have so far een rather sparingly used by owners working in the open market, This material is usually sent to already existing contacts and has been used comparatively Tittle in order to obtain new business. Tt seems, however, that the trend is to work more fully with such direct marketing aids in the Future. Returning to the question of showing one’s abilities, the charterers will got t0 know the owners during discussions and negotiations but, above al, during the performance ofthe charter. Then the owner's management, employees and representa tives under different circumstances will be put under stress to prove thet ability to carry out the transport undertaking. It is of equal importance to solve all problems arising in the spitt of good co-operation and flexibility and in an efficent way to the satisfction of both parties, The standard ofthe ships and their equipment i, ofcourse, ‘also of great importance in this connection, Breakdown of machinery duc to faulty material of bad maintenance are nat good marketing features. ‘As mentioned previously, the liner owner has a permanent organization of ‘contracted agents. This agency organization deals with the day-to-day contacts with the customers and is always trying to create new contacts. Also, in this case, it is routine (0 travel and to visit customers, but there is also a great emphasis put on advertising, sueh as printed “Sailing Cards” and advertisements in trade magazines land daily newspapers, Very often there is an advertisement appearing in the same ‘Space day by day in all papers read by prospective customers within the agency’s ‘Working area. Additional advertising may be carried out from time to time through big, advertising campaigns, especially when a new service is being inaugurated or a new0 SHIPBROKING AND CHARTERING PRACTICE special feature is being introduced. The liner owner must put in great efforts on all matters related to good service. An owner may work on 2 contact for a long time before he gets the first booking for aecount of this new customer and he might well loge the same customer overnight if carriage is not considered to have been carried out satisfactorily. Great demands are made with regard to skill and efficiency exercised by the ships command in cargo care and handling supervision. Also, agents and superintendents have to do their utmost in each port of call to expedite the despatch, 0 thatthe vesel will kep to her schedule. Another factor contributing to maintaining ‘rood relations with the customers is, for example, that extra ships are employed to fill vacancies in the schedule that may occur due to the permanent ships being delayed, instead of “jumping” an advertised loading position in the fixed schedule. ‘The regular acceptance not only of profitable cargoes offered for booking, but all varieties of general cargo that are available for shipment from the area, is another factor in the maintenance of good relationships. cis impossible to avoid cargo claims completely and there is a special demand ‘made on skill and diplomacy exercised by the personnel ofthe claims department in a liner company. Such matters must be dealt with correctly in accordance with law and practice—so that the owner dees not lose the customer. Organization of a shipping office ‘The organization of the chartering work in a shipowner's office depends largely on ‘he company’s main line of trading, Inthe liner organization there are two working areas. One includes the activities ‘concerned with the liner operation as such, for example scheduling and operational ‘matters, allocation of space for booking, follow-up of bookings for the individual ‘voyages, control of the ship's despatch during the current voyages and follow-up of Voyage results, The other area covers work with chartering-in of extra tonnage, chartering-out for longer or shorter periods of vessels that are taken out from the liner activities for various reasons, and also fixing spot cargoes or certain basi parcels ‘on the open market tobe carried by the lines on charter-party terms. This fatter activity ‘may be linked 0 a permanent agency or brokering activity. The personnel dealing ‘with chartering may divide the work between themselves, for example with reyard 10 ship's sizes and types or by commodities. The working system will be such as to suit the liner operation (boing regarded as the main line of business) in the best possible ‘way. The claims department plays an important role in the office organization of the shipowner involved in liner trade, tis more difficult to presenta standard organization for chartering work concerning vessels that are mainly engaged in trading in the open market. Nevertheless, itis MARKENG a possible to recognize diferent systems of organization. In one system the flet of ships is divided into classes according to type or size and the personnel doing the chartering ‘work specialize in an individual class or group of ships. Another system divides the work according to commodities or commodity groups. A third way of working is {o split the