Conference Practice of Maritime Business & NOVO2010 Broker’s Role in negotiating and fixing charterparties Alberto Batini BB & Partners

"My son, when you can persuade a shipowner to fix a cargo he hates, from a port he doesn't like, to a discharge port he doesn't know, at a rate which is below last done, then, my son, you can call yourself a broker". (John R. Hall*) *Managing Director, Hall Shipbroking Pty Ltd, Melbourne, Australia

The major broker ’ s effort is to find continued and suitable employment for the ships to maximise revenue earnings. The major broker ’ s effort is to find continued and suitable employment for the ships to maximise revenue earnings. Primary concern is finding suitable cargoes for ships irrespective of whether the ships are owned or are hired. Primary concern is finding suitable cargoes for ships irrespective of whether the ships are owned or are hired. Evaluating intended voyages to maximise earning so as to pay for the cost of ship, cost of its operations and to make some profit. Evaluating intended voyages to maximise earning so as to pay for the cost of ship, cost of its operations and to make some profit.

The broker, if required, should be aware of the economical function of the charter which the Parties (Owner and Charterer) wish to pursue. The broker, if required, should be aware of the economical function of the charter which the Parties (Owner and Charterer) wish to pursue. A synoptic table of the 3 main charterparties will follow focusing on the economic and financial profile of each one.

Type of Charter parties

There are many mutually agreed arrangements between the owners of cargo or shippers and the ship owners or ship operators for transportation of cargoes. There are many mutually agreed arrangements between the owners of cargo or shippers and the ship owners or ship operators for transportation of cargoes. The terms and conditions for carriage of cargo can either be on liner terms or under different charter party terms that primarily depend upon the types of ships and cargo. The terms and conditions for carriage of cargo can either be on liner terms or under different charter party terms that primarily depend upon the types of ships and cargo.

MAIN TERMS MAIN TERMS The main terms speak for themselves, in that the parties agree to the details of the vessel, quantity and description of cargoes, loading and discharging ports and loading and discharging terms, laydays and cancelling, freight rate, freight payment, demurrage and despatch and charter party form.

“SUBJECT TO DETAILS” (SUB DETAILS) “SUBJECT TO DETAILS” (SUB DETAILS) Whenever this term is used, the parties have clearly signaled, apparently as a matter of law, that they do not intend to be contractually bound until all details are concluded. Leading case: Star Steamship Society v. Beogradska Plovidba (The JUNIOR K), [1988] 2 Lloyd's Rep. 583 QBD (Comm. Ct.)

Samos Shipping Enterprise Ltd. v. Eckhardt and Co. K.G., (The NISSOS SAMOS), [1985] 1 Lloyd's Rep. 378 QBD (Comm. Ct.), involving a contract to sell a vessel for scrap. During negotiations, offers were said to be “subject details.” According to the Court, “‘subject details’ is a well-known expression in broking practice which is intended to entitle either party to resile from the contract if in good faith either party is not satisfied with any of the details as discussed between them.”

By contrast, in America, such a fixture will be regarded as binding, and arbitration often will be ordered in a 'subject details' case. It is one of the great schisms in the maritime laws applied on opposite sides of the Atlantic.

“SUBJECT STEM” i.e., cargo availability. “SUBJECT STEM” i.e., cargo availability. In England, charterers who develop misgivings about whether a fixture 'subject stem' is advantageous can get out of it simply by failing to seek stem. By contrast, under American maritime law, charterers must exercise due diligence to obtain timely stem.

‘Subject management approval.' ‘Subject management approval.' It is fashionable among charterers to treat this 'subject as creating an option in their favour i.e., owners are committed, but charterers are free to back away. This is very dangerous thinking. A fixture 'subject management approval' is not the same as a fixture 'subject reconfirmation.' The latter clearly creates an option, and nothing less than a notice by charterers lifting the subject will satisfy the condition.

By contrast, under a fixture 'subject management approval,' a chartering manager must probably exercise due diligence to receive instructions from his supervisor. More to the point, he frequently will already have full authority to fix, especially a voyage charter. Absent supporting evidence that such a chartering manager actually contacted his supervisor, a court might well find as a fact that the 'subject' was a sham and and therefore the fixture was fully binding when made, without the need for a later notice lifting subjects.

