International Trade: International Trade is the exchange of goods and services between different

countries. Presently no country is self-sufficient with her own product and services ,they are
interdepenpendet each other, must need exchange of goods and services between them as a result
International trade occurs between different Nations.

For example Bangladesh produce good quality of readymade garments and she export rest of the world
on the other hand she need to import oil from middle east ,car from japan,computer frorm USA.As
seafarer we used to giving services to foreign company earning foreign exchange also a part of internal
trade.

It is not only a cross border trade but also a result of inflow and outflow of foreign exchange between
two nations.

Benefit of International Trade for Developing Country:

Developing country can boost her economy by International Trade ,accelerate her GDP ,reduce
poverty level ,developed infrastructure ,health and education and build skilled worker. Bellow we
discuss some benefit .

1.Trade can help to boost development and reduce poverty level generating increased commercial
activities and investment by private sector.

2.Trade increase competitiveness among the company .It is not only reduce the cost of product but also
help the country to produce quality product and become the part of a global value Chain.

3.Trade facilitate export diversification by allowing developing country to access new markets and new
materials which open up her new productions possibilities.

4.Trade encourages innovation by facilitating exchange of know-how technology ,research

development through foreign direct investment FDA.

5.Trade help to expand business opportunities for local companies to export foreign new market.

6.Trade help consumers to get quality product in lower price and always make fail competition among
companies as a result consumers get more benefit and availability of consumers product.

7.Employee, Labor enjoy good working place and environment in their workplace, As companies are
member or trade partner of international companies.So they try to maintain international standard for
pay roll also.

8.Trading environment in private sector influence government also . Govt. owned company become
more efficient and try to follow private company in their production and procurement.

9.International Trade build harmony and piece between different nations. It strengthening ties
between nation . People of different countries trade each other and mutually benefitted try to leave
peaceful life.
10.Trade create employment opportunity by boosting economic sector. More international trade, more
stable job usually higher income. As a result it improve livelihood.

Globalizaion:It isa prominent feature of modern economy which shifting economy towards integrated
and interdependent way.

Globalization is the process of interaction and integration among the people, companies, and
government of different nations, which driven by international trade and investment, and aided by
information technology.

This process has verse effects on the environment,culture,political system,economic development,

prosperity and well-being in society around the world.

For example an watch keeper sailing on board of NYK(Japan),carrying cargo from China to south Africa,
wearing Bangladeshi clothes (made in Bangladesh), using USA made navigating system.

Two aspect of globalizations

.Globalization of Market:

1. Historically distinct and separate national market merging in to one huge global market place.
2. Falling barriers to cross-border trade makes the process easier.
3. Process does not roll free direction due to cultural system ,consumer tastes and preferences,
distribution channel ,legal regulations.
4. There is rivalry among companies offering similar range of products in a particular
markets/country.

Globalization of products: Sourcing different components from global market place company
producing goods by locally. By doing this company hope to lower their overall cost and improve
quality ,make their product more competitive in the world market.

Advantage and disadvantage of globalization:

Advantage:

1)More customer,creating more profits and revenue for company.

2.Company benefitted by cheap labor.

3.Technology can easily be transferred by which developing country get benefit.

4 Increased in Foreign Direct Investment(FDA) which create more jobs.

5.A country can diversify its economy more faster with the help of Globalization.

Disadvantage:

1.From developed countries, low skilled jobs will be shifted to lower currency country, such as China.

2.Local company in poor country face problem by big company from developed country,usually
dominate poor country,s enterprise or company.

3.Developed country face trade deficits because production shifted to the poor country.

4.Middle income group faces problem in their income due to lower GDP in developed country.

