SHIP CHARTERING

What characteristics does ship chartering possess?

In the chartering market, the block trading is usually done through brokers. They possess wide
business connection channels, they are able to provide advisory information for the owners of
shipping, and provide vessels for the charterers, so as to promote both sides to choose suitable
negotiators. Once the transaction succeeds, the broker will get paid. Except ship chartering business,
the ship broker also takes agency of shipping deals, shipping agency and other businesses. Their main
function is to provide the most appropriate and the best business for the client, to provide market
condition, the credit of party and the response to the client's consultation, to solve difficulties for
mediation between both parties.

It has the following characteristics:

(1)It is tramp ships, which has no fixed lines, loading and discharging port as well as sailing
schedule.

(2)It has no fixed freight rates.

(3)The bill of lading in charter transportation is not an independent file. The bill of lading issued by
the ship is generally the short form bill of lading with front contents only, and it is indicated with
"ALL TERMS AND CONDITIONS AS PER CHARTER PARTY" or "FREIGHT PAYABLE AS
PER CHARTER PARTY". This kind of bill of lading is bound by charter party. Unless specially
stipulated in the credit, banks are unwilling to accept this kind of bill of lading.

(4)During the process of charter transportation, shipping port fees, handling charges and shipment
delay are divided and calculated according to the contract, while regular operation costs in liner
transport are all paid by the ship owner.

(5)Charter ships are mostly used for transportation of large cargo in international trade.

1. Ship Chartering Market

Ship chartering is mostly made in Chartering market. In Chartering market, all ship owners are
suppliers of ships, while lessees are ships' demanders. In the age of developed communication
technology, ship chartering business made by the two parties are mainly made through telephone,
telex, telegram, fax or other modern means of communication.

2. Ship chartering broker

In the international chartering market, deals of ship chartering are usually not negotiated by the ship
owner and the lessee in person, but handled and signed by the authorized chartering brokers. The
SHIP CHARTERING

chartering agents, who know the chartering market very well, are proficient in the chartering business
and have rich knowledge and experiences in chartering as well, serve as a link intermediary over the
entire chartering transaction process and play an important role in putting through the deal.

3. Chartering Inquiry

Inquiry can also be called enquiry. Normally, it means the lessees apply for the shipping charter in
chartering market through chartering brokers according to the lessees' demand of cargoes transport or
lessees' special demand of shipping. Inquiries are mainly offered in written forms such as telegram,
telex and so on. The expected conditions of the lessee should generally include: The type and
quantity of the accepted freight, the port of loading and the port of discharging, time of shipment,
means or terms of the chartering, the expected level of the freight rate (rent) and the detailed
description of the wanted ship, etc. Inquiry can also be firstly issued by the owner of the ship for
canvass cargo through ship chartering brokers to the ship chartering market. The content of the
inquiry issued by the owner of the ship should includes the name, nationality and size of the chartered
ship, the bulk capacity and packaging capacity of the ship, available chartering time, the wanted type
of the accepted goods, etc.

4. Chartering Price

Quotation can also be called offer. After the ship owner receives the inquiry of lessee from the
chartering broker, and through cost estimation or comparison with other inquires, the owner issues
the shipping condition and freight rate or rental rate that he/she could offer to the lessee through the
chartering broker.

The main content of quotation, except for the reply and requirement to the enquiry, is primarily about
the rent (freight rate) level and the selected contract of renting boats and the modification and
supplement of the clause. The quotation can be divided into "hard quotation" and "conditional
quotation". "Hard quotation" is an unchangeable quotation in quotation conditions. The inquirer must
give a reply of renting acceptance to the quotation of the offerer within the limited time, when the
valid time expires, which shall be null and void. On the contrary, "conditional quotation" is a
quotation in which quotation conditions can be changed.

5. Chartering Counter-bid

Counter-bid is also called the counter offer. It refers to that in the case of conditional quotation, the
lessee makes modifications or additions and deletions to the unacceptable conditions of the quotation
conditions with the ship owner, or proposes his own conditions. Counter-bid means that the inquirer
refuses the quotation of the offerer and starts a new quotation. Therefore, the shipowner may accept
SHIP CHARTERING

all counter-bids of the charterer, or may accept parts of counter-bids and makes counter-bid or new
quotation for the disagreed parts. Such a reply or a new quotation to the counteroffer conditions is
called recounter offer or anti-offer.