world into geographical areas of operation, ie. Atlantic, Pacific, Mediterranean and Black Sea, etc. In such eases each petson or group in the chartering “department will work on all those vessels open within their specific area. Yet another ‘way of dividing the chartering work is to separate between spot market orders and forders concerning longer engagements, like contracts or long period time charters. ‘The personnel will then be divided into one group for contracts and one for spot chartering Irrespective ofthe main ine of interest forthe shipowning activity and the organiza~ tion of the chartering work, the main intention is to organize and carry out the carriage of goods or persons as efficiently as possible in co-operation with the charterers fand shippers on terms that are advantageous to both partis. Thereby we have also defined the objective of chartering in general from the business point of view.CHAPTER 6 SALES CONTRACT, CARRIAGE AND BILL OF LADING Sales contract—financing—earriage “The relationship between the shipper ofthe goods andjor the charterer, on the one hnand, and the shipownerjoperator, on the other, must not bs seen in isolation, ‘Normally, the earriage of goods by sea from one place to another isthe consequence of an international contract for the sale of goods. Suppose a buyer in Holland wishes to buy some pieces of machinery from a Singapore manufacturer. When making theit contract the parties will meet with a number of problems. Who will arrange the transportation, the insurance and the financing of the sale? “The sales contract is the basie agreement in the export transaction. The sales contract stipulates the abject ofthe agreement (the goods), the price and the means of delivery (tice and transport clauses), the risk distribution between the parties—something that alfects the insurance—the financing of the sal, ete. The sales contract then contains the framework ofthe subsequent contracts, the agreements on financing, insuraneeand transport, Some of the principal questions of the sales contract are dealt with in the so-called transport or delivery cause, in which the parties agree on the apportionment between themselves of the risks and expenses involved in the transportation of the goods, i. an f.0.b. of cif. clause, Such clauses do not directly regulate security and payment terms and conditions, ie. when, where and how payment is going to be ‘effected, In English law a ef. lquse means that the buyer has to pay against documents, and similar rules have evolved in other legal systems. Incoterms Most fegal systems contain legislation dealing with sales of goous oF provisions concerning the relationship between seller and buyer, although in practice the parties normally regulate their relationship by agreement, Different legal systems, deat with similar questions indifferent ways. This has led to certain difcultes in international trade, requiring special efforts to harmonize the rules of the different legal systems. [AS to sales contracts, some harmonization has been achieved, particularly through Incoterms, which determine the meaning. and effects of certain transport clauses used in international trade (Guch as fo.b, cif, ex warehouse, delivered, etc.) Incoterms have recently been revised and amended in order fo bring them in fine with movdern transportation methods. The revised Incoterms mean, among other things, that some new supplementary clauses have been introduced. These aim at lovereoming the tensions which have occurred when applying the fo.b, concept t0 SALES CONTRACT, CARRIAGE AND BILL OF LADING 4B the modern cargo equipment tratfic—above all the container and rojro traffie~ ‘whore the ship's rail no longer serves any practical purpose ns a demarcation line for the distribution af costs and risks between the seller and the buyer. Such a new clause will bo, for example, “free carrier... named destination” isk and liabitity dsaiburion beoweon the diferent parties Every export transaction thus gives rise to several relationships: between seller and buyer, between seller/buyer and carrier, between sellerfbuyer and underwriter and between seller/buyer and financer. “The tisk of damage to of loss of goods of their delay may thus pass through several stages. Basically, there is risk distribution between seller and buyer, but then also the other relationships contain a risk distribution, Even if, under the contract of sale, the buyer “hears the risk" he may claim damages from the carrier ot the underwriter in ease of delay, loss or damage to the goods, depending on the risk distribution formula applied and applicable contractual provisions. If the above-mentioned transaction between the Singapore manufacturer/sller and the Dutch buyer is used as a basis, the parties may interpret their relationship in different ways. Normally, the seller is not willing to advance edit to the buyer unless he has good security. When goods are sold within a country a seller will often regard the goods he sells as the best available security forthe price, He will not wish to