All Chapters include Sample Pages inside.
Transporting the goods by sea.
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As soon as the trading agreement is concluded and the need for transportation is born, there are parties that shall undertake the task of transportation.
Parties directly involved in a Chartering Deal:The Ship Owners, Beneficial Owners or Managers or Disponent Owners. Usually, Owners of more than one ship, establish a unique “Owning” company for each one of them. However, the managing company, which deals with all the owned ships (the fleet) is usually one for the whole fleet…
Because some of the functions of a Ship owing company (for instance management), may be assigned to a third party…. as far as chartering is concerned, the “Owner” of a ship is the company that has the authority to decide for her employment and not necessarily the one who is registered to own the ship… the traders needed somebody (their own employees or third parties) who would combine the knowledge of both trading and shipping (transportation). In a way and as far as a Ship-Owner is concerned, the Charterer – among other tasks – has the task to extract the rules that govern the transportation, from a commercial deal. Depending on the terms and conditions of the “Sale of the Goods” contract, it may be either the seller or the buyer who is given the task to “charter a ship”.
Traders may act as Charterers themselves or may assign this task to a third party, usually a ‘’contractor’’. Such contractors may be Ship-Owners or managers or time Charterers or operators or brokers or other individual ‘’speculators’’. The contractors who are not the registered owners of ships are usually called NVOCC, meaning “Non-Vessel Operating Common Carriers”… Operators act as Charterers looking for ships to charter either in voyage or time charter, or as Disponent Owners looking for employment of the ship or ships under their Charter.
Naturally, trading as an Operator is a “risky” business and either high losses or profits should be expected.…Brokers are Professional experts in shipping who act as intermediates between Ship-Owners seeking employment for their ships and Charterers looking for the services of a ship. Legally, the Brokers are Agents with authority…The Port Agentsare appointed by the Shipowners and their task is to represent the Master towards the State in the port of call…
The stevedores undertake the task to load, discharge and stow the cargo on board a ship…During loading of the cargo, tally clerks (Tally-men) check the number of packages or bags, etc. (freight units) loaded. The result of their work is seriously considered in drawing up the Bills of Lading.
It is quite usual to agree the following additional clause of the Charter Party: “Tally expenses to be for the party ordering same, however if it is compulsory to be for Owners’ account“. ……….
Beneficial Owner: The registered owner of the vessel who can charter her to others.
Disponent Owners: Persons or companies, which have commercial control over a vessel’s operation without owning the ship.
 The functions and the role of a Sale Contract in a chartering agreement, is analyzed in the chapter “Contract of Sale of Goods”.
 The role and the functions of the Brokers are further analyzed in the Chapter “Ship Brokers”
 The role and the functions of the Ship Agents are further analyzed in the Chapter “Ship Agents”.
The role of Shipbrokers in Chartering.
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A Ship-owner once said that Shipbrokers are the milkmen of Shipping. A ship-broker’s firm once introduced the slogan “Go Direct Via Brokers”. The Vice President of a leading fertilizer company declared on a conference that “Our brokers are the extension of our right hand”…. Shipbrokers are Agents with authority that act as intermediate negotiators between Charterers and Owners. Nonetheless, the role of a shipbroker nowadays is far from being a “passive” intermediate. Brokers are expected to add value to each and every “fixture” by knowledgably consulting their “principals” and by professionally contributing in the “post fixture” operations… are valuators, collectors and distributors of information… Advisors to their Principals. Obviously, their target is to conclude a chartering agreement, and thus achieve the so-called “fixture”… To locate suitable employment for the Ship / suitable Ship for the Cargo…To act as Dispute Resolvers or Mediators whenever needed…To submit “added value” to a fixture by offering their professional advice and their expertise at any moment…shipbrokers are professional agents dealing with the procedure which leads to the agreement for the carriage of goods by sea.
An Agent warrants to a third party that he has his Principal’s authority to act (for example, to offer a vessel “firm” and thus initiate negotiations) on his (the Principle’s) behalf. It is a “breach of warranty of authority” whenever an impression of Agency is created although such relation does not exist…Chartering Brokers. (Acting as expert negotiators between the Owners and the Charterers for the employment of the Ship.)… Sale and Purchase (S&P) Brokers. (Acting as expert negotiators between the Sellers and the Buyers or the Shipyard and the Buyers for the acquisition or sale of ships.)
Furthermore, depending on their employment, Brokers may be divided to Home or House Brokers and Competitive Brokers.
Depending on the type of Chartering deals they conclude, Brokers, may be further categorized to:Tanker Brokers… Dry Cargo Brokers… Others specialize in more specific markets, such as Reefer or Ro/Ro.
Brokers may also specialize in size of tonnage or in complex transactions. There are brokers specializing in Coasters (smaller ships), brokers specializing in transportation of heavy and project cargoes, in ships furnished with special equipment and so on.
In practice, from the categories of Shipbrokers, others specialize in trying to find suitable tonnage for their excusive or semi-exclusive Charterers, while others specialize in locating suitable employment for their exclusive or semi-exclusive Owners. However, the successful Brokers’ houses nowadays, serve both their direct and/or exclusive Ships and Accounts…Brokers work on a fixed percentage rate of commission (or brokerage), which is calculated on the freight and/or dead freight and/or demurrage, or hire and ballast bonus. In other words, the commission is….
Sale and Purchase of ships is analyzed in the relevant chapter of this book.
Account = Charterers.
Freight is the payment of the Owner under a voyage charter party. (see also, “Types of Charter”)
 Dead-freight is a form of compensation that may be claimed by the Owners for a quantity of cargo, which was not loaded.
Demurrage is the payment for an extra and not provided by the charter party, period of time, used for loading or discharging. Demurrage is a claim payable fro the Charterers to the Owners.
Hire is the daily payment of the Ship under a time-charter.
The legal position of Agents.
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The duties, the authorities and the legal position of an Agent, considerably vary from country to country due to different applicable law systems. An Agency relation under the English Law arises when a person (the Agent) is authorized in writing or otherwise to represent another person, which is called the Principal, in a way affecting the Principals legal position.
Obviously, this relationship imposes fiduciary duties upon the Agent who has the authority to sign binding contracts on behalf of his Principles… act in accordance with the authority conferred upon him and to perform his obligations, while a wrongful failure will be equal to breach of contract or even breach of warranty of authority… If an Agent acts on behalf of “undisclosed principals”, then he is held personally responsible. In practice, Agents signing contracts on behalf of their Principals, usually insert a wording like the following: “For and on behalf of … (the name or the title of the Principal), as Agents only.”, so as to clearly delineate their relationship with their Principals…the representation of the Shipmaster towards local authorities, organizations etc. may be considered as the most important one… with Classification Societies, Insurance and P&I, Port State Control, Customs etc. The duties of the Agent during the ship’s stay in port includes the assistance to the Crew and the Master in everyday tasks such as, visas, medical assistance and doctor’s visits, delivery of mail, spare parts or provisions order or delivery etc.
Furthermore, the Agent is appointed by the Ship-owner to assist in all operations related to Loading or Discharging (unloading) of the Ship…connecting link between the Carriers and the Shippers or the Receivers… draws very important documents such as the Statement of Facts and the Bills of Lading…can only be appointed by the Ship-owners… due to the relation of the Agent with cargo operations, stevedoring, custom control of the cargo etc., the Charterers usually insist that the Owners appoint the Agents nominated by them…usually accept to insert such a request as a term in the Charter Party… the Owners are (or feel) unprotected by the Charterer nominated and thus officially appointed Agents…they appoint the so-called “Protecting Agents” to safeguard their rights and interests…before appointing the Agents, the Ship-owners request the so-call Disbursement Accounts (D/A) Pro-forma, which represents the estimated and foreseen expenses of the ship in the port, including the remuneration of the Agent, the Agency Fees….In many ports, there exists an official tariff for the Agency Fees, agreed bythe local union of Ship Agents. Such tariffs take into consideration the DWT and/or GT of the ship and in some cases her flag. In anyway, although in some ports the tariff is compulsory, in practice the Agents accept to negotiate their fees by offering rebates to their loyal Principals.
Although the Agents do not participate in the negotiations leading to chartering agreements, they must be aware of and strictly follow specific terms and conditions of the Charter Party, at least the ones governing the time allowances and the distribution of costs and responsibilities between Charterers and Owners.
Especially in Charter agreements under FIO conditions, the Charterers usually insist to have the right to “nominate” the Agents. In this way, they wish to ………
FIO – Free In Out, actually means that it is the Charterers or the Shippers or the Receivers who will pay for the loading / discharging expenses, (NOT the Owners). FIO = Loading and discharging is of expenses to the Owner.
