Basics of Chartering: Negotiation - Compatibility - Decision Making

By Capt. Jamshed Irani

This fundamental textbook contains no legally complicated material on clause interpretation. The purpose is to provide the reader with an overview of chartering from a realistic economic-administrative and, to a certain extent, legal standpoint. This book's objective is to guarantee that a careful reader leaves with a firm grasp of the fundamentals of this specialist branch of shipbroking.

• Language: English
• Publisher: One Point Six Technologies Pvt Ltd
• Release date: Jun 21, 2022
• ISBN: 9789356101135

Capt. Jamshed Irani

Jamshed Irani commenced his maritime career as Deck Apprentice in Scindia Steam Navigation Co. Ltd. in 1979. In 1988 he received his certificate of competency as Master. He joined Prudential Shipping agencies as CEO in 1998 and Ahura Logistics as CMD in 2010. Having been involved in maritime training since 2015, he has coached candidates for the Institute of Chartered Shipbrokers Exams in ship management, liner trade, the economics of sea transport, ship agency and commercial shipping knowledge. His first book, The Basics of Chartering, is support material for students who are pursuing a career in ship chartering.

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1. Introduction

The shipping company's structure has been gradually altered. Historically, a shipping company was involved in a vessel's operation, including ownership, crew, technical operation, and commercial operation. Numerous factors have resulted in a split of functions:

•the ownership role (including funding)

•the management function (manning, technical supervision, spares, and bunkers, among others)

•the commercial function (daily vessel operations) (mainly the employment of the vessel)

These functions are typically associated with specific documents, and they are commonly distributed across various firms, frequently in different countries, nowadays. Often, a shipowner establishes its headquarters in one nation, where financial concerns are handled, but owns or controls subsidiaries in many countries, each with its specific purpose. The fleet is likely to be owned by singlevessel businesses. Shipowners collaborate through various forms of cooperative ventures referred to as shipping pools. This allows for pooling specific resources, such as human resources, technical development, and marketing. Additional savings can be realized by channeling activity via a jointly-owned business located in a tax haven. During the century-long history of liner shipping, a unique sort of cartel known as liner conferences evolved.

It should be noted that both the United States and the European Union have legislation barring some sorts of cooperation agreements, which may include, to some extent, shipping activities. A shipping company's activities often begin with a shipbuilding contract (or a memorandum of understanding (MOA) to acquire a used vessel). The documentation required to finance a ship is typically lengthy and includes a variety of documents, notably those about financial security, such as the ship mortgage. The seller will hand over a bill of sale to the buyer upon delivery of the vessel. Management is formalized in a management agreement between the owner and the manager, which details the manager's responsibilities. The owner and the operator may enter into a specific operating agreement. Commercial operations may be conducted by a broker who, in most cases, works in close collaboration with the owner but on a case-by-case basis and without specific power to bind the owner. Occasionally, a chartering agreement may authorize a particular organization to hire the vessel on behalf of the owner. This organization will then undertake the chartering on behalf of the owner. Shipping is an international industry, and everyone involved in chartering must operate within the constraints of the international freight market daily. Numerous trade conventions and norms have been created worldwide over the years, and rigorous business ethics have emerged that must be followed in the professional shipping industry. Chartering work is fundamentally a sort of information sharing. It is truly one of those transactions where having the correct knowledge at the right time is critical to success. Everyone participating in chartering serves as a collector, judge, and distributor of knowledge to a great extent. A significant portion of the information flow consists of, for example, comments on fixtures located around the world.

Making a fixture refers to the process by which parties interested in a particular mode of sea transport reach mutual agreement on all details of a charter through negotiation. A charter transaction involves two parties: someone who owns or operates a ship (owner, time chartered owner, or despondent owner), and someone who requires maritime transport to be performed (usually but far from always the cargo owner-in a charter-party the counterpart of the shipowner is called the charterer). Both sides typically negotiate through intermediaries known as shipbrokers or booking agents. Frequently, the cargo's owner (typically the shipper or consignee) is also the charterer. The document is called a charter party (C/P) or a booking note for general cargo bookings. It is made after the meeting is over. Most of the time, the charterers' brokers write the actual documents, which the brokers often sign on behalf of the parties.

Bill of Lading: After the vessels are delivered or loaded onto a ship, the career will often send the consigned a bill of lading. Chartering talks occur at all hours of the day and night and are almost always rushed. Often, it takes less than a day from the time a shipment order is put on the market to the time a fixture is verified. Usually, talks are handled over telephone, telex, or telefax. In practice and by law, all written or oral agreements are of equal value, with some limitations. As early as the turn of the century, persons involved in professional chartering in London originated the phrase our word is our bond.