Tose possession of them until the price is paid. If this is not possible he will seek to retain Some interest in the goods he sells which he might realise if payment fails—hence he ‘may examine the options offered by hire purchase and similar transactions, In inter- national sales the seller is in less favourable position. Security interests intitle are Of little value toa sllet who might have to tr to enforce aright ever property several ‘thousands of miles away in another jurisdiction. He often feels that he must have rights which are more predictable and more accessible. Thos a purchase on terms, such as eash on delivery (C.O.D.) prevents the buyer from getting delivery of the foods before he has paid—oflen through a bank-—but it does not protect the seller From expenses for sending the goods, ete, unless he is paid at a later stage. “The buyer, in his turn is not in a very much better position if he is asked to pay before the goods have even been sent, and when—and if—they have boen sent they ‘nay not even conform with the terms and conditions of the sales contract. The buyer, therefore is often not willing to effet payment before delivery has taken place.“4 SIPRROKING AND CHARTERING PRACTICE International commerce has over the years worked out a number of measures to counteract the consequences mentioned. An important role is played by the use of ‘documents, which represent the goods and record the nature of the transaction which laffects them. Even ifthe differences between the various transport clauses are con- siderable it will probably suffice to use, for example, the ei. contract as a basis to illustrate these measures Under a cif. contract the seller agrees to sell the goous to a buyer and to have them delivered at the buyer's named port of destination. Thus the Singapore seller ‘may sell goods to the Dutch buyer “e..£" (cost, insurance, freight) Rotterdam. This ‘means that the seller arranges and pays for insurance and freight as well as certain other costs which are then included in the price. The clause only spells out that the seller shall pay freight, insurance and other costs to Rotterdam, and does not mention the point of shipment (Singapore), where the risk passes from the seller to the buyer. "The new Incoterms may in this respect provide the parties witha clearer, new amended elause When the seller has arranged the fulilment of his duty he is entitled to be paid upon the presentation ofthe documents involved. At this point the buyer, in his umn, should have made financial arangements so that he can meet this requirement ‘The procedure may vary. AFORE Fae no ary, ef gages wore tele = ms recharge terete tt aes =a SALES CONTRACT, CARRIAGE AND HILL OF LADING 45 ‘THE 14 INCOTERMS Bx works “Ex Works” means that the seller's only responsibility is to make the goods available at his premises Ge. works or factory). Jn particular, he is not responsible for Toauling the goods in the vehicle provided by the buyer, unless otherwise agreed. The ‘buyer bears the full cost and risk involved in bringing the goods from there to the desired destination, This term thus represents the minimum obligation forthe seller. Free carrier (named point) ‘This term has been designed to meet the requirements of modern transport, particularly such “multimodal” transport as container or roll-on, roll-off trafic by trailers and ferries, Its based on the same main principle as f0.b. except thatthe seller fulfils hi obligations when he delivers the goods into the custody of the carrier at the ‘named point. Ina precise poins can be stipulated atthe time of the contract of sae, the parties should refer to the place or range where the carrier should take the goods into his charge, The risk af loss or damage to the goods is transferred from seller to buyer at ‘that time and not atthe ship's rail. “Carrie” means any person by whom or in whose rhame a contract of earriage by road, rail, ar, sea oF a combination of modes has been male. When the seller has to furnish a bill of lading, waybill or carriers receipt, he duly fulfils this obligation by presenting such document issued by a person so defined, F.O.RJF.O-T. (fee on railfree on truck) “These terms are synonymous since the word “truck” relates tothe railway wagons “They should only be used when the goods are tobe carried by rail FO. airport F.o.b. airport is based on the same main principle as the ordinary £.0.b. term, The seller Tullis his obligations by delivering the goods to the air earier atthe airport of departure, The risk of los or damage to the goods is transferred from the seller to the ‘buyer when the goods have been so delivered. F.AS. (free alongside ship) ‘Under this term the seller's obligations are fullled when the goods have been placed slongside the ship on the quay or in lighters. This means thatthe buyer has to bear all costs and risks of loss or damage to the goods from that moment. Tt should be noted ‘that, unlike .0.,, the present term requires the buyer to clear the goods for export.46 SUPRROKING AND CHARTERING PRACTICE F.O. (free on