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SHIP MANAGEMENT PRACTICES

Netherlands Maritime Institute of Technology

ByDr. Mansor Abdul Rahman

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SERVICE OF CONTRACT

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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

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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

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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)

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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

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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

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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

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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

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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

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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”

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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

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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

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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

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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

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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

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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

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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

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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

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Risks and Liabilities

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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

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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.

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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 thatThe two parties agree to do business with each

other and rely on each other’s ability to honour the agreement.

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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.

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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.

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THANK YOU