6. Firm Offer for Chartering

During a chartering transaction, through several counter offers and recounter offers, if both parties
agree with the chartering contract clause, one party in the form of firm offer can require the other
party to make a decision whether they can conclude a deal or not. During the process of firm offer,
the necessary clauses in the chartering contract shall be listed, and the clauses agreed by both parties
and conditions which are not yet finalized shall be confirmed in the firm offer. At the same time, the
valid period shall be specified in the firm offer, and requirement on whether to accept the firm offer
or not should be made for counterpart and reply should be made within the specified valid period. If
no reply is made within the valid period, the quoted firm offer shall be null and void. Likewise,
during the valid period, the party who gives a firm offer cannot cancel or change it, and cannot also
give a firm offer to the third party at the same time.

7. Booking Acceptance

Acceptance is also called the acceptance of offer. It refers that one party makes a clear promise to the
conditions listed in the firm offer within the valid period. Hereto, the chartering contract is made. In
principle, acceptance is the last stage of the chartering procedure. After acceptance, a chartering
negotiation shall come to an end.

Chartering Confirmation Letter

Chartering Acceptance is the last stage of chartering program, and after that a chartering business
shall clinch a deal. Usually, both parties shall sign a "fixture note". The "fixture note" has no unified
format, but its content shall list the main clauses in detail promised by the shipowner and the lessee
during the negotiation. After the fixture note is signed by the both concerning parties, both parties
shall keep one for future reference.

8. Chartering Contract

The formal chartering contract is actually compiled after the contract is already made. The fixture
note signed by both parties is essentially a simple chartering contract performed by both parties. After
signing the fixture note, the shipowner compiles the formal chartering contract according to the
agreed contents, and sends it to the lessee for examination and verification through the chartering
agent. If the charterer has no dissent to the compiled contract, he can make a signature.
SHIP CHARTERING

Standard Chartering Contract Model

When the ship company operates a periodic ships, each contract is required to be signed with the
lessee for each transaction. For their respective interests, it is necessary for both parties to deliberate
the clauses of the chartering contract item by item when concluding a contract. In this way, it is
bound to cause a time-consuming negotiation, which is not conducive to promote to make a deal. In
order to simplify the procedure of signing of chartering contract, and quicken the signing process as
well as save costs caused by signing the chartering contract, and also to list some clauses of one's
own self-interest into the contract so as to maintain one's interest, in the international shipping
market, some shipping monopoly groups, large shipping companies, or shipper monopoly
organizations, successively compile the chartering contract models which are available to the
charterers for choice and serve as the basis for negotiation contract clauses. Main clauses which were
drawn up in advance are listed in chartering contract model. In order to bring convenience to both
parties of the chartering contract for deleting, adding, modifying and supplementing the clauses listed
in the model through correspondence, every chartering contract model sets a code for its model name,
compiles a code for each clause, and composes a line sequence number before(or after) each line of
text. So in the process of negotiating a ship chartering contract, it is only needed to simply specify the
code of the chosen model and the opinions to increase, delete and change the content of line x, article
x in the correspondence. So the clauses agreed by both parties can be made more rapidly. Although
adopting chartering contract form facilitates greatly drafting of chartering contract articles, the forms
are mostly made unilaterally by the Shipping party or some shipping monopolies representing
interests of the Shipping party, thus many articles would not be in favour of the Lessee, which must
be considered in chartering contract norm selection. There are many ship chartering contract models:
standard voyage chartering contract representative template "GENCON", fixed-term chartering
contract representative template "NYPE", bareboat chartering contract representative template
"BARECON".

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1.1 INTRODUCTION

International trade is exchange of capital, goods, and services across international borders or
territories. Shipping plays an important role in the transport sector of world’s economy.
Approximately, 90 percentage of the world’s cargo is moving by sea. In the above wheel of activities,
chartering plays an important role. It has dominant role in the movement cargo & vessels across the
world, which ensure to meet the demand & supply of the industry effectively.

Chartering is a process of hiring vessel either by time basis or by voyage basis. A Charter is a
promise. The ship owner are promise to place his ship at the disposal of the charterer whereas the
charterer promises to pay the agreed freight or hire within the stipulated time. The CHARTERERS
could be international traders, shippers, receivers, manufacturers, mine owners or government
organizations.

The growing division between ownership and management driven by the objective for a steady return
has led to the development of OPERATORS. Operators hire ships from the ship owners and
reemploy them for a higher freight or hire. They are also known as ‘Desponent Owners’. The ability
of an operator to obtain contracts for carriage of cargoes for a higher freight and have a ‘back to
back’ arrangement with the ship owner for a lesser freight also contributes to his profit. A needle to
say trading and operator is a high risk business and cases of bankruptcy are not unknown.

