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Saturday, March 24, 2012

Laden legs or short period

Ok a interactive question for the readers..

One of my students is trying to get his head around the following problem

A charterer is asking the market for a ship basis 2 or 3 laden legs

the question is

Why does a charterer ask for 2/3 laden legs and why not just ask for short period?

I have a feeling that i am gonna have to explain this more....but please if you know the anser have a go!

3 comments:

  1. I perceive that the main reason for asking for a 2/3LLs is due to more flexibility- which is very important in shipping given the volatility of the rates in the industry.

    By giving yourself the option to have a 3rd LL, you are essentially putting yourself in a position where you can either:

    a) take the third LL because the market is rising and you have fixed the ship at a relatively low price

    b) discard the third LL because the market has slowed and consequently you can fix a similar ship for a reduced rate.

    On the same token, a charterer may be contracting out some Voyage charter business, yet is unsure whether or not the business will eventuate (or their tender is yet to be successful) for the third leg- therefore, flexibility in this respect is quite beneficial.

    Compared to a short period- I would say that most TC orders that are of a short period time frame generally want a more specific time in which the ship will be utilised compared to that of a 2-3LL tct.

    JDH

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  2. I echo the position above, and underline the fact that 2/3LL is far more flexible for the time charterer, given that the redelivery will not be governed by the time frame of a period charter.

    Fixing 4-6 months "should" allow 2-3LL, but if the vessel faces delays on the first and/or second leg you no longer have the option to perform a third, (frustrating in a rising market).

    The 2/3LL fixture should surely carry a premium on the hire rate, over an equivalent period fixture?

    MS

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  3. Thanks for the 2 replies

    Both logical and sensible answers HOWEVER i am not entirely sure one is better than the other...

    I guess as a shipowner giving my ship away 2/3 laden legs would scare me because in truth i would have little control about when i get the ship back. 2/3 laden legs could be anything from 25 to 150 days...

    I have seen ships peform consecutive 10 day coal voyages...but i have also seen ships perform one Atlantic to Pacific (and vice versa) parcel operations that take 70 days...70 days x 3 voayes = 200 plus days...

    pretty risky if its my ship....how do i plan and the idea that i am giving the charterer this kind of flexibility scares me.

    In reality though i think 2/3 laden legs and short period (3-5 months) would probably command close to same rate...

    In a weak market a shipowner when faced with not many
    other options may accept a deal he would otherwise ignore..

    thanks for playing

    cheers
    vs

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