board) ‘The goods are placed on board a ship by the seller ata port of shipment named in the sales contract. The rsk of loss or damage to the goods is transferred from the seller to the bayer when the goods pass the ship's rail. ©. & (cost and freight) “The seller must pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as of any cost increase, is transferred from the seller tothe buyer when the goods pass the ship's ail in the port of shipment. ca. (os, insurance and freight) “This term is basically the same ase, and f, but with the addition thatthe seller has £0 procure marine insurance against the risk of loss or damage to the goods during the tarriage, The seller contracts with the insurer and pays the insurance premium. Freight or carriage paid (0 Like c. and F. “freight or carrie paid to...” means that the seller pays the freight for the eartiage of the goods to the named destination. However, the risk of loss of ‘damage to the goods, as well as of any cost inereases, is transferred from the seller to the buyer when the goods have been delivered into the custody of the rst carrier and not atthe ship's rai. I ean be used for all modes of transport including multimodal bperations and container or roll-on, roll-off traffic by trailers and ferries. When the seller has to furnish a bill of lading, waybill ot cartier's receipt, he duly fulils this obligation by presenting such a document issued by the person with whom he has contracted for carviage to the named destination Freight or carriage and insurance paid £0 “This term is the same as “freight or carriage paid to...” but withthe addition that the sller hs to procure transport insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium. Ex ship ‘This means thatthe seller shall make the goods available to the buyer on board the ship atthe destination named in the sales contract. The seller has to bear the full cost ‘nd risk involved in bringing the goods there. SALES CONTRACT, CARRIAGE AND BILL OF LADING a Ex quay ‘This means that the seller makes the goods available (o the buyer on the quay (wharf) at the destination named in the sales contract, The seller has to bear the full ‘cost and risk involved in bringing the goods there. ‘There are two “ox quay” contracts in use, namely “ex quay (duty paid)", and “ex ‘quay (duties on buyer's account)", in which the liability to clear the goods for import fre €o be met y the buyer instead of by the seller. Parties are recommended always to ‘use the full descriptions of these terms, namely “ex quay (duty paid)” or “ex quay {duties on buyer's account)", oF else there may be uncertainty as to who is t0 be responsible for the liability to clear the goods for import, Dativered at frontior “Delivered at frontier” means that the seller's obligations ae fulfilled when the g00ds have arrived at the frontier—but before “the customs border” of the country ‘named in the sales contract. The term is primarily intended to be used when goods are to be carried by rail or road but it may be used irespective of the mode of transport Delivered duty paid While the term “ex works” signifies the seller's minimum obligation, the term “delivered duty paid”, when followed by words naming the buyer's premises, denotes the other extreme-—the seller's maximum obligation. The term “delivered duty paid” may be used irrespective of the mode of transport. Ifthe partes wish that the seller should clear the goods For import but that some ofthe costs payable upon the import ofthe goods should be excluded—such as value added tax (VAT) andjor other similar {axes—this should be made clear by adding words to thiseflect (ee. “exclusive of VAT. andjor taxes”). [As mentioned, the revised Incoterms contain some new clauses, for example: “Free carrier (named point)”, The clause has been designed with regard being given to modern forms of carriage, such as multimodal transports with containers, ot rojro traffic with trailers. The new clause is based on the same principles as the old f0.b, ‘clause, but there is an important distinction in that the risk passes from the seller (© the buyer atthe place where the goods have been delivered to the contracting carrie "Thus the vossel’s ral will no Longer play a decisive role in this respect wien the new ‘clause is used. Similarly “Freight or carriage paid (0" or “Freight or carriage and insurance paid (o” may be substituted for the od. & f. and e.uf clauses respectively jn eases where container oF trailer trafic is involved,48 SIUPHKOKING AND CHARTERING PRACTICE Documentary credit Except for éash in advance, the export letter of eredit gives the seller the highest degree of protection arnong all the commonly used methods of receiving payment for ‘exports. A letter of credit is essentially an undertaking by a bank that it will make fertain payments on behalf of a certain party under specified conditions. When letter of eredit is used in connection with international transactions more than one bank is normally involved—usually one in the buyer's eountry and one in the seller's ‘The value of the letter