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The Grain and Feed Trade Association (or GAFTA) is a London based trade organization, which can trace its origin back to 1878, when the London Corn Trade Association (LCTA) started operations. In 1906, a group of traders spun off the LCTA and formed the London Cattle Food Association (LCFA). In 1971 LCTA and LCFA merged to form GAFTA
The international sales of grain, animal feeding stuffs, pulses and rice are traditionally bought and sold under the terms and conditions of GAFTA standard forms of contract… Its aim is to protect its members’ interests through standard forms of contract and to provide an internationally respected dispute resolution service offering both arbitration and mediation to parties using GAFTA standard contracts…the Letter of Credit is an agreement and an undertaking between banks, confirming that certain payments will be done under precisely described terms and conditions. Such terms and conditions are resulted from the agreement, made between the Sellers and the Buyers (Sale Contract). Nevertheless, the Letter of Credit is an individual document, which may be considered as the protection of the Seller (Exporter), for the payment of funds, and the protection of the Buyer (Importer) as far as the fulfillment of certain obligations are concerned. Hence, the letter of credit is mirroring and in the same time protecting the agreement reached through a Sale Contract…The Bills of Lading, as far as the Sale Contract is concerned, may be described as the conclusive evidence and the “prima facie” document, which proves that the Sellers have fulfilled their contractual obligations (at least up to a certain extent) and that they are entitled to receive money from the Buyers…the Bills of Lading is the main link between the Sale Contract and the agreement for the Carriage of the Goods (Charter Party). As far as chartering is concerned, although the parties involved in it may never see either the “Sale Contract” or the “Letter of Credit” it is quite certain that the main terms and conditions of the Chartering Deal will be dictated by those documents, and such terms and conditions may not be altered through negotiations…Charter Party has a special relation to the Sale Contract. Although it is a totally independent contract, it is the result of the rights and the obligations that arise from the agreement between the Buyer and the Seller. The terms and conditions agreed under a Charter Party rule the transportation of the goods only and not the Sale of the Goods. On the other hand, the Sale Contract, defines the responsibility of each party (the Buyer and the Seller) both for the quality / quantity, etc. of the Goods and their transportation.
The Contract pro-forma here-below is a draft copy of C&F contract under negotiations by Messrs. Lemarc Agromond as Sellers (whom we thank), presented to their Shipping department for comments and feedback on Shipping Terms. It is not the final contract.
DATE: March 22, 2018
SELLER: LEMARC AGROMOND ……….
COMMODITY: Brazilian Soybeans Crop 2017/2018PACKING: In Bulk
SPECIFICATION: The soybeans supplied by Seller should be of satisfactory quality in conformity with the following specifications: Protein: basis 34.5% min 34%, 1:1 BoniOil: basis 18.5% min 18%, 1:1 Boni……
price for each 1% protein deficient (1:1), fractions in proportion…….
QUANTITY:60,000 metric tons – 10 percent more or less at seller’s option at contract premium.
SHIPMENT:FromJune 1stto June 30th, ….., both dates included. It is mutually agreed that the date of the bill of lading at ……….
 Source: www.gafta.com
The Parties Involved in the Letter of Credit.
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The parties to a Letter of Credit are the Beneficiary who is to receive the money, the Issuing Bank of whom the Applicant is a client, and the Advising Bank of whom the beneficiary is a client. Since nowadays almost all Letters of Credit are Irrevocable, the Applicant is not considered to be a party to the Letter of Credit…terms and conditions of the Letter of Credit – although not directly involved in the chartering deal itself – play a vital role in the Chartering Agreement…dictates the type of Bills of Lading to be used and the remarks that are allowed (or not allowed) on them.
Furthermore, the Letter of Credit, being a form of a “guarantee”, has an expiring date. As a result, the sellers are very much concerned in loading the carrying vessel and consequently in receiving the Bills of Lading, in a date before the expiration date of the Letter of Credit. Thus, the Cancelling Clause of the Charter Party is determined not only by the actual load-readiness of the cargo but from the expiring date of the L/C as well…“Clean on Board”, “Freight Prepaid” etc., are quite often, obligatory in order to negotiate the Letter of Credit.
Sometimes, the Shippers/Charterers (in fact the Sellers), request the Carriers (ship-Owners), to sign “Predated Bills of Lading”. Such a request is related to the expiration date of the Letter of Credit. Although such request is not rare and even though the Charterers and/or the Shippers are usually eager to keep the Carrier “harmless” and “non-responsible” by providing a Letter of Indemnity (LOI), such request is illegal and, in some cases, might consist fraud against the Buyer (Receiver of the goods). Thus, signing predated Bills of Lading, as a result of an expiring Letter of Credit, is not recommended and should be avoided…. Sample term used on a Sale Contract, related to the Letter of Credit“On signing this contract, Buyers to remit an Irrevocable Letter of credit to the Sellers, issued by Buyers first class, and acceptable to Seller, Bank of Europe or USA, payable at sight by TTR in favor of the Seller… Documents usually needed to allow payment of the Letter of Credit.
- “Seller’s signed commercial invoice in 3 originals and 3 copies.
- Full set 3/3 of original “clean shipped on board” bills of lading marked “freight payable as per charter party” ………
The Letters of Credit are thoroughly separated (Independence Principle) from Sale Contracts (although they are based on them) and Banks are in NO WAY concerned with or bound by such contracts , even if such contracts are referred in the L/C… Banks deal exclusively with documents and NOT with goods, services or performances to which the documents may relate….
Sample Letter Of Credit.
Name and Address of Bank
Date:__________________Irrevocable Letter of Credit No. ______________
Beneficiary: Commodity Credit Corporation Account Party: Name of Exporter Address of Exporter
Gentlemen:We hereby open our irrevocable credit in your favor for the sum or sums not to exceed a total of _______________dollars ($__________), to be made available by your request for payment at sight upon the presentation of your draft accompanied by the following statement:…………
Charter Party Cancelling Clause. One of the conditions of the Charter Party is the Cancelling Date. Should the vessel not arrive on or before the Cancelling Date, the Charterers have the right to cancel the agreement. Sea also the chapter “the Charter Party”.
Clean on Board, means that the cargo has been loaded in apparently good condition.
Freight Prepaid means that the Freight has been paid to the Carrier, consequently the cargo Owners are not liable to pay.
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From a chartering perspective, cargoes have the following main characteristics:
Type / Nature. (i.e. food stuff, grains, fertilizers, scrap iron, steel pipes, project cargoes, cars, frozen food, fruits or vegetables and many others). Obviously, the type of cargo indicates the type of ship needed. For instance, bulk carriers usually carry grains, while project cargoes are carried by Multi-Purpose ships. It further indicates the special characteristics needed by the carrying ship, such as air ventilation, CO2 fittings (for inflammable cargoes), reefer spaces (for frozen stuff) etc.
- Dry bulk cargoes:Coal…Grain…Iron ore…Wood chips…Cement…Chemicals
Liquid bulk cargoes:Oil…LNG…LPG…Gasoline…Chemicals…Liquid Edibles
Other cargoes:Containers…Automobiles…Project cargoes and heavy lift cargoes.
The stowage factor depends on several factors such as, origin of the commodity, new/ old crop, humidity contents, etc.
Soya Bean Meal
Olive Cake Meal
Figure 11: Indicative Stowage Factors
The above table displays the stow factor, i.e. the cubic feet of space that is required in ship’s holds to load one metric ton of the indicated commodity. As per shipping practice all figures are given on about basis.
Classification of Dangerous Goods.
The International Maritime Organization (IMO) issues a code on dangerous goods. The latest Edition of IMDG CODE is of 2016 with amendment 38-16, which came into force on 1st January 2018.
Class 1: Explosives.
Division 1.1: substances and articles which have a mass explosion hazard.
Division 1.2: substances and articles which have a projection hazard but not a mass explosion hazard…….
bb: Break Bulk
TEU: Twenty-foot Equivalent Unit.
FEU: Forty-foot Equivalent Unit.
LPG: Liquefied Petroleum Gas………………….
 Source: IMO www.imo.org
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LOA… BEAM… LBP… DRAFT… AIR DRAFT… DEADWEIGHT…GROSS TONNAGE…NET TONNAGE… GRAIN… BALE… HOLDS DIMENSIONS….
In Britain, until Samuel Plimsoll’s Merchant Shipping Act of 1876, Ship-owners could load their ships until their decks were almost awash, resulting in a dangerously unstable condition. Samuel Plimsoll realized the problem and requested engineers to find a fairly simple formula to determine the position of a line on the side of any specific ship’s hull which, when it reached the surface of the water during loading of cargo, meant the ship had reached its maximum safe loading level. Today, that mark, called the “Plimsoll Line“, exists on ships’ sides, and consists of a circle with a horizontal line through the center….
- Bulk-carriers have emerged from the drawing board in order to comply with the need to transfer large quantities of bulk-cargo cheaply. With bulk-cargo we usually mean iron ore, coal, minerals, grain, wood, sugar and phosphate….Handy size…
Supramax…Handymax…Tweendeckers… Multi-Purpose…Containerization changed completely the way cargoes are transported…(TEU)… (FEU)
Usually, Container ships are designed for relatively high speeds (up to 30 kts.). This is because of the type of cargo they transport as well as the type of voyage they do. This is usually a «door-to-door» voyage since most of the times they carry various kinds of cargo with various destinations. All the above design requirements are pushing the construction cost of the container ship high.
