CHARTERING ROUTINES

From a practical of view, the chartering procedure can be divided into three stages, namely the stage of the investigation, the stage of the negotiation and the follow-up stage, We shall describe the routines as they are practiced inter-nationally by persons and institutions who are doing chartering work professionally and in accordance with, for example, Chartering Conditions laid by BIMCO(the Baltic and International Maritime Conference)

Table below shows in a broader perspective how the seatransport is intergrated in the trading activity. Starting from the top, the boxed represent the various “stations” in this step-by-step process.

THE PERIOD OF INVESTIGATION

The investigation stage begins when a charterer directly or through a broker enters in the market with an order. Circumstances may then vary somewhat, depending on whether the purchase transaction generating the transport is finally concluded or not, and this should be evident from the wording of the order. The manner of expressing this may be varied but a business is considered to be complete from the point of view of chartering technicalities only when the purchase deals is fully in order and signed, when the documentary letter of credit is obtained(if required), when shippers and receivers are prepared respectively to sell and buy the goods and when the cargo is ready and available for shipment or can be available or loading at certain specified time. Before the charterer enters into market with the order, he has to decide whether he is prepared immediately to commence firm freight negotiation (in practice, we usually say “firm trading”) with a suitable counterpart or whether he wishes primarily to collect suggestions for different shipping opportunities and intends to start negotiations only after the material gathered has been sorted out and evaluated.

If the business deal is concluded in accordance with the above-mentioned definition and the charterer is prepared to enter immediately into the firm negotiation, then the order may open with the wording FIRM ORDER, CHARTERER ARE NOW FIRM AS FOLLOWS…, DEFINITE,FIRM AND READY TO GO or FIRM WITH LETTER OF CREDIT(L/C) IN ORDER. In principle, one may also abstain from applying such “trade expression” since an order which is circulated on the market by first-class charterers and brokers will normally be regarded as FIRM if nothing to the contrary is said in the order. In such cases there are nevertheless reasons for making the intentions clearer by the wording, for example, FIRM OFFERS INVITED OR PLEASE OFFER FIRM.

Shipping in the procurement process

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When the business is concluded but the charterer does not want not enter into the immediately firm negotiations, this may be indicated by making the order FIRM or DEFINITE but at the same time with INDICATIONS ONLY or PLEASE INDICATE or PLEASE PROPOSE.

The expression FIRM WITH XX DAYS’ NOTIC indicates that the cargo is ready to be negotiated but loading can take place only XX days after the fixture has been concluded. There may also be from time to time other reservation on orders which are actually ready for negotiation and we shall look into these in more detail.

If, on the other hand, the purchase negotiations have not yet been concluded, but the charterer nevertheless requires a freight quotation or at least an idea of prevailing freight market level, this should be shown in the order by opening it with PROSPECTIVE ORDER, ORDER EXPECTED TO BECOME DEFINITE, ORDER NOT YET DEFINITE or similar expressions. If the charterers do not have any definite plans but only wish to make a general investigation of the shipping possibilities, this may be indicated by PSSIBILITY ONLY or CHARTERES HAVE A PROSSIBLITY TO WORK UP FOLLOWING BUSINESS.

Voyage charter

The contents of the order will then cover those items which the shipowner requires to make his calculations and evaluation, namely:

-the charterer’s name(full style) and domicile

-cargo quantity and description of the commodity

-loading and discharging ports

-the period within which the vessel is to presented for loading (Lay/Can)

-any restrictions or preferences regarding type or size of ship

-charter-party form on which the charterer wished to base the terms and conditions

-commission to be paid by the owner

This is absolute minimum of information required to get an owner interested and to make calculations and evaluations. If one or more of terms above are not given by the charterer(shipper), his forwarder or broker, then owners are left with something they have no means of calculating and evaluating, so that order will almost likely be pus aside or dropped completely. Apart from this, the presentation of a faulty or incomplete order gives a very unprofessional impression.

In addition to items in the checklist above, the charterer may also mention the approximate freight level that he wants to have as starting pointing point for the discussion or the negotiations(the charterer’s freight idea),but such information is often omitted from the original order for reasons of negotiation tactics.

It is unusual for charterers to put out an anonymous order and request the broker to keep the origin of the order secret until proposal of tonnage have been submitted from serious owners. The broker then denominates the origin and shows that the charterer is well known to him by FIRST CLASS CHARTERERS, A1 CHARTERERS or maybe DIRECT FIRST CLASS CHARTERERS, expressions that, of course, cannot be used by others brokers who received and further the order to their contacts in turn.

Time charter

An order concerning a time charter engagement is presented on the market in largely the same way as for voyage chartering, with the exception that details about cargo, ports, loading and discharging rates and terms are exchanged for details about the intended trade, duration or required time charter period and places for delivery and redelivery. In daily practice, however, this is typical information exchange on a private basis between the broker and his principal, which seldom comes out in print for general distribution.

The reaction of the shipowner

When the owner deems the received order to be worth considering, he reverts to the broker or, in case the order was received direct, to the charter. The owner will normally contact the broker who first brought the order. If a number of brokers have presented the order at about the same time, the one who is “closest” to the charterer is contacted or, in any case, the one who is supposed to be in best position to negotiate with the charterer in question for the owner’s account, The latter can express his interest in various ways.

If and order is FIRM AND REANDY TO TRADE the owner may choose to put forward a firm offer right away. This can be done when the trade is well known, the freight level is more or less established and when the ship’s size and position fits in well with the conditions given in the order. A firm offer may also be the most suitable when the owner expects keen completion, especially in a declining freight market . More often, the owner presents his ship and his abilities to meet with the intention according to the order and submits a freight indication. He is then uncommitted with regard to the figures and terms mentioned but such an indication will advise the charterer of the owner’s starting for possible negotiation. Furthermore, the charterer can compare the freight quoted with his own opinion about the proper freight level and can also compare it with suggestions made by other owners. An indication is often given without any time limit since it will not commit the parties. Still the owner is supposed to present-if and when submitting a firm offer later on-freight and terms that are no worse for the charterer than those indicated.

Alternatively, the owner can give the charterer a fairly rough suggestion just in order sound out the basis for a possible negotiation and let this proposal be accompanied by a so-called freight idea. This will certainly indicate a freight level which the owner consider to be suitable as basis for further discussions but which may be adjusted upwards or downwards in an eventual offer, when the owner has made more careful calculations.

A proposal, a freight idea or an indication form part of the negotiation stage and form a basis for charterer’s calculation and evaluations of chartering possibilities. The charterer may go no discussing with a number of owners their own proposals, ideas and indications until the finds a suitable counterpart for negotiations. The charterer will then revert to this owner asking for a firm offer on the basis of the conditions given in the order or in accordance with the previous discussions. It may happen the charterer will reply to the owner’s indication with a firm offer.

(To be continued……)

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