of eredit to the exporter is that, when presenting the preseribed supporting documents, he is entitled to draw drafts on a bank or tobe paid in cash, ‘The basis for the whole transuetion isthe sales agreement, The goods have to be ‘moved from the seller to the buyer and have to be insured in accordance with the terms and conditions of the purchase agreement (cif, f0.b. ete). The seller or the buyer will have to arrange insurance and carriage. A basie precondition of the seller's obligation to deliver the cargo is then that the buyer has arranged with the opening ff the documentary credit, The buyer’s protection Ties in the fact that the bank will only pay under the documentary eredit ifthe seller presents documents which eantain Snformation and particulars in conformity with the documentary eredit provisions. ‘The purchase agreement is thus the source of several obligations. The buyer will have to arrange an agreed or customary type of documentary credit atthe agreed time and with a firstclass bank, and the provisions of the documentary credit must orrespond with those agreed in the purchase agreement, The purchase agreement sould thus contain an explicit provision such as: ‘Very often the payment clause isnot very claborate and may give rise to a number ‘of problems. Its therefore necessary for the beneficiary, immediately upon receipt of the documentary credit, to make a thorough check of its provisions and reject i if it is rot in conformity with the purchase agreement or with his understanding of it "The carrier's demand for freight may sometimes be secured by the use of a transferable credit, whereby part of the original transferable letter of credit will be availabe forthe carrier under a separate credit Under an irevoeable letter of eredit the buyer's bank undertakes to pay the seller when he has performed his part of the deal, which he will do by presenting the docu ‘ments preseribed in the Fetter of eredit, normally at least an invoies, an insurance policy nd. bill of lading. From the seller's point of view the bill of lading is essential From the other side, the bill of lading is what is received for payment—the docu mentary representation of the goods bought. This, together with the insurance SALES CONTRACT, CARRIAGE AND BILL OF LADING 9 policy, ie what the buyer pays for. The bank will take up the documents from the feller, on behalf of the buyer, and they can then be used as the basis of further ‘ansactions, Tt is thus evident that the documents used in international sales contracts play a signifieant role both in the Flationship between the seller and buyer and between the carrier and the shipperjeonsignee. This is particularly true of the bill of fading. The bill of lading is « document of title whichis used to enable eonsignor and consignee to {eal in the property which is being carried, The carrer is lawfully in possession of the goods of another, and he is described in legal terms as a bailee. This important role of the bill of Inding also means that far-reaching and unpredictable liability exclusions on the part of the carrier will result in the rights which the bill of ladi represents varying considerably and consignees or purchasers from them might be prejudiced by contracts made on unfavourable terms by the original shipper of the ‘goods (the bill of lading will be discussed further below). ‘The perspective here employed thus involves several diferent parameters, and these have their bearings in all those dilferont rolationships mentioned. It is therefore ‘essential that the iter-elationships are observed, How the documentary ered works The principal advantages of a documentary eredit, cover merchandise, are the following: ~The buyer is not called upon to make payment until and unless the goods are shipped and evidence to this effect is produced by means of the documents Which are to be surrendered, —The seller is in a position to proceed with the execution of the order and the shipment of the goods as soon as he is in possession of the advice that the ‘documentary eredit has been established by the buyer's bank. On the strength ‘of an irrevocable documentary credit, he is assured of payment by the bank upon due presentation of the documents ‘The handling of a documentary credit involves a minimum of three, but in most ceases four parties, as the following diagram ilstrates: transactions in 1 Buyer SF Sie (cpplicant for the credit) (beneficiary) 2, Issuing Bank 3, Advising/Confirming Bank (buyers bank) or Paying Agent (issuing bank’s correspondent bank)30 SHIPBROKING AND CHARTERING PRACTICE When the partis to a business transaction agree to payment terms involving a documentary eredit, the buyer instructs his bank to open a credit in favour of the seller and (© advise the fatter to this effect either directly (dotted ine) oF through a ‘correspondent bank in the country of the seller When the terms and conditions of the purchase contract provide that payment shall be made by irrevocable documentary credit the buyer arranges with his bank for the issuance, or “opening”, ofthe