2. International Sea Trade and Logistics

For more than two decades, businesses have utilized the idea of logistics. Logistics management was a more restricted form of supply chain management until the early twenty-first century. It encompassed the physical process of planning, organizing, and controlling the flow of commodities and services from the supplier’s point to the customer’s point. Besides these features, supply chain management includes customer satisfaction, customer interactions, financial flow, and information flow, therefore integrating and complex logistical tasks. Thus, logistical assistance and the interplay of logistics and supply chain management with domestic and international commerce cannot be overlooked. Since nearly 95% of worldwide trade is conducted by maritime transport via ocean, seaways, and inland waterways, maritime transport is considered critical to international trade.

The chapter primarily discusses changes in international marine transport while also stressing global commerce trends. The first section provides an overview of logistics and its relationship to international commerce, outlining the main features of logistics and the relationships between various economic sectors. The second section provides context for the interplay between logistics and the transportation industry in today’s global economy. The next part delves more into the global economy’s and marine transport industry’s changes to international commerce.

This book aims to present an overview of logistics, identify and address global economic expansion, combine it with maritime trade, and provide a comprehensive explanation of logistics.

The aims of this chapter are as follows:

• provide an overview of logistics; identify and address global economic growth, integrating it with maritime trade; advance global trade volumes; integrate international commerce and maritime trade into logistics;

• identify developments in international maritime trade within international trade; strengthen the contribution of commodity sectors to the development process for the effectiveness of developed, developing, and transition economies in the global economy; and conduct a review of international maritime trade networks.

To accomplish these goals, this chapter includes a conceptual description and interrelationship of international trade and maritime trade within global logistics services, as well as a presentation of world economic data and a review of global economic developments, a review of international maritime transport developments by cargo type, in particular, and a review of liner shipping connectivity data in order to establish a more detailed context for intermodal trade.

Management of logistics and supply chains

This section discusses logistics and supply chain management in general. The characteristics and functions of logistics are discussed and described in detail in order to underline the importance of logistics in international and global trade.

The critical importance of logistics and supply chain management has been emphasised as a result of businesses focusing primarily on the needs and desires of customers, with the primary reason being the increased competition brought about by globalisation, specialisation, and advancements in information technology and communication at the turn of the twenty-first century. Additionally to these concepts, functions, and phases, the concepts of information flow, financial flow, and customer relations and functions have been covered, resulting in the supply chain management concept (Bowersox et al, 2007; Croom et al, 2000).

Supply chain management is, in fact, chain management in the sense that its rings remain connected. The chain’s strength is contingent upon its connectedness and the ability of each ring to support the others. Similarly, suppliers, including their suppliers, manufacturers, wholesalers, retailers, transporters, and distributors, and consumers, all rely on one another when it comes to supplying and consuming vessels and services. As a result, each ring is strongly connected to the next in a chain.

Logistics and supply chain management serve as an integrator of numerous corporate tasks and processes, with the goal of achieving the lowest possible cost while maximising benefit and profit, resulting in the highest possible customer satisfaction (Burt et al, 2003). The rings of the chain are concerned with management.

Planning, supplying raw materials and/or semi-finished vessels, manufacturing, packaging, storing, warehousing, inventory management, distribution, transportation, wholesaling, retailing, marketing, and selling to final consumers (Bowersox et al, 2002). Logistics and supply chain management are concerned not only with the coordination of finished vessels activities, but also with communications, information technology, the humanities, and social sciences.

Parallel to the evolution of international trade, logistics and supply chain management evolve at a breakneck pace in response to corporate transformations and advancements. Each link in logistics activities and supply chains must be linked and managed in concert in order to achieve globalisation goals while adhering to domestic and international competition regulations. As such, the following section will examine the transportation industry’s involvement in international trade and global logistics services.

Transportation and logistics

This section defines logistics broadly and describes the issues confronting the transportation industry within logistics services in the context of a turbulent global economy.

Global manufacturing, transportation, distribution, and logistics all necessitate the establishment of freight management solutions. Logistics encompasses all processes necessary to make items available to markets, with procurement, order processing, inventory management, and transportation being among the most critical (Rodrigue and Browne, 2007). Logistics has grown in importance in the global economy as it supports a diverse range of commodity chains (Hesse and Rodrigue, 2004). Transport and logistics operations have been fundamental to existence since we began to understand and use them: the movement, storage, handling, and delivery of commodities from one location to another, and then to further points until the good/vessels reaches/reaches the final user/users. Transportation encompasses more than automobiles, trains, boats, watercraft, aeroplanes, and other modes of transport. Each raw material must be transported until it is transformed into a semi-finished product, and each physical product must be transported to locations of consumption. Transport, which is critical to logistics and supply chain management activities, is