5.A country economy will be too dependent on the world economy.If there is recession in one major
country. Exporter country will face also economic problem. KOVID 19 is main example

Creation of WTO:

WTO is an intergovernmental organization which regulates international trade. After world war II in
1947 some developed country lead by USA create GATT to liberization of trade. But GATT includes only
developed country ,as a result it was not working properly. So GATT member and rest of the (member
country ) sit together at least eight rounds how free trade could promote . In Uruguay round in 1986
member country create WTO.In 1993 WTO made frame work,rules and regulations ,guide line ,how it
will work.Member countries reached a formal agreement and signed at Morocco in April 1994.The
agreement was made effective on July Ist 1995 replacing the GATT signed by 123 nations.

In 2001 China joined in WTO, get more acceleration .But still disputes with member country for the
issue of agricultural subsidies by developed country. During Doha round June 2012 this issue was
resolve.At present total members are 164 ,they used to sit together time to time and discuss
themselves how free trade could promote more effectively and efficiently,
Five principle of WTO

1.Non-Discrimination: There is two component.

I)Most favored nation(MFN) rule: This rule requires that a WTO member must apply same condition on
all trade with other WTO members. If one country give favor in trade to other single country ,Need to
give same advantage in trade to all member countries.

II)National treatment policy: It means that imported goods should be treated same as domestically
produce goods. After import of foreign goods with in the country can not discrepant with their similar
local product,can not give in their local product some benefit by emposing policy or regulations.

Reciprocity: The practice of exchanging goods with others for mutual benefit .Specially privileges
granted by one country to another, It means good for good ,bad for bad. When two or more country
reached bilateral or multi-lateral agreement in trade or make common union (SAARC,ASSIAN,EU
,NAFTA) must look interest of other country. This bi lateral agreement should not affect other WTO
member country in their trade.

Binding and enforceable commitments: Tariff commitment made by WTO members in a multi lateral
trade negotiation .Fixations of tariffs on import goods called” binding” , Member countries should stick
on binding regarding import duties during international trade.How ever they can change the binding ,or
imposes tax on import goods but need to negotiate with member country in some cases may give
compensation to others.

Transparency: WTO members are required to publish their trade regulations and establish institutions
to review administrative decision affecting trade. Internal transparency need to maintain by WTO
member on their policy making in trade and WTO always discourage for quota or limiting in import.

Safety Valve:In specific circumstances government are able to restrict trade. WTO permit member to
take necessary action on import goods when it affecting environment,public health , animal health and
plant health.

PAYMENT METHOD

There are four common payment methods in International trade

1.Cash in Advance

2.Open account

3.Documentar collection
4.Documentary Credit(LC)

1CASH IN ADVANCE:

The buyer places the funds at the disposal of the seller prior to shipment of the goods and services. In
Simple word buyer send cash to seller account before shipment of goods and services upon received
payment seller used to ship the goods.

Seller is in advantage,Buyer is in risk,This method is used when the buyers credit is doubtful,when there
is unstable poitical and economic environment in the buyers country, Buyer has no assurance that he
will receive the goods with good quality,quantity,or intime.

2.Open account:

An arrangement between the buyer and seller whereby the goods are manufactured and delivered with
out payment to the buyer.Buyer give only commitment of payments specific future date with out any
legal document.The seller must have absolute trust that buyer will pay at the agreed date.

In this Method buyer get max,m advantage ,seller is in risk.Buyer only pay after receive the goodsand do
not have ane legal binding for payments.

3.Documentary Collection:

An arrangement where goods are shipped and the relevant shipping documents (bill of exchange or
draft) used to send from seller bank to buyer bank for payment. Upon received of document buyer
bank inform the buyer to pay the bill and collect the documents to release the goods.

In this Method both Buyer and seller fill secure with their payment and shipment. Though document
sending through bank but they are not liable or responsible for payment.

Collections may favor the buyer since payments is deferred by him until the goods arrive.On the other
hand seller has some legal option for payment as he sending the draft through bank.

4.Documentary Credit/letter of credit.

Documentary Credit or Letter of credit is an undertaking from buyers bank to sellers bank.This is an
arrangement usually satisfies the seller,s desire for cash and the buyer,s desire for credit.This financial
instrument serves the interest of both parties independently.In this method both banks and parties are
involve in legal bindings,sellers bank is liable to ship the goods in agreed date and buyer’s bank is liable
for payment in time.

