1. SHIP MANAGEMENT PRACTICES
Netherlands Maritime Institute of Technology By Dr. Mansor Abdul Rahman

2. SERVICE OF CONTRACT

3. Freight?
Reward payable to the carrier for the carriage and arrival of goods ready for delivery
Dependent on dd and ss factors
Freight is affected by:
Direct competition between carriers e.g on same route
Competition of substitutes
Competition by other modes
Elasticity of demand for shipping svc

4. Factors Influencing the Formulation of FRate
Ship specification and type
Type of cargo to be carried, value/characteristics
General market conditions on ship availability
Daily cost to be borne by the charterer
Duration of the charter
Terms of the charter
Definition of cost to be borne by charterer and shipowner

5. Factors Influencing the Formulation of Freight Rate..cont
Cost of survey: charterer’s or owner’s?
Urgency of the charter
Convenience for shipowner e.g termination of charter at a place with a strong demand for shipping
The amount of space stowed in the ship
Cost of handling the cargo/movement
Possibility of getting the return cargo
BIFFEX criteria (Baltic International Freight Futures Exchange)

6. Imposition of Surcharges
Bunkering or fuel surcharge . Shipowners are not prepared to
absorb the variation in fuel prices
Currency surcharge. Fluctuation in exchange rate
Heavylifts surcharge. Raised on indivisible consignment
For livestock and dangerous classified cargo
special rates apply to show that additional
facilities provided by shipowners to handle
the traffic

7. Types of Freight
Advanced Freight-payable in advance. Extensively used in liner
cargo trade and tramp
Lump Sum Freight-Payable for the use of the whole or portion
of the ship
Calculated on the actual cubic capacity of the ship offered
Payable irrespective of actual quantity delivered
Dead freight-damage claim for breach of contract e.g claim for unoccupied space

8. Types of Freight….cont
Back Freight - freight charged for the return of cargo delivered to a destined port but refused on arrival
Pro-rata freight - arises when the cargo carried only part of the way and unavoidable circumstances make it impossible to continue with the journey
Ad Valorem freight – freight charged on the percentage of its cargo value

9. Market Pricing
Today, market pricing has been widely used by shipowners
Market pricing= determined by market demand and supply forces
Objectives:
Maximising cash flow
Attain high load factor
Stimulating market development
Improving profitability levels

10. Market Pricing…cont Features: Maximising cashflow
ship capacity utilization is maximized
Facilitate development of trade and encourages balance of
trade
Improve competitiveness of service
Optimize use of resources and infrastructure e.g port facilities
Improve profitability

11. Charter Party
“A contract whereby a shipowner agrees to place his ship, or part of it at a disposal of a merchant or other person ( the charterer) for the carriage of goods from one port to another on being paid freight”

12. Types of CP Demise (bareboat) CP
- Charterer provides the cargo and crew
- Shipowner provides the ship
- The charterer takes total responsibility to operate
and manages the ship
- Is for a period of time varying from a few weeks
to several years

13. Typer of CP…CONT Non-Demise CP - Shipowner provides the ship and crew
- Charterer supplies the cargo.
- Maybe a voyage charter for a particular voyage between specific ports for pre-arrange freight
- Shipowner manages and operates the vessel
- Charterer pays port charges and fuel costs

14. Statutory Clauses for Charter Party
The preamble
The contracting parties
Description of vessel
Position of vessel and expected date of readiness, date to load
Description of Cargo
Statement whether full and complete cargo with minimum and maximum cargo

15. Statutory Clauses for Charter Party ….cont
Loading and cancellation dates
Loading port or place
Discharging port or place
Payment of freight
Unless specified, freight is payable once cargo is discharged
On true delivery of cargo……proportionately
On signing bill of lading

16. Statutory Clauses for Charter Party ….cont
Laydays- number of days permitted in a CP for loading and discharging of vessel
Demurrage and Despatch
Owner pays despatch money as reward for time saved
Demurrage payable at an agreed rate to owner for delay of ship
Cessation or limitation of liability clause-charterer liability ceases when cargo has been loaded/discharged and charges incurred paid

17. Statutory Clauses for Charter Party ….cont
Lien Clause-the right to hold cargo against payment of freight or hire
Loading and discharging expenses
Appointment of stevedores and agents
Deviation and salvage clause-permission to deviate in order to save life, salvage
Bill of lading clause
Exemption from liability clause

18. Statutory Clauses for Charter Party ….cont
Arbitration
Strikes and stoppages
Overtime
Sailing telegram
Sub-letting
Address commission-% commission
Brokerage fee payable
Penalty for non-performance

19. Selection of Equipment
Determined by cargo and type of packaging used
Bulk cargo
Dry - hopper, grab, conveyor belt, silos etc
Liquid - loading arm, pipelines, and installation tanks
General cargo
Containerized- forklift, side loader, prime mover trailer
Conventional – pallet, forklift
Barrel, drums, boxes, cases and metal-lined cases, crates, cartons

20. Risks and Liabilities

21. Shipping industry is CAPITAL INTENSIVE, dynamic, volatile, and full of risks: Asset price risk, interest rate risk, exchange rate risk, freight rate risk, operating cost risk, bunker price risk, and credit risk

22. Credit risk, also known as ‘counter- party risk’, is defined as the possibility of a loss occurring for a party due to the other party’s failure to meet its contractual obligations in accordance with the agreed terms of a deal.

23. Credit Risk
Examples of credit risk include the failure of a debtor to repay a loan, or
the failure to receive a payment for a product or service which a firm has provided.
Credit risk in shipping arises because most of
the deals, trades and contracts are negotiated directly
principal-to-principal basis, which means that
The two parties agree to do business with each other and rely on each other’s ability to honour the agreement.

24. Credit Risk….cont
The agreement could be a charter contract between a shipowner and a charterer,
A new building contract between an investor and a shipyard,
A freight-derivatives transaction between two investors.
A bunker transaction between a shipowner and a bunker supplier.
In any case, parties to contracts can be exposed to each other’s ability to perform the contract or credit risk.

25. Credit Risk….cont
Credit risk can be further classified into three types; namely, ‘default risk’, ‘downgrade risk’, and ‘credit-spread risk’
But we consider default risk as the major component of credit risk, especially in shipping markets and transactions.

26. THANK YOU