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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 (recently proclaimed the guru of shipbroking) Copyright © 2009-17 by Virtualshipbroker

Sunday, December 5, 2010

Whats with Address Commissions?

BUMP

suraz said...



parcel tanker trade survives on 2.5%.
lets talk about address commissions as well! have seen 5% charterers adcom plus 2.5 brokers thats a whopping 7.5% ... well stupid in a way bcz the owner would have allowed for the 5% in his numbers...are adcoms just a mindset??


November 30, 2010 7:20 AM

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Jean Paul said...


I agree with Suraz whereas the Addcom issue is sometimes confusing, if its just a mindset I dont know... I could definitely use some clarification on this one.


By the way perfect blog, I am a big fan of it!


December 05, 2010 9.00 PM

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Yes Address Commissions (adcom) are a bit curious. Click HERE for my thorough explanation.

I guess the question here is why do address commissions differ so much: - Some charterers don't charge any adcom. some charge the price of a standard brokerage (1.25 pct), most charge either 2.5 adcom or 3.75 adcom and some even charge 4.25 percent and more!

The other question is - why would a charterer charge such a high adcom when in reality this extra cost to the shipowner will be reflected in the freight rate?

JP and Suraz are both right - mindset certainly does play a part!

So here is my take on the matter. Most charterers don't really know why they charge a certain adcom. The amount they charge will depend on the advice given to them by brokers, what their competitors may charge and if they are more sophisticated by what their accounts department also think they should charge to cover the cost of their shipping departments.

There is one other reason - and I think this last reason explains the randomness best. The most savvy charterers realise that sometimes by charging a high adcom - they make free money.


Big call? let me explain - imo the charterers who do charge a high adcom are clever. Here is the reason. Logic will say that when a shipowner does a voyage calculation the adcom is just another cost - so the higher the adcom the higher the freight rate. So if all shipowners are in the same boat (all are being charged the same adcom) then the playing field is even and no one really loses.

But consider this. When you read a market report - do you notice something that is invariably missing?

Eg you might see 50,000 hss USG / Japan scale bends USD 23.00 pmt

What is missing? Yes the commission structure!

When you see a TC market report like this

MV Maria Botto 75,300 dwt pan 86 dely Gib spot tct via USG to med USD 60,000 pd

What is missing? Yes the commission structure!

Its an important aspect of a freight rate and by not quoting the commission structure we are not getting the full picture. Its a curious omission in most market reports.

Psychologically as people and as traders we like to look at whole numbers. When quoting the market we like to say "the biz is worth USD 23.00 pmt" - again no mention of commissions. Or we say this ship wants USD 20,000 for a pac round voyage - again no mention of commissions.

So what does all this mean? It means that on many occasion shipowners forget about the commissions if they are chasing a deal. They care more about saving face, what the market reports will say, what management will say and ultimately this means the whole number price they get for the ship. By whole number I mean Gross result (excl commissions) - rather than the net result.

Here is a real life example in another industry which may better explain.

You sell your house for USD 500,000 in a private sale

Do you tell your father inlaw that you sold the house for USD 500,000 or do you tell him you sold it for USD 485,000 (less agents fees?) - You say 500,000. That's normal.

The newspaper will 500,000, you tell family and friends 500,000, the only person that really cares its 485,000 is the agent, the taxman and your banker.

Summary -  sometimes charging a higher commission can actually put free money in your bank account - not on every deal but if you do 100 deals in a year and 20 percent play on this psychological fact - then that's a whole lot of cash saved.

Do with that...what you will!

If anyone has any comments / disagrees then shoot - its an interesting topic.

Cheers
VS

1 comment:

  1. Hi VS

    Thanks your's.. Why there is a very high address commission in certain trades. For eg Sugar Trade where commission is normally as high as 6.25% or 7.5%. Is this a trade practice or any particular reason for charging so high?

    With Rgds
    Varun

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