Advantage of Letter of credit:

Facilitates Financing

Clear cut promise of payment.

Guaranty of shipments of goods and service in time with quality

Satisfies the financing needs of the seller and buyer

Seller could get financial help from his bank and buyer get time for his payment as wel

Reduces or eliminates commercial credit risk

Payment is assured by the bank which issue a letter of credit,seller no longer rely on buyer’s willingness
and capability for payment.

UCP rules are followed in Letter of credit which guided by ICC (international Chamber of Commerce)

Provides legal protection supported by wide variety of laws and regulations.

Type of Letter of credit:

Sight L/C: Under this L/C documents are payable at sight . After presentation of the correct document
by seller bank to buyer’s bank and buyer’s bank must pay draft or bill immediate. Issuing bank could
not make delay for payments .

Days L/Under this L/C bill of exchange or draft,or documents will be payable after a period .Buyer and
His bank will give acceptance and value date (payment date, maturity date) to sellers bank,
automatically on maturity date buyer bank will release payment to sellers bank. Normally Days L/C are
30,60,90,120,180days sight.

Revocable and Irrevocable Credit:

A revocable LC is a credit in which terms and condition could change by buyer prior informing the seller

On the other hand under Irrevocable credit buyer could not change the terms and condition of L/C with
out sellers concern. Irrevocable credit is credit,terms and condition of which can neither be amended
nor cancelled.
Confirmed L/C:Under this L/C second bank other than issuing bank give undertaking or guaranty to the
seller’s bank. In this type of L/C seller get double guaranty for his shipment.In case of failure to make
payment by first bank(issuing bank) second bank is liable for payment.

Back to Back L/C : Exporter (beneficiary, seller) issue single or multiple L/C from exporter’s bank which
he received from his Buyer to collect raw material to procure his shipment. Normally seller’s bank uses
export L/C as guarantee issue L/C on favor of supplier ,normally can use up to 75% value of export L/C.

In the Garments sector of Bangladesh Back to Back L/C used widely .

Transferable L/C: Transferable letter of credit is one in which a beneficiary can transfer his rights to
third parties. Such L/C should clearly indicate that it is transferable L/C.In this L/C beneficiary work as
middleman.

Red clause L/C:Under the Red Clause L/C, the issuing bank will make an advance payment to the
exporter.This is usually done to provide aid to the seller in the form of working capital to purchase raw
material,processing the goods.

Stand by L/C: A standby Letter of Credit is a guarantee that is made by bank on behalf of a client, which
ensures payment will be made even if their client cannot fulfill the payment.Normally this type of L/C
not in use it is the last source of payments instrument of bank in international trade.

Revolving LC: A revolving LC is a single letter of credit that covers multiple transactions over a long
period of time.It is usually used with same buyer same sellers doing trade with similar item with very
long period.
 International trade and ship chartering
Course code: 4257
Bangladesh Marine
Academy

NOTE

1A) Define International Trade. 3

International Trade: International Trade is the exchange of goods and services
between different countries. Presently no country is self-sufficient with her
own product and services, they are interdependent each other, must need
exchange of goods and services between them as a result International trade
occurs between different Nations.
For example, Bangladesh produce good quality of readymade garments and she
export rest of the world on the other hand she needs to import oil from middle
east, car from japan, computer from USA.As seafarer we used to giving
services to foreign company earning foreign exchange also a part of internal
trade.
It is not only a cross border trade but also a result of inflow and outflow of
foreign exchange between two nations.

1B) Describe of some benefit International Trade for 10

Developing Country.

Benefit of International Trade for Developing Country:

Developing country can boost her economy by International Trade ,accelerate

her GDP ,reduce poverty level ,developed infrastructure ,health and education
and build skilled worker. Bellow we discuss some benefit .

1.Trade can help to boost development and reduce poverty level generating
increased commercial activities and investment by private sector.