The need for speedy loading and discharge rates, ease of cargo handling, and the lack of facilities in many ports were some of the factors that influenced the design of Ro-Ro ships. These ships can load or discharge cargo by using trucks or other kind of vehicles. For this process, special ramps are used both inside the ship between the cargo decks and outside between the dock and the ship.
Tanker ships have grown much in size during the last years. We have seen tankers of more than 500000 dwt constructed. These ships can transport huge quantities of oil with low cost. Tankers can be classified in three general categories:
- Crude Oil carriers
- Liquefied Gas carriers (LPG and LNG, where P=Petroleum, N=Natural)
- Product carriers (Clean products like petrol or PCB and Chemicals).
These ships can carry, a: Oil or minerals (up to 280000 dwt) and b: OBO -minerals or dry-bulk cargo or oil (between 60000 and 160000 dwt). The OBOs are designed to……….
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The term Cargo Insurance or Marine Insurance applies to all modes of transportation. The need for export (or import) cargo insurance often differs from exporter to exporter (or importer to importer) and from consignment to consignment. Unless the insurance is mandatory in a trade term, the exporter or the importer may opt not to insure the goods at his/her own risks…Cargo Insurance is not relevant to Chartering, however in certain cases, especially if the ship is overaged, the Charterers (on behalf of the traders who are responsible for the Cargo Insurance) may request a contribution of the Owners on the extra amount of Insurance Premium due to ship’s Age or Flag or Ownership or Management or even Classification… voyage of an ocean-going vessel is a joint venture of the Shipowner and the cargo owner.
Cargo insurance protection is an aid to commercial negotiations and its cost is relatively low considering the value of the merchandise and the freight involved.
The marine cargo insurance policy can be tailor made to the needs of the insured.
Meaning of Open Policy… to cover an indefinite number of future individual requirement. The insurance contract remains in force until cancelled.
PERILS CLAUSE.The majority of risks covered under this clause come within the comprehensive term, “perils of the seas”-that is, loss or damage due to heavy weather, stranding, collision, sinking, contact with seawater, etc.
AVERAGE CLAUSES.While total losses from any of the hazards listed in the perils clause…“particular average”…FPAAC-Free of Particular Average American Conditions… FPAEC-Free of Particular Average English Conditions
- Loss of market or loss, damage or deterioration arising from delay.
- Loss arising from inherent vice of goods………
- “War Risks” a type of insurance, which covers damage due to acts of waror war-like conditions, including invasion, insurrection, rebellion and hijacking. An open policy insuring against war and similar risks is usually issued as a companion to the marine open policy. It covers most of the perils arising from hostilities, but excludes loss or damage resulting from the hostile use of nuclear weapons.Coverage against major war perils applies only while the cargo is aboard the overseas vessel, but coverage against damage from mines and torpedoes also applies while cargo is aboard lighters or other craft, prior to or subsequent to the ocean voyage, or at a port of transshipment. A separate premium charge is made for war risk insurance.It is recommended that both marine and war risk coverage be obtained from the same underwriters, thus obviating disputes when the actual cause of loss is in question, as in the case of a missing vessel.During negotiation of a Time charter-party it is usual to stipulate that “basic War Risk Insurance to be for Owners account, whereas any extra War Risk Insurance to be for Charterers’ account”…. KIDNAP AND RANSOM.Piracy is not new to shipping. The east Mediterranean pirates, the Vikings and the ones of Caribbean are well known cases of the past. Even Homer referred to piracy. This (relatively NEW) risk iscovered by the so called “KIDNAP and RANSOM” insurance. When negotiating an employment that includes a passage of such area (g. Gulf of Aden) the Shipowners also estimate the extra cost of this passage. A very rough idea for the cost of such cover for one transit either westbound or eastbound was in 2012 about U.S. Dollars 30,000. -, whereas today ……..
Cyber Crime – Cyberworthiness
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Usual clauses in Insurance Policies confirming that Shipowners are UNCOVERD for Cyber Crime are the following:
“Institute Cyber Attack Exclusion Clause – Cl. 380 -10/11/2003
1.1 Subject only to clause 1.2 below, in no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, as a means for inflicting harm, of any computer, computer system, computer software program, malicious code, computer virus or process or any other electronic system…….
“Electronic Date Recognition Clause”
By way of endorsement to the policy the parties are hereby agreed as follows (subject otherwise to all other terms, conditions, limits of liability and exclusions of the policy):
The Insurer shall not be liable to make any payment for Loss, liability, expense or costs of whatsoever nature, directly or indirectly caused by or contributed to, by or arising from or relating to:
- a) any actual or alleged failure or inability of any Computer Equipment whether or not owned by or in the possession of the Insured:
– to correctly recognize or to correctly process (including but not limited to capture save retain calculate compare interpret record retrieve sequence read store manipulate write to media determine distinguish convert transfer or execute) Date / Time Material; or ………
- c) any advice consultation design evaluation inspection installation maintenance alteration repair replacement or supervision provided or done by the Insured or for or on behalf of the Insured to ….For the purpose of this Endorsement, Computer Equipment means: a) computer hardware, including microprocessors b) computer application software………Date / Time Material means dates times or data or information or command/or instruction that in any manner depends upon is contingent upon is derived from or incorporates any date or time irrespective of the manner by which it is stored recorded or entered”…..Cybercrime has become a silent global digital epidemic. The majority of internet users worldwide have fallen victim and they feel incredibly powerless against faceless cyber criminals.According to the Allianz Risk Barometer 2018, cybercrime is considered one of the top five risks in shipping. Although it is a new risk, it is third on the list marking the 31%…Although “cyberworthiness” definition firstly appeared in 2004 (?), its use remains still limited and NOT official.
One of the computer technicians on Saudi Aramco’s information technology team opened a scam email and clicked on a bad link, resulting in:…….
Iranian Shipping Line (IRISL) Case:
A targeted attack occurred against Iranian Shipping Line (IRISL) in October 2015 resulting in:……
Maersk Case:At the end of June 2017 MAERSK was subject of a cyber-attack which caused major problems to operations and terminals worldwide. A computer virus, called Golden Eye or Petya, began its spread on Tuesday 27th June 17 in Ukraine and affected companies in dozens of countries. The virus entered into system as an employee answered an unidentified mail by clicking, resulting in:
Between 2013 and 2015: Cambridge Analytica harvested profile data from up to 87 million Facebook
-Seafarer plugged mobile phone for charging in ECDIS USB port or other USB …..
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The usual covers that P&I Clubs provide are:
- Loss or Damage to Cargo
- Pollution from Ship or her Cargo
- Loss of Life or injury to crew members or Passengers
- Removal of wrecks
- Oil-spill fines
- Damage to fixed or floating objects
- Collision with other Ships
- Stowaways and Repatriation
- Un-coverable General Average Contribution
- Liability under approved Towage Contract
They also provide:
- Guidelines Extensively
- Preloading Surveys
- Representation in all main World Ports
- Legal Advice.
- Ship Managers’ Liability
- Cyber security – (see also: “INSURANCE” Chapters 8 and 8b).
- Ship Brokers Liability
Modern P&I clubs offer protection to Charterers and Brokers as well, by means of “Charterers’ Liability” and “Brokers’ Liability”
Cargo claims..Loss of or damage to ship..Pollution..Wreck removal…Personal injury
A charterer is usually responsible under a charter party for the loading, stowing, lashing and securing of the cargo…A charterer orders a ship to a discharge port. The ship grounds and becomes a wreck. Depending on the charter party terms, the charterer may face liability to the ship-owner for wreck removal, due to the unsafety of the port/berth…. for loss or damage to the ship, sustained as a result of the grounding… stevedores, or by the provision of “off-spec” bunkers… bunkers to spill, the charterer may face liability for the resulting pollution….TradersLiabilities can arise in your capacity as a cargo owner, as well as a charterer – e.g. you can be held responsible for clean-up costs or fines where your cargo causes pollution.
Charterers’ Liability as Cargo OwnerCover for P&I liabilities that a charterer incurs where he is also the owner of cargo onboard the ship. Commonly of interest to traders who may face liabilities as cargo owners…Charterers’ P&I War RisksExtends the cover for standard P&I risks to include War which would otherwise be excluded…. Charterers’ Liability to Hull…Liability for physical damage to and/or loss of the ship…Demurrage and/or loss of use and/or hire of the ship arising out of an incident for which the charterer is liable (e.g. damage to the ship)…Liability to owners for the ship’s proportion of…SHIPBROKERS’ CoverFor easy reference we quote the, just arrived, Press Release of Messrs. ITIC, (specialized in Shipbrokers’ cover):
Press Release: Broker liable for fixture error leading to damages in rising market. Date……..