The SHIP BROKERS assist in securing cargoes for ships and the ships for cargoes. Being a
successful ship broker calls for knowledge, hard work and ‘good luck’. The last one being elusive
may at times wipe off the good efforts of broker after he almost fixes the vessel.

1.2 CHARTERING AND ITS TYPES

A Charter is a promise. The ship owner promises to place his ship at the disposal of the
charterer whereas the charterer promises to pay the agreed freight or hire within the
stipulated time.

Thus chartering is all about the process of hiring a ship.

MARKET PLAYERS :

The CHARTERERS could be international traders, shippers, receivers, manufacturers, mine

The growing division between ownership and management driven by the objective for a
steady return has led to the development of OPERATORS. Operators hire ships from the
SHIP CHARTERING

ship owners and re-employ them for a higher freight or hire. They are also known as '
Desponent Owners '. The ability of an operator to obtain contracts for carriage of cargoes for
a higher freight and have a ' back to back ' arrangement with the ship owner for a lesser
freight also contributes to his profit. Needless to say trading as an operator is a high risk
business and cases of bankruptcy are not unknown.

The SHIP BROKERS assist in securing cargoes for ships and the ships for cargoes. Being
a successful ship broker calls for knowledge, hard work and 'good luck '. The last one
being elusive, may at times wipe off the good efforts of the broker after he almost fixes the
vessel.

FREIGHT MARKET :

Selecting the methods of employment for a ship is based on the freight market and the risks
involved with it. Freight market is neither uniform nor homogeneous with a specific
geographical area. The ships which carry similar cargoes determine the market level. Hence
it is essential to understand the freight market.

FACTORS WHICH INFLUENCE FREIGHT MARKET

1. Supply and demand of Ships of similar type ( new buildings / scrapping )

2. War

3. Strikes

4. Bad Harvests

5. Government subsidies

I DIVISION OF DRY CARGO MARKET

(A) TWEEN DECKER - 12000 - 23000 DWT

[ Bagged cargoes like Sugar, Rice, Wheat etc. ]

(B) BULKER - (i) HANDY [ 20000 – 40000 DWT ]

( ii ) HANDY MAX [ 40000 – 50000 DWT ]

( iii ) PANAMAX [ 50000 – 80000 DWT ]

( iv ) CAPESIZE [ 80000 – 1,20,000 ]

( v) LARGE CAPE [ OVER 1,70,000 ]

[ COAL, GRAIN, ORES, SCRAP, CEMENT AND FERTILISERS ]

SELF DISCHARGERS : SHIPS FITTED WITH GRABS

LAKERS : SHIPS SPECIALLY CONSTRUCTED WITH

MEASUREMENTS AND FITTINGS FOR PASSAGE

THROUGH ST. LAWRENCE SEA WAY

ICE CLASS : SUITABLE FOR TRADING BALTIC OR CANADA

DURING WINTER

(C) CONTAINER MARKET :

Limited one with a small number of brokers. Exclusively chartered by operators for a long term.

( D ) RO / RO MARKET : ( ROLL ON / ROLL OFF )

This is another specialised market where the main players are liner and ferry operators and
the automotive industries.

( E ) LINER MARKET :

Long term remuneration is the influencing factor here rather than the single voyage. The
load factor and availability of cargo determine the market.

LOAD FACTOR = LOADED CUBIC

___________________ X 100%

AVAILABLE CUBIC
SHIP CHARTERING

( F ) SMALL SHIPS MARKET : LESS THAN 10000 DWT.

Involved in coastal shipping and short-sea trading

( G ) SPECIAL MARKETS :

–HEAVY LIFTS

–BARGE CARRIERS / LIGHTERS ABOARD SHIP [ LASH ]

–TUGS

II TANKER MARKET :

Dominated by small number of oil majors. Loading areas / terminals are limited.
International regulations for tanker safety are stricter due to increasing concern for the
environment.

( a ) ULCC - MORE THAN 350000 TONS DWT

(ULTRA LARGE CRUDE CARRIER)

( b ) VLCC - 250000 – 350000 TONS DWT.

(VERY LARGE CRUDE CARRIER)

( c ) SUEZ MAX - 135000 – 150000 TONS DWT.

( d ) AFRA MAX - 70000 – 100000 TONS DWT.

( e ) PANAMAX - 55000 – 65000 TONS DWT.

The last 3 groups of ships used for both product or dirty cargoes depending on their age
and cleanliness.

CHRACTERISTICS OF TANKER MARKET :

1. RAPID FLUCTUATION

2. EVERY OCCURRENCE HAS A GREAT IMPACT ON MARKET

[ E.G. POLITICAL DISTURBANCES ]

PARCEL TANKERS, CHEMICAL CARRIERS AND LPG CARRIERS ALSO CONSTITUTE

III & IV

REEFER MARKET & CAR CARRIER MARKET :

These are closed markets where charters are usually concluded between owners and charterers
directly without the assistance of the brokers.

