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

SERVICE OF CONTRACT

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

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

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)

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

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

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

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

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

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”

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

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

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

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

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

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

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

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

Risks and Liabilities

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

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.

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.

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.

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.

THANK YOU