Two tiered chartering market

One of the students which is currently undertaking the 'Virtual Shipbroker 3 month 'chartering' Mentor program' asked me a good question today.

When a charterer sends you a tc order or cargo position how does a broker know where all the ships are?

Ok here is the scoop. There are two tiers of shipbroking and chartering markets out there.

The lower tier is all the business that is seen in the various shipbroker trading platforms ou there. Small charterers, small shipowners, older ships, cargoes that are not firm, business that is not considered first class. You can if you wish enter into these markets and try your hand and doing some fixtures. Some people are no doubt making money doing this. But it is a risky business.

Then there is you first class market full of major public and private companies. Those who are doing 90 percent of the worlds big business. When you broker these markets you will receive between 700 and 1500 emails per day with both cargo and vessel positions. Guess what? Its the junior brokers job (most of the time) to update the inhouse vessel database with these open positions. A junior broker will sometime spend half his/her day on this task. Its great practice - as you get to know your geography, the names of ships and shipowners etc.

To lend a helping hand most shipping software these days comes with programms that can read the incoming emails and automatically update ship positions for you! Wow - who would have thought.

Anyway - when a new cargo comes on the market the first thing on a brokers mind is to quickly whip up a list of suitable ships. So if the junior brokers and the software has done its job within seconds a broker should have 20-30 or 50 possible candidates at the tip of his fingers. Then the phone calls begin in earnest!

Two important points
a) imprtant to have shipowners trust you enough to send you there ship positions
and
b) Many shipowners and brokers guard this information with their lives (from other brokers and traders)

Why? Because shipping is not a cost business people - its a commodity. Say lit loud - Bulk freight is a commodity business and people are there to make money........and therefore 'information' is worth gold!

Wheres my valium?

Yours VS

Great question from a shipowner reader of the blog

The following interesting question was asked on my post regarding the definititon of a 'ballast bonus'

I have decided to BUMP the question and you guys can make up your own minds.

Qte

From ANON

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???????

Unqte

Hello Anon and thanks for the question.

First let me say that I am not a lawyer so the following is only my opinion. A few things remain uncertain in your story that would require clarification.

1. If the vessel has delivered and you have infact recieved the ballast bonus payment (usually a few day after delivery) has the ship infact started loading the cargo? If ther is cargo onboard this would complicate the issue.

2. Can the ship be fixed / repaired at the port or nearby. What is the time frame for repair.

3. Has the market changed significantly since the fixture was agreed and are there other ships around?

++

We dont know the above information but here is my intial thoughts. When you agreed the contract with the charterer part of any shipping contract stipulates that you must provide a ship in fully working condition for the 'entire duration' of the contract. If for some reason you cannot, and this reason has nothing to do with the charterers, then technically you would be in breach of contract.

Then you have to think about a remedy.

The charterer will probably argue he is within his rights to insist that you perform either with this ship or another one. Then it could be an offhire issue etc

If you cannot perform then he would probabloy seek damages and this would be reflected in the price of chartering a replacement ship.

The question here is does the Ballast Bonus come into play? - Well my opinion is that the ballast bonus although not charter hire, has been factored into the overall cost to the charterer and thus would contitute an unexpected loss to the non performance of the contract.

Again I am not a lawyer so this is only my opinion and I am sure the legal jargon I am using is not 100 percent on the mark - but you get my drift. Its reasonable to assume (and the law/arbitrators should reflect what is reasonable) that due to no fault of the charterers they should not have to forgoe a huge lumpsum ballast bonus payment - especially when you are ulimatley walking away from all resonsibilities...

Thats my opinion anyway - I am sure you could mount an arguement the other way...

Feel free to disagree..

++

Love the question - if anyone else want to pose another legal questions for debate - go for it!

Cheers
VS

Nice website

I wanted to tell you guys about a website.

Shipbroker Portal. These guys have put together a excellent interactive website for all shipbroking and chartering professionals. They have highlighted the Virtual Shipbroker blog so kudos to them. Check it out.
Cheers
VS

Never a better time...

To raise the overall barbarous tone of this blog

Poem lyrics of 'With Ships the Sea was Sprinkled Far and Nigh' by William Wordsworth

quote

With ships the sea was sprinkled far and nigh,

Like stars in heaven, and joyously it showed;
Some lying fast at anchor in the road,
Some veering up and down, one knew not why.
A goodly vessel did I then espy

Come like a giant from a haven broad;
And lustily along the bay she strode,
Her tackling rich, and of apparel high.
The ship was nought to me, nor I to her,
Yet I pursued her with a lover’s look;
This ship to all the rest did I prefer:
When will she turn, and whither? She will brook
No tarrying; where she comes the winds must stir:
On went she, and due north her journey took

Unquote
 
An interesting aside - The above poem was written in 1806 and only 3 years, later in 1809, Wordsworths sister Dorothy died in a shipwreck, from which only the captain survived. A dark cosmic irony.
 
VS

A time charter concept explained

What is the difference bewteen a 'time charter' (TC)  and a 'time charter trip' (TCT)?

We know that Time charter means that the charterer pays a daily hire rate for the ship for example usd 10,000 per day. Next step - A time charter can either be for a specific trip (A to B) or for an extended period of time (period time charter)

So there you have it - a TCT is from A to B and usually has very specific and well defined delivery and redelivery areas.