INFORMATION CHANNELS :

Exchange of information is vital to chartering. Those engaged in chartering are both

WHAT IS EXCHANGED ?

CARGO ORDERS = GIVING DETAILS OF THE CARGO TO BE SHIPPED

SHIP POSITION = WHEN WHERE FREE WITH MAIN DESCRIPTION

FREIGHT NEGOTIATIONS - OFFERS AND COUNTER OFFER [WHICH HOPEFULLY

GENERAL INFORMATION :

PORT COST

BUNKER PRICES

OPENING AND CLOSING CANAL

PORT RESTRICTIONS

AVAILABILITY OF LABOUR

FORCE MAJEURE CONDITIONS

INFORMATION CENTRES :

LONDON, NEW YORK, OSLO, TOKYO, PARIS AND PIRAEUS., INDIA - MUMBAI.
SHIP CHARTERING

BALTIC EXCHANGE

It is the source of maritime market information and encompasses majority of world shipping
interests. The market assessment is made by a panel of international ship brokers on 43 dry
and wet routes.

Baltic Exchange dry index (BDI) is calculated from cape, panamax and handymax

Indices ( BCI, BPI, & BHMI ) by the exchange.

BIMCO - BALTIC INTERNATIONAL MARITIME COUNCIL

It produces balanced standard Shipping contracts (charter parties). Extensive details on ports
including costs, cargo handling equipments delays, strikes and various warnings provided to
the market. It cautions the members on security issues like stowaways and armed attack
on ships.

1.3 DIFFERENT TYPES OF CHARTERING

VOYAGE CHARTER :

The ship is employed for a single voyage under the voyage charter. The person who charters
is the voyage charterer and the payment is called the freight. It is governed by the voyage
charter party

LIST OF VOYAGE CHARTER PARTY CLAUSES

1. PREAMBLE

2. CARGO DESCRIPTION / QUANTITY

3. LOADING PLACES

4. LOADING ORDERS / ROTATION

5. DISCHARGING PLACES

6. DISCHARGE ORDERS / ROTATION

7. LAYDAYS AND CANCELLING

8. FREIGHT
SHIP CHARTERING

9. COST OF LOADING / DISCHARGING

10. NOTICE OF READINESS / TIME COUNTS

11. LOADING / DISCHARGING RATES

12. EXCEPTED PERIODS

13. DEMURRAGE / DESPATCH

14. NOTICES

15. SHIP’S GEAR

16. GRAB DISCHARGE / STEVEDORE DAMAGE

17. OVERTIME

18. SHIFTING / SEA WORTHY TRIM

19. CARGO SEPARATION & TALLYING

20. DUES & TAXES

21. PORTS AGENTS

22. BILLS OF LADING

23. LIGHTENING

24. GENERAL AVERAGE

25. STRIKES

26. EXCEPTIONS

27. COMMISSIONS

28. PROTECTION CLAUSES

29. LIEN

30. ICE

31. SIGNATURE
SHIP CHARTERING

CONSECUTIVE VOYAGES

It is a special type of voyage charter when the vessel is contracted for several voyages
consecutively upon each other.

TIME CHARTER

Here vessels are hired for a specific period say 12 months. The crew employed by the
owner is responsible for the nautical operation and maintenance of the vessel. The time
charterer decides the voyage to be made and the cargo to be carried. Payment is called hire.

DIVISION OF TIME CHARTER RESPONSIBILITIES :