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The first edition of the Register of Ships was published by Lloyd’s Register in 1764 and was for use in the years 1764 to 1766.Subsequently, Bureau Veritas (BV) was founded in Antwerp in 1828, moving to Paris in 1832. Lloyd’s Register reconstituted in 1834 to become “Lloyd’s Register of British and Foreign Shipping”…. Adoption of common rules for ship construction by Norwegian insurance societies in the late 1850s led to the establishment of Det Norske Veritas (DNV) in 1864. Later on, RINA was founded in Genova, Italy in 1861 under the name “Registro Italiano”, to meet the needs of Italian maritime operators. Six years later Germanischer Lloyd (GL) was formed in 1867 and Nippon Kaiji Kyokai (Class NK) in 1899. The Russian Maritime Register of Shipping (RS) was an early offshoot of the River Register of 1913…. developed a series of notations (at design) that may be granted to a vessel to indicate that it complies with some additional criteria which may be either specific to that vessel’s type or that are more than the standard classification requirements. As an example, there are ships classed as “Ice Class” which means that they are of a stronger construction, able to navigate and thus trade in ice areas.
The Class records are sometimes remarked with “NOTATIONS” and “RECOMMENDATIONS”. These are basically minor deficiencies not sufficient to stop the vessel for repairs or maintenance, but even in such a case, a time bar is given in order to make them good, or the repair must be made at the next port of call. In this way “detention” is avoided, but only for minor deficiencies that would not jeopardize safety of life at sea….The first open register was Panama in 1916. More than three decades later, in 1948, fear for political instability and high and excessive consular fees led the president of Liberia, William Tubman, to start an open register with the help of Edward Stettinius, Jr.. The World Peace of one of the pioneering Greek Shipowners, Stavros Niarchos, was the first ship in that register. In 1967 Liberia overpassed the United Kingdom and became the largest register. Flags of convenience, compared to the national flags of traditional maritime countries, accommodate lower standards for vessels, equipment, and crew. Often, they request classification societies to certify and inspect the vessels of their registry, instead of using their own shipping authority.
Today there are several Classification Societies, the largest of which are Lloyd’s Register, DNV-GL, Nippon Kaiji Kyokai, RINA and the American Bureau of Shipping….Classification Societies employ ship surveyors, material, piping, mechanical , chemical and electrical engineers, often located at ports and office buildings around the world….member of the IACS (International Association of Classification Societies). Certificates issued by the Classification Society on behalf of the flag country are also required for pumps, engines, and other equipment vital to the ship’s function… to inspect ships, oil rigs, submarines, and other marine structures and issue certificates on behalf of the state under whose flag the ships are registered.
IACS was established in 1968 by seven leading societies and in 1969 it was granted a CONSULTATIVE STATUS with IMCO (IMO after 1982).
As from 1972 IACS has a permanent representation to IMCO/IMO. It has today very special relations with IMO and remains the O N L Y non-governmental organization with OBSERVER STATUS which is able to develop and apply Rules…..
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Under Voyage Charter, whenever a Cargo Owner or a Charterer or a Contractor or an Operator (in any case called the Charterer) wishes to Charter a vessel. In fact, the Charterer requests the right to accommodate a pre-agreed quantity of a pre-agreed commodity aboard and to have it transported from a named port of loading to a named port of destination. The Vessel is employed for a single and specific Voyage, between one or more named Ports of Loading to one or more named Ports of Discharging. A specified quantity (or a range of it) of a specified (named and described) commodity (which we shall be calling “the cargo”), is agreed to be carried. (For instance, 50,000 up to 55,000 metric tons at Charterers – or at Owners’ option. Or, 50,000 metric tons 5% more or less at Charterers – or at Owners option.) The party that Charters the ship is called the “Voyage Charterer”. The remuneration is called “Freight” and it is agreed as an amount of money per ton or per cubic meter or per piece of cargo loaded, or as a Lump sum amount regardless to the quantity which will be finally loaded. The contract is called “Voyage Charter-Party”… By the term “Owners” we usually refer to the party that has the legal (by Ownership or by Contract) right to enter into an agreement for the transportation of goods by sea and to order the ship to perform in accordance to the terms and conditions of the contract. Such a party may be an organization officially registered to own the Ship or her Time Charterers or her Operators or any other party that retains the operational control of the ship…. By the term “Charterers” we usually refer to the party that needs to have a cargo transported. This contracting party – the Charterers – might be the actual Cargo Owners, or Contractors performing a COA, or Forwarders in the process of a multimodal transportation contract etc….Under a Voyage Charter, the Owners retain the operational control of the Ship and remain responsible for all the operating expenses (running or daily expenses) such as manning, cabin and deck stores, insurance, maintenance, repairs etc. Furthermore, the Owners pay for bunkers and lubricants. Other expenses for performing a voyage, such as port charges, extra insurance, eventual war risk insurance, taxes, dues, canal dues etc., are usually paid by the Owners, however, under specific agreements, may be shared or paid either by the Owners or by the Charterers. Consequently, under a Voyage Charter agreement, the larger part of the voyage costs is usually paid by the Owners, while the burden of the Charterers is the Freight and – in most cases – the Loading and Discharging costs (FIO)…. Under a Voyage Charter, the duration of the sea passage to reach the port(s) of destination is not affecting the amount of the agreed Freight. Consequently, if the ship delays on account of bad weather or due to delays in passing canals etc., the Charterers will not pay any extra freight. On the contrary, in case of serious delays in transit time, the Owners will have to prove that the reason for such delay was beyond their control…..The time needed in ports (loading / discharging time) is usually a risk, which the Charterers undertake (predefined Laytime allowed)… In practice, it is usually agreed that the Charterers guarantee the loading and the discharging time, by a fixed period of time called “Laytime”, alternatively it may be agreed……………
Cargo Owners. The Sellers or the Buyers of the goods.
COA, Contract of Affreightment. See also, “Contract of Affreightment”, in this chapter.
Extra Insurance: Extra insurance premium which may be charged by the cargo underwriters due to vessel’s age / flag / Ownership / Class. (Abbreviation: EXINS).
FIO – Free In Out – The Ship is free of loading and discharging expenses.
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Bulk-Carriers represent about one third of the world’s tonnage. As the name induces, a Bulk Carrier is intended to carry (usually sole) bulk / homogeneous cargoes such as iron ore, coal, fertilizers, grains and is rather intended for the Tramp Market, being unsuitable for liner service where various different commodities are booked.
The bulk-carriers market imposes a heavy influence on the other markets. One may say that this market is the barometer of the maritime industry.
Bulk-carriers are ships dedicated to one trade only and the operator should consider longer ballast voyages than they would with ships that carry various commodities.
The bulk-carriers are usually fixed on time charter trip or time charter period basis; nevertheless, voyage charter is quite often as well….The Tweendecker ship…are General Cargo ships, usually of 5,000-25,000 dwt, with two or sometimes three decks….geared with derricks and/or cranes. Cargoes such as bales, bags, or drums may be carried by the Tweendeckers. Cargo ships of this kind that have fittings to carry standard containers and have also retractable or hinged Tween decks (that can be moved out of the way) so that they can also carry bulk cargo are known as Multi-Purpose Ships. The Multi-Purpose Ships and the Tweendeckers are often referred to as Break-Bulk Ships because the cargo is loaded into and broken out of their holds piece by piece… Despite the fact that Multi-Purpose and Tweendeckers are ideal for liner service, they are also employed as tramps. Obviously, these ships can easily move from the Tramp to the Liner Market at least as far as their construction allows.The most frequent employment of the Tramp Multi-Purpose and Tweendeckers is for carriage of bagged / palletized and slinged cargoes such as cement, rice, sugar, fertilizers etc…The Container ships…are specially designed to carry standard size containers and are generally called Cellular Container Ships (having “cells” with vertical frames or guides where the containers are slotted). The larger part of the cargo-carrying capacity consists of containers carried on deck and in cells in the hold. Containers are lifted on and off with cranes and special equipment called “spreaders” and the ships are then called “lo/lo: lift on / lift off”. Containers are meant to be fast, operating within regular sailing schedules (liner ships). Nowadays, the Container Ships are high speed, sophisticated ships as they have to keep up with very tight schedules. Today, approximately 90% of non-bulk cargo worldwide is transported by Containers. It is estimated that 60% of value of sea transported goods are via containers. Economies of scale have dictated an upward trend in sizes of container ships in order to reduce costs and promote the world trade. As a result, modern Container Ships are designed to carry up to 22,000 TEU, while their length is a bit less than 400 meters, rivaling the VLCC (Very Large Crude Carrier) and VLBC (Very Large Bulk Carrier) ships….are either employed under long period time charter or owned by the large Liner Companies. Therefore, there is a limited number of brokers seriously dealing with the container ships and the container market, exclusively. In fact, the high cost for building container ships and the, almost, exclusive use of such ships under a liner trade, do not make this market attractive for the traditional Shipowners. Nevertheless, there are Shipping Companies which have long period contracts with Liner Companies and their fleet consist of Container Ships exclusively. The entry of more and more and larger containerships to the market has changed many things of global trade over the past few decades tremendously…….
Deck. A permanent cover with a hatch opening placed over a compartment of the ship or the hull.
 TEU. Twenty-foot equivalent unit. of 20’ x 8’ x 8’6’’
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According to English Law, an agreement governed by a Charter Party includes two types of terms. That is, the expressed terms and the implied terms which are implied by the law and although may not be expressly mentioned in the Charter Party, their impact on the chartering agreement is one of vital importance.