Three important elements of the charter party are: Three important elements of the charter party are: (a) Description of the ship (a) Description of the ship (b) Description of the trade (b) Description of the trade (c ) Description of time period (c ) Description of time period Broker needs to ensure that the above elements are clearly described in the fixture recap.

Description of the Ship The type of ship to be hired/chartered very much depends on the nature and whereabouts of the intended trade. The type of ship to be hired/chartered very much depends on the nature and whereabouts of the intended trade. Its normal for owners to provide all the details of the ship with a guarantee about its accuracy Its normal for owners to provide all the details of the ship with a guarantee about its accuracy An example such as “Shelltime” and “Intertank” having appropriate format which is required to contain several pages of ship details An example such as “Shelltime” and “Intertank” having appropriate format which is required to contain several pages of ship details

Many Charterers require the following plans to be supplied by the Owners (in tanker industry): (1) General Arrangement Plan,including loading scale (1) General Arrangement Plan,including loading scale (2) Detailed Cargo manifold arrangement Drawing (2) Detailed Cargo manifold arrangement Drawing (3) Pumping Arrangement Plan (3) Pumping Arrangement Plan (4) Plan of Cargo Tank Ventilating System (4) Plan of Cargo Tank Ventilating System (5) Manufacturers Characteristics Curves of Pumps if centrifugal pumps are installed. (5) Manufacturers Characteristics Curves of Pumps if centrifugal pumps are installed.

Other details: Cubic Capacity Cubic Capacity Speed and Consumption Speed and Consumption Constant Weights Constant Weights

Year of built, flag, dead weight, maximum dimensions, maximum draught, fresh water allowance, speed, fuel consumption, cargo space in bail and grain capacities, number of hatches and holds, type and safe working load of cargo gear, compliance with international regulations for carriage of specialised cargo and such other important details relevant for the intended cargo and trade. Year of built, flag, dead weight, maximum dimensions, maximum draught, fresh water allowance, speed, fuel consumption, cargo space in bail and grain capacities, number of hatches and holds, type and safe working load of cargo gear, compliance with international regulations for carriage of specialised cargo and such other important details relevant for the intended cargo and trade. Some bulk cargoes may require that the holds be equipped with carbon-di-oxide fire protection system, or special requirement of cargo securing in the holds. Some bulk cargoes may require that the holds be equipped with carbon-di-oxide fire protection system, or special requirement of cargo securing in the holds.

Description of the Trade Charterer is interested to know the details of the ship as much as the Owner is interested to know about the type of trade the ship will be engaged in. Charterer is interested to know the details of the ship as much as the Owner is interested to know about the type of trade the ship will be engaged in. Owners will demand that berths and ports to which the vessel will trade are safe and ship will remain afloat. Owners will demand that berths and ports to which the vessel will trade are safe and ship will remain afloat.

The Charter Party will guarantee that the vessel will trade within the Institute Warranty Limits(I.W.L)- a trading area defined by Underwriters to prevent the more serious risk of ship causality loss. The Charter Party will guarantee that the vessel will trade within the Institute Warranty Limits(I.W.L)- a trading area defined by Underwriters to prevent the more serious risk of ship causality loss. The dangerous areas such as war zones and ice bound areas may be excluded from the charter party. The dangerous areas such as war zones and ice bound areas may be excluded from the charter party.

The Charter Party shall also include certain exclusions for the cargo to be loaded such as asphalt in bulk, pitch in bulk, livestock, explosives, fish meal, scrap, sulphur, and logs. The Charter Party shall also include certain exclusions for the cargo to be loaded such as asphalt in bulk, pitch in bulk, livestock, explosives, fish meal, scrap, sulphur, and logs. In addition, it is increasingly frequent to add in the cargo exclusion clause nuclear products. In addition, it is increasingly frequent to add in the cargo exclusion clause nuclear products.

Description of the Period The period of charter commences with vessel’s delivery to the Charterers and ends with redelivery. It is suspended by off-hire periods.