A 'period TC' can be anywhere from 2 months thru to 10 years and by necessity has less well defined delivery and redelivery areas. (I dont know where i will be tomorrow - what hope does a shipowner have prediciting where his ship will redeliver in 3 months time?) When quoting a period order - the estimated duration should always be quoted.

++

If when you see a time charter order quoted by a broker - you are unsure if it for a trip or for period then ask the question back to the broker. These days there seems to be some competititon as to who can describe a particular order using as little important information as possible.

Happy fixing

VS

Its Booming Baby!

Incase you guys hadnt noticed - the shipping markets have exploded over the last few months. The BDI after hitting new lows last year of around 800 points has now roared back 5 fold to be once again over 4,000 and double the 100 year averages.

What does all this mean?

Ships are more 5 times more expensive to hire so many shipowners have retreated back to their caribbean islands content in the knowledge that everyday they are so much richer they could buy half of Los Angeles and 4/5 of Detroit.

Brokers are 5 times richer and once again q'ng up to buy the best that Enzo has to offer, and charterers are asking the same old questions - why did this happen? my company is losing money! (but lucky for me I an a shipbroker by trade so i can move if I have to!).

Big salaries are back and bonus's will be huge. The bull recruitment run is here in earnest and most of the major shipping centres are severely short of experienced chartering and brokering personel.

This is it - jump on board - Happy Days!

VS

The voyage estimator

Update to those of you who have shown be interest in the voyage estimator pack that I am trying to develop. I say trying because the process is more trying and complicated than I had imagined. But we are slowly getting there. Keep the questions coming. And Peter - you will be the first to know!

I am sure it will be extremely useful for some of you - mostly those already in shipbroking, shipowning and chartering but also for those wanting to use it as an advanced learning aid.

The best thing is that despite the cost and time taken even if no one else wants it...than nothing lost because I will be using it for my biz anyway! So its all good.

Almost the end of the week!!!!!!!!! Enjoy.

VS

TC vs VC part 2

Here is an interesting way to look at the TC vs VC decision making process.

Another tough one to get your head around - so bare with me.

Lets say you the charterers have a cargo of coal ready to fix on voyage charter to a shipowner. The shipowner will price this voyage as follows

Cost plus margin (expected profit) = total freight charged.

The point here is that the shipowner will only move the cargo if he sees a profit. Or put another way - you the cargo owner are paying someone a margin to move your goods.

So the other choice you have is to remove that margin by doing it yourself at cost. This means instead of Voyage Charter you decide to try Time charter.

The only problem with attempting to do this voyage at cost (time charter) is that now you have extra risks and responsilities. You also need more xpertise and manpower to execute the voyage.

This is where the margin (payable in a voyage charter) goes. In a voyage charter you are paying a slight premium because you are giving over risk and expertise to a shipowner.

The reason why I have been thinking about these concepts is because I am currently mentoring a very small group of students who are super keen to expand their shipbrokering and chartering knowledge.

This blog process helps get the concepts clear in my mind.

Hoping it helps you too..

Yours
VS

Time charter or Voyage charter?

Time charter or voyage charter? That is the question!

In "Inside shipbroking" and "shipbroker fast track" I discuss these concepts in some detail.

I delve into some of the differences and give explanations as to why a charterer would pick one over the other.

But after a few recent events in my neck of the woods, it got me thinking and that can never be good. It made me ponder for a moment too long about the decision faced by many charterers: Voyage charter or Time charter?

And following on from that restless stream of consciousness I began to think about shipping in the old days, when cargo owners were really cargo owners, shipowners were really shipowners and the English were good at Tennis. Back in those days (before colour tv, before Puskas, before David Hasselhoff) all we really needed was a voyage charter. Contractual parties knew exactly the roles they played and off we went to sea.

But soon thereafter, other creatures called ship operators begin to emerge from the gloomy seaway fog (as necessary as they are to provide competition and to spread risk) and TIME CHARTER became the drug of choice for those looking to make a "MARGIN" from the changing tides of international shipping and life has never been the same since.

Or maybe not.......

I charter therefore I am

VS

Shipbroker Translation

Hi All

I have added a translation tab on the right margin for those of you who cant read English. Come to think of it if you cant read English then you probably cannot read this post........

Anyway - if you know someone who cant speak English but has an interest in bulk shipping be a chap and let em' know about this new initiative!

It was either that or for me to learn 12 languages...........I struggle with one.....thanks to Google translations!

Thanks
VS

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

Pirates!

Interesting the commercial costs of pirates. Anyone looking at sending ships into and out of pirate hotspots is currently paying huge freight premiums. Shipowners (and their insurers) are either slugging charterers huge safelty premiums, or in many cases downright refusing to send ships into those regions at all.

The refusal to send ships into a particular region has consequences on freight rates because a smaller pool of ships means less supply and thus higher prices (for that trade)!

Its a huge problem and as a global society our ability to deal with it in an effective manner continues to be tested.

In my opinion, the first logical step is to lobby the Hollywood heavyweights to immediatley cease creating pirate movies starring Johnny Depp! Everyone wants to be a pirate........

I am offcourse being flipant about a real problem. Lets see how the world deals with the pirate menace over the ensuing months.

Yours
VS