The terms of a Charter Party may be divided into: Representations. Descriptive terms, which are given during the negotiations of a chartering agreement and thus become part of the final agreement. Both the Owner and the Charterer are obliged to give accurate data. Breaking of this obligation is called misrepresentation. Depending on the intention of the party that is guilty for misrepresentation, there is the fraud and the innocent misrepresentation…..Conditions Terms of vital importance, violation of which, leads to the right of the Charterer or the Owner to repudiate the Charter Party and sue for damages. Such conditions may be the position (geographical) of the ship, the seaworthiness of the ship etc. As already mentioned, if the promisor breaks a condition the other party can, if so wishes, select to be released from performing any further obligation of the contract. This right of choice to repudiate or NOT to repudiate is also known as the “innocent party election.”…Warranties: Violation of warranties gives the right both to the Owner and the Charterer to ask for compensation rather than frustrate the Charter Party. A warranty is always an important part of the Charter party. Nonetheless, breach of a warranty does not justify repudiation of the charter party but gives the right to claim for damages. However, it is significant to understand that, depending on circumstances, a warranty might be “elevated” to condition…Innominate terms: There are contractual terms of a complex character, which, in accordance to the prevailing circumstances may be categorized as “conditions” or “warranties”. The importance and the complication are easily understood on the following case which was referred to:a) Arbitration. b) High Court.c) Court of Appeal. d) House of Lords.
Bunge Corporation v Tradax  House of Lords.
This case was about the sale of 5,000 tons of soya beans where the buyers were obliged to give 15 days’ notice of readiness for loading. This term was stated as a “condition”. The buyers gave a shorter notice (less than 15 days) and the sellers considered this as contract termination and claimed damages……..
The case that the High court referred to is the one here-below which is considered as a landmark for English contract law. This case introduced the concept of innominate terms, as a category in addition to “warranties” and “conditions” :
“Hong Kong Fir “Shipping v Kawasaki Kisen Kaisha  Court of Appeal
The ship was in 2 years period charter and it was stipulated that she should be “seaworthy” for the whole period of hire. The problems started with the engine which caused an off-hire of 5 weeks and an additional 15 weeks later. The Charterers considered this as a breach of condition and cancelled the contract……..
Both the Owners and the Charterers may be relieved from the obligations that arise from a Charter Party agreement under specific conditions. A Charter Party may be frustrated (cancelled) in case of delay, impossibility of performance, subsequent change in the law, force majeure etc. The conditions, which might relieve both parties from their obligations without further consequences, are very strict. Frustration……
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Clause 1 (Duration/Trip Description) There is a distinction between “trip” and “period” charters. Five months period is considered as TRIP, whereas longer duration is considered as PERIOD in which case the four sub-clauses, of Clause 52 are applicable. These four period charter clauses are:
(a)On the last voyage before redelivery it allows a Charterer to maintain the terms of the charter party, at the same hire rate or the prevailing market rate (whichever is higher), in case that the last voyage duration exceeds the stipulated charter period..…(b) Owners will have the option, as usual, of dry-docking the vessel during the currency of the charter party… (c) Charterers, as usual, have the option to add any “off-hire” time to the charter period….d)Charterers, as usual, may fly their own flag, and paint the vessel with their own colors and markings…..It also stipulates a NAABSA provision (Not-Always-Afloat-But-Safely-Aground) giving this option to the Charterers to order the vessel in a port where she lies safely aground during loading and discharging without suffering damages. If vessel is damaged, to be repaired at the entire time and expenses of the Charterer. This is, of course, subject to suitability of the vessel to lie aground, and it is valid ONLY if specific areas or ports are here declared, otherwise this option is NOT applicable….On the safe port we shall have to remember the recent final judgment of the Supreme Court (May 2017) in the long running matter ofthe “Ocean Victory”on claims for breach of “safe port” warranties….The “OCEAN VICTORY” was a Caper demise-chartered to Ocean Line Holdings Ltd. The vessel was then time-chartered to Sinochart, who finally sub-chartered the vessel to Daiichi. On 19/10/2006 the vessel arrived off Kashima, Japan, to discharge her iron ore cargo. But shortly the weather began to deteriorate, and the berth was affected by “long waves”. Then vessel departed, still partially loaded, because it was considered unsafe to remain at the berth. On sailing, the vessel encountered heavy weather and ran aground and broke apart on 24/10/2006 with about US$170 million of losses….Clauses 2 and 4 (Delivery/Redelivery and notices)The vessel must be presented seaworthy with clean holds and in every way fit to be employed for the intended service, complying also with the relative STCW requirements….The obligations for most accurate information for delivery and redelivery of the vessel have been increased. It is an obligation to inform the other party of vessel’s “itinerary” together with the approximate and then with the definite notice of arrival at port or place of delivery/redelivery….Clause 3 (Lay days/Cancelling) In case of delay the Charterers, as always, have the option of cancelling the Charter Party. On the question “WHEN?” it seems that the clause is vague since it reads “. not later than the vessel’s Notice of Delivery”. If we read carefully Clause number 2 (Delivery) we can see that there are three different “Notices of Delivery”. Namely the “approximate”, the “definite” both on Line 53 and the so called “… when the vessel is in position to come on hire” on line 58. We then SUGGEST that when drafting/negotiating the cancellation point, to make it crystal clear and avoid later dispute…..Clause 4 (Redelivery) which clarifies that after Charterers first notice of redelivery, they can only instruct the ship for employment which can reasonably be expected to allow redelivery on or before….. reverse the problem created by the “ZENOVIA”  which stands as follows:
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Clause 2 Charter period. Having agreed the charter period, the parties are asked to agree for an additional period, at Charterers’ option. The duration of this optional period and the relative charter hire, together with the latest date by which the…..
Clause 3 Delivery. The obligations of the Owners in relation to the condition of the vessel on delivery is now absolute and they must deliver the vessel in a seaworthy condition and, in every respect ready for the charter service (instead of only “exercising due diligence”)…. The only important difference in repairs or renewal arising out of “Latent defects” is that its meaning is now defined in Clause 1 as: ” A defect which could not be discovered on such an examination as a reasonably careful skilled person would make”.
Clause 6 Familiarization a new clause allowing the Charterers to “place a maximum of two representatives on board the Vessel at their sole risk and expense” for “a reasonable period prior to delivery of the Vessel”. The Charterers and their representatives are required to sign “the Owners’ usual letter of indemnity prior to embarkation”.…Clause 7 Surveys on delivery and redelivery. Another new protection is the option of the Charterers (on delivery) and the Owners (on redelivery) to arrange for an underwater inspection, to be performed by a diver approved by Class and in the presence of a Class surveyor, in order to determine the condition of the rudder, propeller, bottom and other underwater parts of the vessel.
Clause 13 Maintenance and Operation. An essential feature of bareboat charters is the obligation of the Charterers to maintenance and operation of the vessel. But due to increasingly regulatory environment that ships are to comply with, clause was
amended to clarify the costs for the parties for compulsory new legislation. In the event of any structural changes or new equipment becoming necessary for the continued operation of the vessel by reason of new Class requirements or by compulsory legislation, the cost of compliance must be determined.
The parties have to decide either that: All such costs are for Charterers’ account (the default), or In case that the amount …stated in box 21, (instead of “reasonable distribution”) ….Clause 15 Hire.With reference to the punctual payment of hire, the well-known words ‘in respect of which time shall be of the essence’ have been removed and now it is provided a specific grace period of three banking days…..Clause 17 Insurance. By the UK Supreme Court decision in the “Ocean Victory”, the insurance provisions in BARECON 1989 was scrutinized and held that the bareboat Charterers had no liability to the Owners in circumstances where the insurance covered the claim….
Clause 19 Total Loss. In clause 1 the meaning of the “Total Loss” was added and paragraph (a) provides that “The Charterers shall liable to the Owners by way of damages if the vessel becomes a total loss”…..Clause 28Anti-corruption. Based on Bimco’s relative clause properly modified to fit this charter, it deals with the unlawful demand for gifts. It requires the parties to comply with “all applicable anti-corruption legislation”….Clause 29 Sanctions and Designated entities. This clause is also a properly modified Bimco clause, and deals with the sanctions, restrictions and prohibitions imposed by U.N., E.U. and U.S.A. to persons, bodies or vessels….Clause 31 Termination. The word “withdrawal” was thoroughly substituted by the “termination” as more appropriate…Clause 33 Bimco dispute Resolution Clause 2017. Singapore is now included in places for Arbitration and Mediation…. Deleted from Previous Form: “War” clause was deleted, so …….