required letter. The buyer tells his bank the nature fof the transaction and the amount to be paid, gives a brief description of the mer- chandise to be shipped, specifies the documents required as evidence of shipment, and sets an expiration date forthe eredit, On the basis ofthis information the bank issues the leur in a form that meets the requirements ofthe sales contract, ‘The bank normally uses a correspondent bank, inthe exporter’s country, and the next step will thus be that the opening bank instruets its correspondent bank to inform the beneficiary—that is, the exporter—that the letter of eredit has been established ‘The importer’s bank may request its correspondent also to confirm the letter of credit; such confirmation binds the correspondent bank as well as the importer's bank to honour the eredit. Or the importers hank may request the correspondent itself to ‘open the leler of ered, in which ease only the correspondent is bound. Documentary credits are regulated by Uniform Customs and Practice (UCP) related to documentary credils of 1974, The UCP have been drafted by the Intern Chamber of Commerce (ILC.C.). A revision was completed in mi ‘expected that the new UCP will come into use as from Ist October 1984, jamal 1983 and it is ‘The documents ‘The payment clause in the sales contract and the document provision in the letter of credit may preseribe, for example, thatthe following documents shall be presented *(a) Invoice: (b) Marine and War Risk Insurance Policy (Certificate) covering 10% above the exif, value of the goods; (c) Full set of clean “on board? (or received for shipment) Bills of Lading to order, evidencing shipment from Tokyo to Gothen- burg latest 30th June 1982, und marked ‘Freight paid’; (d) Certificate of Origin in duplicate; (@) Weight Note in duplicate” ‘The basis of the documentary eredit transaction is that the bank pays the agreed amount to the beneficiary after it has examined the documents presented and found them to be in accordance with the terms and conditions of the documentary eredit ‘This examination forms the safety which the transaction gives the buyer. If the bank is negligent when carrying out the examination it should have and has a liability SALES CONTRACT, EARRIAGE AND BILL OF LADING 3 therefor, It should be emphasized that the bank examines the documents only; the bank is not liable for the actual quality, quantity and condition of the goods, but ‘only for the documents. (On the one hand the bank has a duty to follow carefully the individual instructions as well a the provisions of UCP, and, on the other hand, it may have a certain liberty ‘within strict Limits to make the examination at its own discretion in order 10 avoid problems, In eases of fraud the bank will have no liability for having paid the beneficiary unless itis aware of such fraud. Under such circumstances the bank is relieved from its duty to pay under the documentary credit. During recent years the number of documentary ered frauds has inereased (see below). ‘The Bill of Ladding ‘The charterparty is the writen charter agreement. It contains all the terms and conditions governing the relationship between the shipowner and the charterer. The Bill of lading will be issued upon the goods being received! for shipment or, traditionally, upon their shipment “The bill of lading, sometimes filled in by the shipper oF by a forwarding agent, is signed by a representative of the owner, for instanes the master of the vessel or, in jpractce, more often by the owner's agent. The chaster-party may sometimes prescribe that the eharterer’s agent will sign the bills of lading. From the owner's point of view itis then important that it willbe in conformity with the mate's reeipis. In iner trafic, ‘where numerous bills of lading ar issued, the traditional signature may be substituted by a perforation scheme. ‘The bill of lading performs diferent important funetions. It may eonstitute— (a) a receipt for the goods which have beon received for shipment or shipped; (b) a contract for the carriage of the goods and the delivery thereof and thus contain the terms and conditions of carriage ‘But the transport documents must also have a certain legal quality in order for the above-mentioned requirements to be met. Some of them give the hotder te right ¢0 Lake delivery of the goods and in one way or another such documents entitle the holder of the documents to dispase of the goods while in transit. They are often referred t0 as “documents of tlle” and some of them are “negotiable documents” or at least “quasi= negotiable documents”. This is the ease with the bill of lading. It should be mentioned here that, to an ever growing extent, the traditional bill of lading in modern cargo lansportation is being substituted by a “sea waybill” or by other methods. In liner trafic, the bill of lading is the main document for the regulation of the relationship between the customer (Frequently the shipper), the carrier and the con signee, Here the contract of eariage is normally based on a booking note whereby the