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The Chartering Negotiations
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The Chartering Negotiations

Like any other trading negotiations, chartering a ship begins with one side or the other making an offer; most frequently it is the shipowner who opens the 'bidding'.

 

Offers & counter-offers

Then will follow offers and counter-offers from each side until everything has been agreed when the contract is confirmed and is referred to in the chartering world as a fixture. The two sides usually come together through their respective brokers although many shipowners and charterers use departments in their own companies as brokers.

 

Where the owners or charterers, referred to as the principals, use independent brokers, they may be 'exclusive' brokers. This is where the principal places its business on the market through only one broker, or they may use 'competitive' brokers, which is where the principal broadcasts its business through many brokers who compete with each other to be the first to bring acceptable business to the principal.

 

The negotiations are opened by one side making a firm offer, which will have a time limit. In these days of rapid communication this will only be a few hours, but good sense will ensure that there will be enough time for the broker to pass the offer to his principal and to leave a reasonable period for it to be considered.

 

The opening offer will include all the basic essentials.

Voyage charter would include:

  • The ship's name and other details to identify her.

  • The cargo and the quantity.

  • Loading and discharging ports.

  • Rate of freight.

  • Laydays and Cancelling i.e. loading not to commence before the first date and the charterers having the option to cancel the charter if the ship does not present itself before the second date.

  • The rates of loading and discharging, including a reference as to how time will count e.g. 12000/9000SHEX (Most bulk cargoes today are chartered on a Free In and Out (FIO) basis i.e. the charterers pay the cost of loading and discharging but in some cases the owner may be required to pay these costs in which case the amount per ton will be stated here).

  • Demurrage and Despatch.

  • The charter party form to be used.

  • The commissions payable to all the brokers involved.

Otherwise subject details

Usually, in the early stages of negotiations, the offers will state "otherwise subject details" which allows the parties to leave it until they are sure they are both seriously intent upon the business before going into all the other terms and conditions which, although important, would not have a significant effect upon the financial aspects of the charter.

 

Accept-Except

Quite often, the broker, when replying, may use an expression such as "Accept-Except" and then set out those items that his principal seeks to alter. Despite this wording it is important to realise that a counter-offer is really saying "I decline your offer and I now make you the following firm offer". In other words the party making the first offer is under no obligation to continue with the negotiations if the other party fails to give a clean acceptance within the specified time and this applies throughout the negotiations until the two are able to agree when they will be able to say "That's a fixture".

 

Note

There is a fundamental difference between British and American law on the matter of "subject details".

  • Under British law, if the details could not be agreed upon then there is no contract.

  • Under American law, if the other party accepted the offer made subject to detail, then there is a binding contract and the parties are obliged to continue to work out the details.

Once the negotiations seem serious, the charterer's broker will spell out all the details. These may be numerous because even the most recently devised standard charter party forms undergo many deletions and additions to the printed text and a page or so of typed additional clauses in order to cover the specific requirements of the parties.

Time Charter would include:

The same routine would be followed in the case of a time charter but the content of the firm offer would be rather different, one would expect to see:

  • Ship's name and other identifying details.

  • Other details of the ship including such things as total deadweight; grain and bale cubic capacities; number of decks; number of holds and hatches; number and capacities of derricks or cranes etc.

  • Period, e.g. 5/7 months or 2/3 years.

  • Rate of hire stating whether it is to be paid monthly or semi-monthly (always in advance).

  • Where the ship is to be delivered to the charterer (often an exact place) and where to be re-delivered to the owners (often a range of ports).

  • Delivery dates which, like in a voyage charter state not before a certain date and the charterers option to cancel if later than a certain date.

  • The ship's speed and daily fuel consumption expressed as so many knots on so many tons of whatever type of fuel the ship uses.

  • The charter party form to be used.

  • The total commissions.

 


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