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The BIMCO committee for “Bunker Terms”, consisted of representatives of many fields of the shipping industry. The bunker community was represented by three major Bunker Traders, the Shipowners….several observers, including…. it should be mentioned that the previous (2015) Terms were considered as ‘buyer friendly’……
The UK Supreme Court decision on OW bankruptcy Test Case “Res Cogitans”, imposed the need for a contractual solution / protection against the consequences that followed i.e. double payment by buyers…..The volatility of the market together with the great variety of contract terms around the world are causing uncertainty, extended contractual negotiations and possible disputes. Therefore, the target of 2018 terms is the protection from the risks that “OW case” enacted…..provisions for WHEN the bunkers must be delivered, both in situations when the vessel is READY TO RECEIVE fuel within the agreed time as well as WHEN SHE IS NOT….In terms of payment, the default credit period is 30 days, which is the usual market practice. To eliminate the credit period altogether is considered unrealistic, given that the bunker industry is financed by US$ 10-20 billion today…. A serious oversight of the previous (2015) Terms was the non-existence of a maximum limit of the parties’ liabilities. This point is invariably negotiated and included in bunker contracts….. includes a default limit of the INVOICE VALUE or US$ 500,000, whichever is higher. The US$ 500,000 is just a default minimum figure of course negotiable by the parties, whenever necessary….important changes are the use of the “Confirmation Note” and the “Election Sheet”…. is not a “take it or leave it” style document but a template that allows parties to spontaneously stipulate their preferences.
Clause 2 – Specifications/Grades/QualityRefers to the specifications, nominated by the Buyers, agreed and stated in the “Confirmation Note”, which must be basically comply with the ISO Standard 8217, unless otherwise agreed…..Clause 3 – Quantities/Measurements…. witness of Buyers’ representative, quantities are to be measured from official GAUGE or MANUAL sounding or METER of the Bunker Tanker, or SHORE METER, in case of ex-warf delivery. If local regulations apply mandatorily, then they will prevail…..Sealed, labeled, stamped and signed samples (minimum 5) to be taken at a point mutually agreed closest to the ship’s manifold according to IMO Guidelines. Sellers to retain their samples (two), for minimum 45 days. Vessel to keep the rest three (one is for Marpol purposes)….delivered at any time day or night SHINC with 72/48/24 hours NOTICES. Buyers also to declare “TIME and LOCATION” of delivery, which Sellers have to confirm and deliver within SIX hours. If time is not confirmed the Sellers to deliver within TWELVE hours from vessel’s readiness. Sellers to have in possession….Master to acknowledge in writing the “Pre-Delivery” Forms, signed by the Sellers and containing all information required by ISO 13739 (viscosity, Sulphur content, density etc.)
On completion of delivery Master to sign the “Bunker Delivery Note” (BND) with all information as required by ISO 3675/8754, together with his REMARKS or the LETTER OF PROTEST (LOP), if any…The price agreed is only valid if the vessel arrives within the defined Delivery Period, and the Sellers may revise the price in accordance with the prevailing market level if…. credit period is of 30 days, within which payment should be made unless it is otherwise agreed in the Confirmation Note. Payment must be made in full without any deduction and “PAY DAY” is considered the “CREDITED DAY”…. Quantity claims which noted as a remark in the BDN (Bunker Delivery Note) or in a separate Letter of Protest at the time of delivery must be presented to the Sellers within 14 days from the date of delivery.
An operational tolerance of +/- 2 per cent is stated as realistic in relation to the delivered…..PERMISSION TO CONSUME the delivered bunkers for propulsion of the vessel…………
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In tramp shipping, the main document covering the contract of carriage is the Charter Party. In view of the fact that the Bills of Lading are basically proof for the contract of carriage, but they may also be considered as a contract of carriage itself, care should be taken so that the two documents are not contradicting…Bills of Lading and the Letter of Credit…Shippers, Receivers and Traders, are (all of them) part of the commercial deal which leads to the need to perform a sea transportation. Their involvement in the chartering deal is realized through the Bills of Lading…Defining the type of Bill of Lading that will be used and the remarks that can or should NOT be inserted in it is one of the main arguments, which arise each time that chartering negotiations take place.The Charterers are obliged to request and impose, during negotiations, that the indicated by the L/C terms and conditions, are inserted in the Bs/L…In Tramp trades and when we use “Charter Party Bills of Lading” the following clause (No.1) is also inserted at the beginning of the “Conditions of Carriage”: “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated”………
The characteristics that give high commercial value to a bill of lading are the following:
- It gives control of the goods for both the carrier and third parties.
- It is a receipt for identified goods by the party undertaking the responsibility for their carriage.
- It establishes the apparent condition of the goods by the time that they were received for carriage.
- It proves that the goods are under carriage.
- It establishes proof of contract between the holder of the document and the carrier…..
The attempts to use Electronic Bills of Lading is NOT NEW. The solution was not easy because the legal obstacles are difficult to overcome.
The Comite Maritime International (CMI) developed the Rules on Electronic Bills of Lading (the “Rules”1990) to overcome various problems with paper bills of lading in complex shipping transactions…they do NOT aim to substitute national law provisions on bills of lading. To make use of these rules, Shippers and Carriers do not need to ‘be members of a club’ or pay registration fees but only require the necessary technology to transmit messages to each other…The well-known system called SWIFT which is the global provider of secure financial messaging services is in common use by the banking industry for the communication of commercial letters of credit to and from banks worldwide. A bill of lading, issued in electronic format, will comprise an electronic bill of lading regardless of the system under which the document was issued. The major initiatives in this area have been driven by the United Nations and the International Chamber of Commerce. The UN created the UNCITRAL Model Laws on Electronic Commerce and Digital Signatures, both of which now form the basis for legislation throughout the world.The ICC has defined e-terms and the eUCP to facilitate greater adoption of electronic commerce in international trade….The United Nations established the Model Law on Electronic Commerce in 1996 to enhance the use of paperless communication….UNCITRAL identified several legal aspects important to electronic communications such as: the legal value of computer records as evidence; the requirement of writing and the electronic transmission of bills of lading so that a receipt in electronic format to have the same effect as a paper receipt, being prima facie proof…appropriately fulfills the function of a receipt, with regard to the use of electronic bills of lading…A written document, accurately reflecting the Evidence of the Contract of Carriage is accepted as proof of such contract, so the same would be applicable to data messages. As Document of Title that is negotiability or transferability of an electronic bill of lading it states:
“If a right is to be granted to, or an obligation is to be acquired by, one person and no other person, and if the law requires that, in order to effect this, the right or obligation must be conveyed to that person by the transfer, or use of, a paper document, that requirement is met if the right or obligation is conveyed by using one or more data messages, provided that a reliable method is used to render such data message or messages unique.”………
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It is true that most Charter Parties contain clauses for arbitration while Bills of Lading may vary. Namely the most used Bills of Lading issued by Bimco, the “Congenbill 2007” and the Conlinebill 2000”and the REVISED EDITIONS OF BOTH IN 2016, have different approach….An Arbitration clause should define both the applicable law and the rules governing the procedure . During chartering procedures, the parties usually pay serious attention to the arbitration clause, which is negotiated to meet their expectations. Although the nature of the clause may differ from agreement to agreement, there are basic elements that should be a part of every arbitration clause as follows:
The location where proceedings will take place…Law which will govern and construe the agreement ,
Rules under which the arbitration will be conducted….
In Litigation usually a proceeding will be channeled through three layers of courts. The judgment at “First Instance” that may be appealed to a “Court of Appeal” and then to a “Supreme Court”. The cost of a court proceedings may be considerably high due to court charges, counsel’s fees, interest losses and losses due to inflation connected to the long period involved from appeal to decision, etc. Nevertheless, a quick decision is always preferable to any form of compensation for losses that may occur due to a long lasting one….arbitration is regarded as faster, less expensive and for several reasons the parties prefer that the procedure is not of a public character. Additionally, Arbitrators may be and should be persons with knowledge and experience in the aspect for which they are called to arbitrate….it must be noted that the Rules state that the awards issued “are enforceable and NOT subject to appeal”……as per C/P each party nominates one arbitrator, and usually the arbitrators, in case of disagreement jointly appoint a third arbitrator or an umpire. In case that the arbitrators do not agree, the umpire will have the casting vote…… an arbitration award may not be appealed, except on formal grounds, for instance, in case of bribing or if other serious discrepancies are proved.
In practice, an arbitration award winning party may find that such award may not be fruitful because the other party does not actually have the means to pay… Enforcing arbitration awards between different countries may prove problematic. A winning party may meet difficulties… The “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”, New York, 1958 (commonly called the “New York Convention“which entered into force on 7 June 1959) is the most accepted….How Mediation works.Statistically, mediation proved to be successful in terms of speed, cost saving and final settlement. In the USA, where mediation has been established for longer than in the UK, it is estimated that 75 to 85 % of all mediations are fully settled. It is unsurprising therefore that mediation is increasingly the most suitable method of efficiently and economically resolving maritime disputes too…. the parties to a dispute employ the assistance of a mutually accepted, suitable and (NOT necessarily legally qualified) neutral third party to act as a mediator, whose job is merely to assist in negotiations in one of two ways, i.e. a facilitative or evaluative manner. He must, in facilitative manner, have a good knowledge of the facts of the dispute and try to highlight the various obstacles for successful settlement. Whereas in evaluation he has a more challenging task of attempting to induce the parties to concentrate …A preliminary communication with the mediator should be held to decide on place and time of meeting, the documents submission, the question of expert attendance and the confidentiality… the mediation is NOTBINDING, and that the mediator is not a judge…. but the process may result in a settlement a month or sometime later with or without the assistance of (the) mediator. That is because during the meeting both parties realized the weaknesses of their position and the strengths of the other party.
