Chartering 101The Fundamentals of Ship Chartering6 October, 2015 John HarkRegional Director, North America / COO, Latin America – Bertling LogisticsAdjunct Professor, Brokerage & Chartering - Texas A&M Galveston

Overview

➢ Who’s Who in Ship Chartering – define the relationships ➢ The Carta Partite ➢ Language of the Field ➢ Chartering Finance/Estimates ➢ Incoterms ➢ The CRITICAL TAKEAWAY ➢ Questions

Who’s Who - Parties to the Charter

➢ “Owner” is a person, or company who has the right of possessionof the ship - this may be actual ownership or disponent ownership ➢ “Charterer” is the party that requires the service of the vessel ➢ “Broker”, as defined by Webster’s, is an Agent who arrangesmarriages or who negotiates contracts of purchase and sale

● Competitive, Exclusive, Owner’s, Charterer’s ➢ “Freight Forwarder” can be acting as a broker on behalf of theirprincipal or in fact be the principal / chartering themselves ➢ “Principal” is the party on who’s behalf the Broker or FreightForwarder is working

Carta Partite- What is the Charter Party?

“Divided Document” - it was customary, to ensure the document wasauthentic… to execute the contract two times on one piece of paper –then tear it into two irregular portions… that way when the twoportions fit together, one could prove the authenticity of it

➢ A contract for the hiring or letting of all or part of all of a vessel,it’s legal and is governed by all usual laws applying to contracts.

➢ Because of it’s nature – maritime – it is usually governed by

Admiralty Law and Jurisdiction.

➢ Charter Parties are usually referenced in all communicationsrelated to a trade:

M/T “Fraternity L” Charter Party dated 14 November 2009

Types Of Charter Parties:Bareboat - HireTime - HireVoyage - Freight

Standard charter party forms are modified and amended by rider clauses and

addendums in accordance with the agreement.

Commonly used forms:Conline Booking NoteGencon C/PNYPEAsbatankvoy

Carta Partite- The Charter Party Today

Preamble – contains main terms of the specific agreement

Law & Arbitration – defines governing region / laws for any action

Piracy – seeing a resurgence in use

War Risk – defines war risk events

Hardship – compensates a party for unexpected cost increases

Laytime / Demurrage – is the vessel loaded and discharged in the agreed upontime frame

Carta Partite- Common Clauses/Elements

➢ Indication – Owner indicates freight ideas

➢ Offer – Owner extends formal offer with clearly defined Ts/CsExample: “OFFER FIRM FOR ACCOUNT OF COALEX REPLY 1400 NY TODAYM/V RIPTIDE 50,000 DWT GLESS BLKR 2,100,000 CFT 13 KTS ON 34 + 2 DELYAPS HRDS OCT 15/30 TC TRIP VIA PANAMA CANAL REDEL S. JAPAN USDLRS8000 DAILY INCL OT BUNKER PRICES/QTIES TO BE MUTUALLY AGREED 2.5PCT ADDCOMM SUBJ DETS NYPE”

➢ Counter – Charterer counters offer ($, timing, Ts/Cs, etc…)

➢ Subs – Main Terms are agreed, deal is done Subject To… with a

timeline set for “Lifting Subs”

➢ Acceptance – anything other than a clean acceptance isconsidered a COUNTER or DECLINE – this is binding

Carta Partite- The Sequence of the Trade

Carta Partite- Subjects

➢ Subject Details➢ Subject Stem➢ Subject Reconfirmation➢ Subject Board of Directors Approval➢ Subject Management Approval➢ Subject Charterer’s/Supplier’s/Receivers Approval of Nomination➢ Subject Owner’s Approval of Charterer➢ Subject Port Captain’s Approval of Stowage➢ Subject Final Packing List / Cargo Details➢ Subject Sailing➢ Subject Open/Unfixed

The Language of the Field- Vocabulary Matters

The field of Brokerage / Chartering has it’s own language of thetrade… to be successful, you must be Bi-lingual / Multi-lingual

➢ Subjects➢ Main Terms➢ Details➢ Recap➢ LayCan➢ Demurrage➢ PDPR➢ SHINC / SHEX➢ C/P➢ Hire➢ Vetting➢ MOLCO / MOLOO➢ COA (contract of affreightment)➢ Ballast Bonus

Chartering - The Risks

Inherent risks anytime you enter into a time or voyage charter

Voyage ChartersDemurrageDetentionDead FreightCargo Damage

Time Charters

Covering the hireDelays and cash flowBunker escalation

Chartering Finance- Voyage Calculations

What is the benefit & to whom when estimating the value of a voyage:OwnerChartererBroker / Forwarder

Elements of a good voyage estimate:DetailsUniformity between estimatesCurrent cost info

Chartering Finance- Voyage Calculations

Tools of the trade

Distance TablesPort GuideSource of Current Bunker PricesCalculator, Estimating Form (Excel), 3rd Party Software

Chartering Finance- Voyage Calculations

Use a common standard to measure the return

“Daily Net Return”, more commonly called:T/C Equivalent or Time Charter Equivalent

T/C Equivalent = gross revenue-commissions-expenses

total voyage days

Revenue to OwnerFreight & Demurrage

Costs to Owner

FuelPort Calls (Pilots, Lines, Tugs, Dockage, Wharfage, etc..)CleaningCommissionsCanal Transit FeesLightering (if at owner’s expense)InsuranceCrewMaintenance

Chartering Finance- Elements of the Estimate

Applicable Details NeededPortsCargo details – tolerance, stow factorFreight Terms – FIO, Liner termsLoad and Discharge terms and ratesTaxesExtra InsuranceFreightCommissions

Chartering Finance- Elements of the Estimate

Lay out the voyage – present position , any ballasting

Determine the best route – fuel cost, canals, distance

Calculate time at sea – distance/speed/24= days at sea

Calculate time at port – cargo quantity vs load & disch rates

Review bunker plans – more fuel stops to carry more cargo?

Determine cargo intake of the vessel – min/max, stow factor

Chartering Finance- Steps of the Estimate

Determine the income/freight calculation for the voyage

Typically just multiply volume or weight by freight amountEx $55 per metric ton x 2000 metric tonsEx $55 per cubic meter x 1500 cubic meters

Concept of w/m (1000kg/1cbm) and revenue tons

Concept of Lump Sum

Deduct any commissions or applicable freight taxes

Chartering Finance- Steps of the Estimate

Chartering Finance- Steps of the Estimate

The steps generate the below components:

T/C Equivalent = gross revenue-commissions-expenses

total voyage days

Incoterms

International Commercial Terms – “Incoterms”

2 sides to watch – Commercial Sale and the Transport AgreementBe sure there are no gapsEx FOB, FAS, CFR as related to the Charter Agreement

Very few businesses involving large amounts of money are finalized on the

basis of a verbal telephone agreement

A Broker, Forwarder, Charterer or Owner cannot function without a goodreputation among their market colleagues

You must have sound judgment and the ability to handle multiple requirements

in a quickly changing market

You must be able to evaluate current events and their affect on your principal’sbusiness

It is a demanding business, 24/7/365

Critical TakeawayIntegrity, Integrity, Integrity

Questions

Feel free to contact me with questions / comments: John Hark281-774-2324 Office832-434-0164 Mobile