SHIP OWNER

CREWING

REPAIRS

MAINTENANCE & SPARES

CLASSIFICATION

SURVEYS

LUBRICATING OILS

FRESH WATER

INSURANCE OF VESSEL

STORES & PROVISIONS

HEATING & COOKING

CHARTERERS

· EMPLOYMENT

· BUNKERING

· PORT EXPENSES
SHIP CHARTERING

· CANAL TOLLS

· STEVEDORING

· CARGO HANDLING

· INSURANCE OF CARGO

· INSURANCE OF BUNKERS

LIST OF TIME CHARTER PARTY CLAUSES

1. PREAMBLE

2. VESSEL DESCRIPTION

3. DURATION OF PERIOD / DESCRIPTION OF TRIPS

4. TRADING INTENTION / LIMITS

5. CARGO INTENTION / EXCLUSIONS

6. VESSEL CONDITION

7. OWNER’S RESPONSIBILITIES

8. CHARTERERS’ RESPONSIBILITIES

9. DELIVERY AND REDELIVERY

10. BUNKERS

11. HIRE

12. OFF-HIRE

13. VESSEL PERFORMANCE

14. VESSEL MAINTENANCE

15. CARGO CLAIMS

16. MASTER / OFFICERS

17. LOG BOOKS

18. SUPER CARGO

19. POLLUTION

20. SALVAGE

21. LAYING-UP

22. ARBITRATION

23. LIEN

24. ASSIGNMENT

25. EXCEPTIONS

26. REQUISITIONING

27. BILLS OF LADING

28. STEVEDORING DAMAGE

29. COMMISSIONS

30. PROTECTIVE CLAUSES

31. SIGNATURE

BARE BOAT CHARTER

This amounts to the lease of the ship from the owner to charterer. The vessel is put at the
disposal of the charterer without any crew. The charterer takes the commercial and technical
responsibility and will pay for the maintenance and insurance bearing only the capital costs
to the owner. It is a financial tool for acquiring ship.

CONTRACT OF AFFREIGHTMENT :

To carry a fixed cargo over a period of time at a fixed freight level. Each voyage under
COA is a voyage charter

JOINT VENTURES

SHIPPING ARRANGEMENT
SHIP CHARTERING

BETWEEN THOSE WHO CONTROL CARGOES AND WHO CONTROL SHIPS

SHIPPING POOLS

- POOL TONNAGE

- COLLECTIVELY MARKETED

- INCOME IS DIVIDED BY WEIGHTAGE SYSTEM

PARCELLING

- SMALLER THE PARCEL HIGHER WILL BE FREIGHT

- GROUPING PARCELS

- LIFTED IN ONE “BOTTOM” (MOSTLY ON TIME CHARTERED VESSELS)

- SPECIALIST OPERATORS

- WIDE LAYCAN

- FLEXIBILITY ON CARGO SIZE

- HIGHER FREIGHT

PROJECT CARGOES

COMPLETE RESPONSIBILITY OF TRANSPORTATION FOR

PRE FABRICATED STRUCTURES

CONSTRUCTIONAL EQUIPMENT ETC ALSO KNOWN AS TURN KEY PROJECT

1.4 NEED FOR THE STUDY:

· Understand thoroughly the Chartering market.

· To find out the Chartering Procedure and Practices involved in the industry.

· Understand the ways of fixing ships & cargos.

· Points to be taken care of before and after fixing for vessel (pre fixture & post fixture
activities).
SHIP CHARTERING

· Legal aspects involved in the chartering market.

1.5 STATEMENT OF PROBLEM:

It is easy to lose than earning a customer. In the past, many companies took their customer for
granted. Their customer may not have many alternatives source of supply, or all suppliers were
equally efficient in service.

Today’s customers are harder to please, they are smarter, more price conscious, pore
demanding, less forgiving and approached by more competitors with equal or better offers. Under the
present scenario, it becomes very difficult to retain the customer fold intact. Hence, the companies
are delivering the best possible after the service to the customer to satisfy them.

The key to customer retention in customer satisfaction is,

In Highly satisfied customer

a) Stays loyal longer

b) Talks favourable about the company and its services.

c) Pay less attention to completing brand and advertisement.

d) Less sensitive to price.

There are lots of competitors for shipping agency business/companies. Periodically the
shipping agencies are focusing on service quality. Unless the company pays themselves in a good
position for its service, it is difficult to survive in the market. This study is viewed in GAC Shipping
(India) Pvt. Ltd., Chennai is how to improve service quality in order to satisfy the customers. So also,
by doing this project, attempts are made to understand the functions of Port Agency Operations &
also to prepare standardized Service Delivery Procedure (SDP) for shipping agency services.
Moreover, special focus is given on the SWOT analysis for M/s. GAC Shipping (India) Pvt. Ltd and
for the Shipping Agency Industry of India.
SHIP CHARTERING

1.6. LIMITATIONS

· Due to busy atmosphere prevailing in the industry, sufficient data could not collected.

· Since the chartering is not so prominent in India, limitations in collecting data.

· Time and Cost were the limiting factors of the study.

There is no organized data to analysis the policies and practices.

1.7 STATEMENT OF OBJECTIVES:

1.7.1 Primary Objective:

· Understand thoroughly the Chartering market.

1.7.2 Secondary Objective:

· To find out the Chartering Procedure and Practices involved in the industry.

· Understand the ways of fixing ships & cargos.

· Points to be taken care of before and after fixing for vessel (pre fixture & post fixture
activities).

· Legal aspects involved in the chartering market