A successful Mediation should:Include the actual decision makers since an agreement is more likely to be reached when their lawyers are not in the room…..Target of the parties must be resolving their dispute – not to “WIN”…..A Mediation may save a lot of time and money.
Of course, ADR will not be always appropriate, and some cases go to Court when points of legal significance are involved, but these cases are rare whereas Mediation is flexible and informal leaving room for creative solutions
“Executive Tribunal” (or “MINI-TRIAL”) is a more formalized version of mediation. It is a process that the parties themselves become a tribunal.The panel generally consists of three members – a Management Executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator
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Under a voyage charter, the first offer to commence firm negotiations (firm offer) will usually contain the following details:
The Ship’s name & particulars (Description).Name of the Shipowners/Managers (full style) – not compulsory on this stage -Name of the Charterers – if known – alternatively a subject for the “Charterers to be approved by Owners”.Cargo quantity and description of the commodity and ..….
Demurrage and despatch rates.Freight rate and conditions of payment (when-where-how)…..
Other data that might needed for a specific order.Subjects – If any.
Under a time charter the offer usually contains the following details:The Ship’s name and detailed particulars (T/C Description).Name of the Shipowners/Managers (full style) ……
Place of delivery and redelivery.Date for delivery including canceling date.
- Intended trade and trading limits and other exclusions from the Owner’s side.Hire, what the hire includes (for example: crew overtime), additional payments such as intermediate cleaning of the holds and of course, when the hire it is payable …..Subjects – If any.
After offering firm the Owners are committed in accordance with the terms offered until the time limit has been expired ….A counter offer is practically a rejection of the previously communicated firm offer, which then acts as a new firm offer allowing the opposing party to either accept as a whole, decline it partially (thus making a new counter offer)….By countering on accept / except basis (a/e) the parties seek to avoid repeating long messages which include all the points that form an agreement. Instead they only reply on the points on which they disagree and wish to negotiate further. The points not mentioned on an accept / except counter are the points on which the parties have already agreed upon. Obviously, the counters exchanged at a later stage of negotiations, contain very few points and compared to a firm offer or to the 1st counter offer are usually very brief (short) messages. The reply to a firm offer (the counter offer), usually, commences as follows:Charterers Accept Owners’ offer, except… for reply within …orCharterers A/E for reply within…. followed by the terms that Charterers wish to change. It is obvious that this method is followed whenever Owner’s firm offer is accepted in parts, while some terms are subject to further negotiation. In such cases, the parties agree upon a number of terms and they are further negotiating on the remaining points….orCharterers Decline Owners’ offer and offer firm as follows…. For reply within…orFor the Sake of Good Order, Charterers Decline Owners’ offer and offer firm as follows…. for reply within…However, it is not unusual to receive a reply like the one that follows:Charterers Decline Owners’ offer without Counter.
In such a case, Charterers find the Owners’ offer to be completely unacceptable and they find it pointless to continue negotiations. Consequently, the negotiations are terminated. A “decline without counter” may be exercised by any of the parties during any stage of the course of negotiations if one or more points which they negotiate are unacceptable yet not possible to be changed.
In any case this way of “ending” negotiations should be treated with care and to be exercised only if no alternative is possible, otherwise it might turn out to be un-ethical or not in accordance with common shipping practice.
Charterers’ reply (that is, the counter offer) is usually “firm” and is given with a time limit within which the Owner has to revert with an acceptance or a counter (usually a counter). Sometimes when it seems that negotiation is going too far, and one step before failure, one party is giving a final chance to the other party by stating that this counter is on a “take it or leave it” basis. This, then, means that there is no more room for negotiation and that “fix NOW or forget”
The description of the ship is different in the Voyage Charter and the Time Charter. The so-called ‘time charter description’ is very detailed/accurate, and includes speed, bunkers consumption etc.
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“Approvals” of tankers by the Major Oil Companies, is a very common and wide spread practice in today’s oil transport market. By this process the oil majors determine whether a vessel is suitable to be chartered based on the information available to the company. Tanker Owners often seek to maintain as many written approvals of their vessels from oil majors…. Charterers and it is something which Charterers, Traders, Buyers etc. frequently demand……This stemmed from the reluctance by oil majors to commit themselves in advance following the problems caused by pollution incidents of ”Erica” in 1999 and the ”Prestige” in 2002. Express approvals obtained only for specific voyages.
- Crude Oil Carriers. In 1950’s (till late 1970’s) there was a tendency towards larger tanker ships. As a result, VLCC‘s and ULCC’s were ‘born’. These ships are mainly used for the carriage of crude oil.
Product tankers, usually in sizes between 35,000 and 70,000 tons dwt. The standard Handy size of a product carrier is 35,000-37,000 tons dwt, whereas the Handymax is about 45,000 tdw.
- Coasters: Smaller tankers performing a coastal trade.
- Aframax: A medium-sized crude tanker of 80,000 to 120,000 TDW. AFRA is derived from Average Freight Rate Assessment.AFRAsystem was created in 1954 by “Shell Oil” to standardize contract terms. Its average cargo carrying capacity is approximately 750,000 barrels. Due to their…….
- VLCC: Their weight extends from 200,000 to 325,000 dwt; with an approximate capacity of 2,000,000 barrels of oil equal to about 320,000 cubic meters or about 318,000 metric tons………Offshore Vessels (Drilling/Supporting/Assisting)A drillship is a vessel designed to be used in exploratory offshore drilling for oil and gas wells. They are used in deep-water and ultra-Deepwater of up to 12,000 feet depths today (2018), although their first drilling was back to 1957 at a depth of only 400 feet. They are equipped with the most advanced dynamic positioning systems of “DP-3”in order to be kept most accurately in the same position at any weather condition. They are also equipped with drilling rig and their own propulsion machinery….PipelinesThe most convenient way to move oil overland is to pump it through pipelines. Crude oil pipelines are generally large in diameter and pumping stations built at regular intervals along the line ensure that the oil is kept moving at around five miles per hour.Pipelines are also used to transport gas. Some of them transport quite remote gas production to markets where it is consumed, for example, the trans-Siberian gas pipeline is over 5,000 km long. There are very many pipelines around the world under design or construction like those in Middle East area and from Russia to Europe, however there is a prominent one crossing the Canada/U.S.A. Borders, as follows: The Keystone XL Project is a proposed 36-inch-diameter crude oil pipeline, beginning in Hardisty, Alberta, in Canada and extending south to Steele City, Nebraska, and farther southern direction for refining and exporting oil to Atlantic basin…Dirty Tankers East of Suez… Commentary : New York (Platts)–27Feb18/0745 pm EST/ 0045 GMT
Sentiment stayed soft in the Asian VLCC markets as fixture rates were rangebound at the current year lows, market sources said Tuesday… The vessel deliveries are the highest in two years…. In fixtures heard, Chevron placed the DHT Sundarbans on subjects for a PG-USWC voyage, loading March 15, at w29 basis 280,000 mt. S-Oil placed the Maran Cygnus on subjects ………The London Tanker Brokers’ Panel Ltd is an independent and impartial authority which provides a variety of rate assessments. It also publishes monthly average freight rate assessments (AFRA) which are available on subscription.
The Panel consists of Six of the most experienced tanker brokers:
- Clarksons Platou
- E A Gibson Shipbrokers
- Simpson Spence Young
- Braemar ACM Shipbroking
- Howe Robinson PartnersEstablished in 1953, it provides current and historical rate assessments but NO forecasts of future rates………….
Very Large Crude Carriers. Oil tanker ships between 200,000 and 300,000 dwt.
Ultra Large Crude Carriers. Oil tanker ships of 300,000 tons dwt or more.
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1: SHIPYARD EVALUATION
2: CONTRACT REVIEW…….
8: CLAIM HANDLING………
In practice, shipbuilders around the world presents to the prospective buyers their standard contract. In the 1960’s, the most often used standard contract was drafted by the Shipbuilders’ Association of Japan (the “SAJ Form”)… a standard form was drafted jointly between the Norwegian shipbuilders and Shipowners, the latest edition of which is the “2000 Norwegian Standard Shipbuilding Contract” or in short “SHIP 2000”.
.A most delicate point of the usual forms is the “consequential damage”…The Norwegian form “SHIP 2000” imposes liability for consequential damage to other parts of the vessel, provided that: ………
A typical procedure in concluding an S&P deal is the following:
The Sellers avail their ship for sale by contacting one or more S&P brokers and informing them about their intention to sell their ship(s).The prospective buyers, contact their S&P brokers, expressing their intention to buy a certain type of vessel(s) or that they intend to invest a certain amount. In this case the broker may propose, for example a 30,000 tdw bulk carrier of 10 years old, or alternatively at the same price a 45,000 tdw bulk carrier, but 16 years old, or even a larger vessel with a “due” special survey…….
An initial EXTENSIVE firm offer submitted to the Sellers, through prospective Buyers’ Brokers may be like this:
WE ARE AUTHORISED BY A COMPANY TO BE NOMINATED BY………………..
