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Hi. I am a shipping company director, transport academic, author, family man and all round nice guy. I have worked as shipbroker, shipowner, freight trader and bulk charterer, in senior positions, with some of the largest and most disrespected (joke) companies in the world. Ask my advice on all things shipping and you will receive my blunt and always honest answer. Hang around to learn more about chartering and ship broker salaries, chartering and ship broker jobs, chartering and shipbroker recruitment agencies, cheap freight, maritime education, chartering and ship broker qualifications, become a ship broker, tips on how to be a successful bulk shipping executive, philosophy, Zen and the art of shipbroking, and much more. Yours The Virtual Shipbroker Andy Jamison is the alter ego (pen name) of ex shipping guy and blog creator Nick van der Hoeven Copyright © 2020 by Virtualshipbroker Contact virtualshipbroker@yahoo.com

Thursday, November 5, 2009

What is a Ballast Bonus?

"mmm - Ballast bonus" (say like Homer Simpson)..

One of those complicated chartering concepts that confuses many people.

This will help those of you interested in voyage estimation.

A ballast bonus is a time charter concept and it refers to a lumpsum payment 'sometimes' made to a shipowner (by the charterer) as compensation for delivering a ship in a loading region of the world!

Whats that in English VS?

Ok lets see of I can explain. Some regions of the world are NET loading regions and some are NET discharging regions (also described as importing regions and exporting regions).

In many cases for a ship to enter a loading region she needs to sail there empty (ballast leg) because there are no inbound cargoes. So who should pay for this empty leg? As discussed previously the charterer usually pays for this leg. The reason is that the shipowner probably has other alternatives that do not require such a long empty passage. So its a matter of user pays.

Question is this...What if the ship has already started the empty passage to a loading area without having yet secured an outbound cargo? This happens alot. Shipowners will take a risk and not fix their ships too early in expectations that the market will rise in the short term. So after discharging their last cargo they will up anchor and sail to a loading region. One example of a loading region is the USG. Many ships from Europe will take the 2 week empty trip across the Atlantic on spec hoping that something will come up over the next 2 weeks.

This is where a ballast bonus is often paid. The shipowner will rate his ship basis a market time charter rate plus he will add in a ballast bonus lumpsum rate as compensation for sailing empty from Europe. The Ballast bonus should reflect the cost of the empty ballast in terms of time and fuel.

A typical fixture that will involve a ballast bonus might look like this.

"Freight hire usd 20,000 per day plus a ballast bonus of USD 280,000 lump sum"

Riveting stuff. I would much prefer to talk about football........but everything has its place.

Any questions just shoot.

Yours
VS

13 comments:

  1. EXCELLENT POST, TODAY I HAVE LEARNT SOMETHING NEW!!! KEEP WALKING TRAINING US

    GOOD LUCK, WAITING FOR MORE

    ReplyDelete
  2. Your welcome Anon.

    Dont completely freeload though - the intention is that if you like my posts so much that eventually you buy a book!

    cheers
    VS

    ReplyDelete
  3. Thanks sir, you are doing an excellent job. Very recently i happen to come across your blog which is absolutely motivating in many ways for people who are in this industry and who aspire to start their career in shipping.

    I have some doubt regarding ballast bonus. As u explained BB will be paid by the Charterers. But does this cover the entire cost for the ballast leg or is just a contribution made by the Charterers towards the expenses that Ship Owners has to bear for a ballast leg.

    Also Is BB limited to only a Time Charter operation or is it applied to a Voyage Charter also?

    Wishing you all the best sir

    Best Rgds
    Varun

    ReplyDelete
  4. Hello Varun

    The ballast bonus like the time charter hire rate is highly negotiable. The shipowner will try and obtain a ballast bonus sum that covers the entire empty leg BUT the charterer will try and avoid paying it altogether.

    So like the actual freight price the final sum is a function of supply and demand. If there are normal market conditions you may find that the ballast bonus is standard.

    If market conditions favour the charterer and 10 other ships are also ballasting to the USG then the shipowners may be in trouble and have to accept a lesser sum.

    In many ways the payment of a ballst bonus is symtomatic of a weak market. But equally it is also a custom of some trades.

    Ballast bonus is a time charter concept but it will effect the voyage charter rate because it becomes a cost that needs to be accounted for.

    That last bit is confusing unless you have done many voyage calculations. Get ready for the VS voyage estimation pack which is now only a few weeks away.

    Yours
    VS

    ReplyDelete
  5. Here is a tricky one for you. My vessel is opening in West Africa. The Charterer wants to take the vessel not dlosp but rather APS Recalada in order to load Up River Parana. We agree a daily rate and then we also agree a ballast bonus of xxxx$. My vessel begins its voyage to Recalada crossing the Atlantic, is eventually at Recalada and the ballast bonus paid. The day after and after receiving the ballast bonus my vessel for some reason has an electrical default and burns not being able to perform the agreed trip. The question is DOES THE CHARTERER HAVE THE RIGHT TO CLAIM BACK THE BALLAST BONUS???????

    ReplyDelete
  6. Hello!!|

    |Can I ask if the time-freight agreement is USD9K per day, and the vessel wil take 30 days to reach the loading port.. how much should be the ballast bonus??

    Also, very good the question of annonimous on the ship broke down .. they should have their ballas-bonus back??
    please te hear the reply!


    regards
    Maria

    ReplyDelete
  7. Dear VS,

    I have an accounting question regarding ballast bonus. Do you know where this (i.e. ballast bonus) is usually reported in the profit & loss statement of a ship owning company? Is this ballast bonus recorded as an offset against the actual ballast cost incurred under the "operating expenses" category in the P&L or recorded in the "revenues" line?

    Thank you.

    ReplyDelete
  8. Howdy.

    Good question. I have never had to worry about the accounting side of things. But I can imagine that it is a tricky one. Maybe someone reading the blog can answer.

    Some people treat the Ballst bonus as a revenue because in reality the payment is in lieu of payment fromn a DOP position againsgt an APS delivery.

    But I realise others consider Ballast Bonus a lumpsum reward for being in the right place at the right time.

    Happy to hear other views!

    VS

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  9. Good day Sir,

    I would like to enquire... essentially atlantic to pacific is the fraont hual and pacific to atlantic is the back haul...
    My question is why if the atlantic routes are booming may we get a reversal in the front haul/ back haul routes.

    Thank

    Kapil

    ReplyDelete
  10. Here is a tricky one for you. My vessel is opening in West Africa. The Charterer wants to take the vessel not dlosp but rather APS Recalada in order to load Up River Parana. We agree a daily rate and then we also agree a ballast bonus of xxxx$. My vessel begins its voyage to Recalada crossing the Atlantic, is eventually at Recalada and the ballast bonus paid. The day after and after receiving the ballast bonus my vessel for some reason has an electrical default and burns not being able to perform the agreed trip. The question is DOES THE CHARTERER HAVE THE RIGHT TO CLAIM BACK THE BALLAST BONUS???????

    The only recourse the chrtrs have is to put the vessel off hire.

    ReplyDelete
  11. i answered this one in a new seperate post

    ReplyDelete
  12. Any common reasons why the Charterer does not merely agree to a higher daily hire rate for the ship?

    ReplyDelete
    Replies
    1. oversupply of ships, not enough cargo...
      press the rates down..

      Delete