Understanding The Characteristics And Procedures Of Vessel Chartering

Understanding The Characteristics And Procedures Of Vessel Chartering

The chartering market is where charterers source ships. Usually, the deal of acquiring the ship is done by shipbrokers. They provide excellent advisory information for ship owners, have strong connection channels and the ability to provide the right ships for charterers. This helps both parties to find the best deal. The broker gets paid once the transaction is successful. The main function of the broker is to make sure the client gets the best deal. The broker will work to resolve any issues between parties and offer consultation, if needed.

To get the best deal, as a shipowner or charterer, it is beneficial to understand vessel chartering in detail. This will  help shipowners and charterers to get the  best deal for their business.

There is a dedicated market for vessel chartering.

In this market, shipowners provide ships and  charterers bid. Generally,  negotiations are not conducted directly between the shipowner and the charterer. This  is done by an authorized shipbroker. These  brokers have deep knowledge of the ship chartering market and the needs of the chartering business.

An inquiry is where a charterer applies for a ship based on cargo or another parameter. This type of application must be written. It should include information about the kind of freight to be accepted, time of shipment, the loading and discharging ports, the expected freight rate, terms of ship chartering, and a detailed description of the expected vessel. The inquiry can be sent to the shipowner by the broker in the market on behalf of the charterer. The inquiry issued by the shipowner should include the name of the vessel, the bulk and packaging capacity, size of the ship, kinds of accepted goods, and available chartering time.

After receiving the inquiry from the charterer through the broker, the shipowner will respond with  rental rates by comparing the inquiries and estimating the costs. The freight rate is the most important cost in the quotation. Generally, it can be a conditional quotation or a firm  quotation.  The charterer must reply to the quotation within an agreed period. If the  charterer fails to reply then the quotation becomes void. Conditional quotations, on the other hand, can have their terms changed.

If the charterer is not happy with the quotation or offer, they can respond with a   counter-bid. This is possible with conditional quotations only. The charterer may make modifications to the offer or propose alternatives. A counter-bid may occur when the charterer does not accept the offer. The shipowner may agree with the counter-bids in full or partially. In this case, the charterer may come up with a new quotation for those non-agreeable parts. This is termed a counteroffer.

The chartering transaction includes a series of offers and counter-offers. A decision is made when both parties agree upon the contract clauses. In a firm offer, all the important clauses are included. The offer remains valid for a limited period and becomes void in case where there is no response. Moreover, the shipowner cannot cancel or make changes to the quoted firm offer within that period nor can they offer the same to any third-party.

Acceptance of an offer occurs when both parties come to a clear agreement within the valid period. Accepting the offer is the final step. With the acceptance of the offer, no more negotiations are needed.

The deal is completed by both parties by signing a document called “fixture note”.  This is done after the formal chartering contract is prepared. Based on the agreed contents, a formal chartering contract is prepared by the shipowner. It is then sent to the charterer for verification. The contract is examined by a chartering agent. Assuming there are no objections or changes needed, the contract is progressed. Where the shipping company charters the ship at irregular intervals, the contract must be signed by the charterer every time for each transaction. Both parties need to check the clauses mentioned in the contract word by word before making the final call. This process will slow negotiations.

This is not conducive to  making a deal. Large shipping companies  have a variety of chartering contract models that can be sent to the charterers as the basis of negotiation. The charterers may choose any of the models. The purpose is to  simplify the chartering contract signing procedure. It also helps with lowering costs, quickening the signing process and ensuring the clause of self-interest remains in the contract.

Important clauses are included in chartering contracts in advance. Every contract has a model name, the sequence number and a code for each clause to be  added. When  changes are needed during negotiations, the charterer must specify the code for the clause and the corresponding line sequence number. In this way, agreed changes can be made quickly. 

Summary

Vessel chartering for international trade makes the process of transportation smoother. Generally, a broker has a role to play. Understanding the characteristics and procedures of vessel chartering can make business significantly more efficient.       

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