TO OFFER YOU FIRM FOR M/V.…AS DESCRIBED FOR REPLY HERE BY….NEW YORK TIME:
- PRICE USD ……………….CASH ON DELY.
14.THE PRICE, TERMS AND CONDITIONS OF THE SALE TO BE KEPT STRICTLY
PRIVATE AND CONFIDENTIAL BY ALL PARTIES CONCERNED. HOWEVER, SHOULD THE DETAILS OF THE SALE BECOME KNOWN OR REPORTED IN THE MARKET, NEITHER THE BUYERS NOR THE SELLERS SHALL HAVE THE RIGHT TO CANCEL THIS CONTRACT.
END OF OFFER
Pre-purchase inspections are usually assigned by the Buyers to individuals or companies which after physically examining the ship (always in conformity to the agreement between Sellers and Buyers), draw a detailed survey report. Figure 40: Example Pre-Purchase Survey Conclusions…..
As soon as the deal is concluded a so-called ‘Memorandum of Agreement’ (MOA) is signed by both parties. The most common forms of MOA are: a. the Norwegian “SALEFORM 2012” or 1993 (NSF)…Bill of Sale is nothing more than a formal documentary transfer of Ownership of goods…..
After concluding an S&P deal of a second-hand vessel and simultaneously with her physical delivery from seller to buyer, a pre-agreed list of legal documents is exchanged. A good example of such list is clearly specified in Clause No 8 of the Singapore Ship Sale Form (SSF2011):….LEASING Another common way of financing ships’ acquisition is the “leasing structure”, a popular and well-tested concept among airlines and other aircraft operators. The two most common types of leasing are the Operating Lease and the Finance Lease……
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Voyage estimations are usually carried out during negotiations and their target is to help the decision makers to decide among alternatives… There are two main elements, which should be considered. That is time and expenses. None of them is 100% predictable, especially time. Some elements are somehow predictable (ship’s bunkers consumption per day / speed under smooth seas / disbursement accounts before overtime / taxes etc.), while others are difficult to foretell (weather conditions / ports’ congestion etc.).
Factors to be considered: Apart from the actual “income minus expenses” result, there are other factors that indicate and affect the decision to accept an employment, some of them being the following:The prevailing market…The trends of the market…. The position of the ship at the end of the employment…The type of the ship…The actual condition of the ship in connection with the voyage to be performed and the cargo to be carried….The schedule for maintenance… Distance to be covered…Quantity of cargo…Type of cargo….Specific terms and conditions that may positively or negatively influence the costs…The actual or the expected condition of the ports of Loading and Discharging….Expectation for demurrage / dispatch…Know Your Client (KYC) and Counter Party Risk (CPR)
Tanker Voyage EstimationWorldscale Rate: All rate calculations, which are made in USD are per ton for a full cargo for the standard vessel based upon a round voyage from loading port or ports to discharging port or ports and return to first loading.All of the factors shown are purely nominal and for rate calculation purposes only. In particular, the fixed hire element of USD 12,000 per day is not intended to represent an actual level of operating costs, nor to produce rates providing a certain level of income or margin of profit, either for the standard vessel or for any other vessel under any flag.
Standard Vessel75,000 tons, Average service speed 14.5 knots, Bunker Consumption Steaming55 380cst tons per day, Purpose other than steaming 100 tons per round voyage, In port5 tons for each port,
Despite all above, in today’s daily practice AND ESPECIALLY WHEN A VESSEL IS SPOT, we encounter the problem of comparing two or more proposed orders, different in quantity, stowage factor, loading/discharging rates, port call expenses…
For example, our vessel, a 12,650 toner is open in the Black sea and we are proposed the following two orders both on vessel’s dates.
First order is for about 12,000 mtons bulk wheat, stowing about 46’, Constanza/Rotterdam, 2000 tons load rate and 4000 tons discharging rate, with Charterers’ ideas of freight Usd 20/mton fiot.
The second order is: 6-7,000 mtons sunflower seeds in bulk stowing 90’, Odessa/London with 1500 tons load rate and 1800 tons discharging rate, with Charterers’ freight ideas Usd 38/mton fiot.
The question is: which one, we as Shipowners, to choose and immediately concentrate on…………….
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The time during which a ship is laying, for loading or discharging as well asthe time waiting for commencing loading or discharging, is called Laytime…is often agreed as a pre-defined period within which, loading ordischarging operations should take place and complete. In case that operations exceed the agreed period (Laytime), the Shipowners are allowed toclaim “demurrage”. Otherwise, in case that operations are completed beforethe expiration of Laytime, it is often (but not always) agreed that the Charterersare allowed to…
a. Documents needed for calculating the Laytime…Statement of Facts…Notice of Readiness…Charter Party…Having collected all….documentsthe so-called “Laytime Statement” or “Laytime Analysis” or “Time Sheet” and eventually the “Demurrage or Dispatch Invoice”, will be drawn, in order to claim the amount that results from the calculation….example, the agreement might be the following:
5 WWDaysL/D’…Time Allowed = 11 days…The Laytime may be agreed as a. Reversible b. Non-Reversible…Any excess of this limited time may – under conditions – entitle the Owners to claim compensation in form of “Damages for Detention”…Under Liner Terms in Tramp Ships chartering, the Carrier will have to pay the loading and/or discharging costs. (Stevedoring etc.)…The usual terms governing the excluded and the included periods of Laytime are thefollowing:SHEX…SatSHEX…FHEX …SHINC…FHINC…WWD…
EIU…UU…HTAUTC …“Arrived” Ship“JOHANNA OLDENDORFF”1973…Port / Berth Charter Parties…time commences counting as soon as the ship is in a “SPECIFIC” berth of A PORT and a valid Notice of Readiness is tendered; consequently, all time lost in anchorage waiting for berth due to congestion, does NOT count as Laytime. In the opposite case, that is in a “PORT” Charter Party, the ship may tender the Notice of Readiness as soon as she arrives in the usual waiting area of the port…”HAPPY DAY” 2002… the master will advisethe shippers or receivers, by tenderinga NOR.The notice of readiness declares:The warranty of the master of the ship that she is arrived and, in all respects, ready to load or discharge, The port of arrival, The time that she arrived
Demurrage: A pre-agreed amount of money, usually calculated per day or pro rata, payable by the Charterers to the Owners as compensation for exceeding the time allowed.
WWD, Weather Working Days.
L/D is the common abbreviation for Loading / Discharging
Damages for Detention is usually calculated at the same amount of the agreed rate of Demurrage (if any).
WIBON whether in berth or not
 WIFPON whether in free pratique or not
 WICCON whether in customs clearance or not
WIPON whether in port or not
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To set up a long-term strategy, one needs to get both the information related to the “battle field” and the historical data of previous “battles”. The sources of information are unlimited. However, there are sources of bona fide and sources that spread speculating and misleading pieces of information. Some sources of information, such as market reports released by Ship Broking houses, are often accurate and solid. However, there are other sources, such as “gossiping” or “internal information”, that can be either useless or priceless…Baltic Dry Index (BDI)…Evaluating the risk before reaching agreements and before setting up strategies is of highest importance for the contracting parties. This rule applies to all types of agreements like, short-term contracts i.e. voyage charter, long-term contracts i.e. long period time charters, purchase of ships, sale of ships, scrapping etc…Time risk…
there are terms and conditions that are related to time…weather conditions both in port and at sea are a high risk which, at least for one of the contracting parties, may not be recovered and remain a cost that is not easily predictable…
Financial risk.In many instances a charter party….gives birth to various claims and eventually financial losses…As a result, both Charterers and Owners are interested to set up strategies that will give the best results between cost or income and risk…Ship-management Strategies…Voyage Charter or Time Charter?…Ship purchasing Strategies. Deciding the purchase of new buildings versus second hand ships, deciding the type and size of the ship(s) to be purchased as well as deciding the time to renew fleet, or sell, or to scrap is part of strategies that are based on sophisticated business plans…
Scrapping has always been an alternative in getting fast cash in order to get the opportunity to re-invest in modern ships…In the past, lay-up was an alternative to the high losses of a dramatically low freight market. However, nowadays under the prevailing strict rules, the cost of lay-up reduces this alternative from being an applicable choice…Many Ship-Owners have decided to invest in more than one field and their fleet consists of tankers, dry cargo ships and/or containers, reefers etc… Another way for exploitation for a Ship-Owner is the Shipping Pools… Nowadays there are even more tools offered in order to eliminate risk, such as Hedging and Freight Derivatives,
freight rates…FFAs are built on an index composed of a shipping route for tanker or a basket of routes for dry bulk and contracts are traded ‘over the counter’ on a principal-to-principal basis and can be cleared through a clearing house…“Container Freight Swap Agreements” are financial futures contracts that allow for hedging against the volatility of seaborne, intermodal container box-rates…Shipping is a derived demand…the freight depends on the quantities to be transported VS the available tonnage…the shipping market is unpredictable and volatile…needs deep knowledge of the market and above all sharpness, readiness, dedication and talent…no secret recipes that lead to successful strategies……….