For their intervention brokers usually receive a commission or brokerage, which usually represents a certain percentage of the gross freight or hire.
Since the brokerage is due on the freight or hire it must be paid by the Owner. It usually amounts to 1.25% per broker but sensu stricto there is no maximum nor minimum, and the parties concerned are free to agree on the amount to be charged.
The number of brokers (or intermediaries) varies from one chartering to the other and since it is the Ship Owner who must pay for the brokerage, it is in his interest to keep the number of intermediaries to a strict minimum. This is also in the Charterer’s interest because, when setting the freight, the Ship Owner will in any way take into account the brokerages he has to pay. If, for instance, 3 brokers are involved by a chartering, then the Owner has to take into account a brokerage of 3.75% in the freight calculation.
During the chartering negotiations or at its fixture (summary of the agreed terms) the brokerage can be indicated in several ways:
% total commission
% total commission for division with others
% commission past us.
The first two points speak for themselves. In the third case, "past us" means that in the offer, the brokerage is not yet included and must, therefore, still be added. This is especially common when several brokers are involved in the chartering and that the broker who eventually makes the offer to the Ship Owner, has not yet included his own commission. If, for instance, three brokers are involved in the chartering offer, "2.5% commission past us" means that eventually, the Ship Owner will have to pay 3.75% brokerage.
The brokerage may not be mistaken with the so-called address commission, which in fact, is a ristorno on the freight or hire, that must be paid to the Charterer.
If no address commission is due, and to avoid all confusion with the brokerage, the term "free of address" is inserted in the contract of affreightment, what means that absolutely no percentage is due to the Charterer. The address commission can be very high and sometimes amount to 5% of the freight or hire.
It is current that brokers, who act exclusively for a single mandator, charge a brokerage of 2.5%.
In almost each contract of affreightment one finds a clause which regulates the brokerage and its payment. This clause also provides for the payment of a commission if the contract is broken (see further paragraph Brokerage).
In case of non payment of its brokerage commission, the broker will have no recourse since he is not a contracting party. In that case, he will ask the Charterer to act in his name and ask the Owner to fulfil his obligations. If the Charterer refuses to intervene, the broker can go to a court of law, which can oblige the Charterer to intervene or allow the broker to exercise the Charterer’s rights.
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