2.Trade increase competitiveness among the company .It is not only reduce the
cost of product but also help the country to produce quality product and
become the part of a global value Chain.

3.Trade facilitate export diversification by allowing developing country to

access new markets and new materials which open up her new productions
possibilities.

4.Trade encourages innovation by facilitating exchange of know-how

technology ,research development through foreign direct investment FDA.
5.Trade help to expand business opportunities for local companies to export
foreign new market.

6.Trade help consumers to get quality product in lower price and always make
fail competition among companies as a result consumers get more benefit and
availability of consumers product.

7.Employee, Labor enjoy good working place and environment in their

workplace, As companies are member or trade partner of international
companies.So they try to maintain international standard for pay roll also.

8.Trading environment in private sector influence government also . Govt.

owned company become more efficient and try to follow private company in
their production and procurement.

9.International Trade build harmony and piece between different nations. It

strengthening ties between nation . People of different countries trade each 3
other and mutually benefitted try to leave peaceful life.

10.Trade create employment opportunity by boosting economic sector. More

international trade, more stable job usually higher income. As a result it
improve livelihood.

1.C) What is Globalization?

Globalizaion:
It is a prominent feature of modern economy which shifting economy towards
integrated and interdependent way.
Globalization is the process of interaction and integration among the people,
companies, and government of different nations, which driven by international
trade and investment, and aided by information technology.
This process has verse effects on the environment, culture, political system,
economic development, prosperity and well-being in society around the world.

For example an watch keeper sailing on board of NYK(Japan), carrying cargo

from China to south Africa, wearing Bangladeshi clothes (made in
Bangladesh), using USA made navigating system.

1.D) Describe the aspect and factors of Globalization. 4

Two aspect of globalizations

Globalization of Market:
Historically distinct and separate national market merging in to one huge global
market place.
Falling barriers to cross-border trade makes the process easier.
Process does not roll free direction due to cultural system, consumer tastes and
preferences, distribution channel, legal regulations.
There is rivalry among companies offering similar range of products in a
particular markets/country.

Globalization of products:
Sourcing different components from global market place company producing
goods by locally. By doing this company hope to lower their overall cost and
improve quality, make their product more competitive in the world market.

Advantage and disadvantage of globalization:

Advantage:
1)More customer, creating more profits and revenue for company.
2.Company benefitted by cheap labor.
3.Technology can easily be transferred by which developing country get
benefit.
4 Increased in Foreign Direct Investment(FDA) which create more jobs.
5.A country can diversify its economy more faster with the help of
Globalization.

Disadvantage:
1.From developed countries, low skilled jobs will be shifted to lower currency
country, such as China.
2.Local company in poor country face problem by big company from
developed country, usually dominate poor country’s enterprise or company.
3.Developed country face trade deficits because production shifted to the poor
country.
4.Middle income group faces problem in their income due to lower GDP in
developed country.
5.A country economy will be too dependent on the world economy. If there is
recession in one major country. Exporter country will face also economic
problem. KOVID 19 is main example
2.A) How WTO create? 5

Creation of WTO:

WTO is an intergovernmental organization which regulates international trade.

After world war II in 1947 some developed country lead by USA create GATT
to laterization of trade. But GATT includes only developed country ,as a result
it was not working properly. So GATT member and rest of the (member
country ) sit together at least eight rounds how free trade could promote . In
Uruguay round in 1986 member country create WTO. In 1993 WTO made
frame work, rules and regulations ,guide line ,how it will work. Member
countries reached a formal agreement and signed at Morocco in April
1994.The agreement was made effective on July 1st 1995 replacing the GATT
signed by 123 nations.
In 2001 China joined in WTO, get more acceleration .But still disputes with
member country for the issue of agricultural subsidies by developed country.
During Doha round June 2012 this issue was resolve. At present total members
are 164 ,they used to sit together time to time and discuss themselves how
free trade could promote more effectively and efficiently,

2.B) Describe briefly five principles of WTO. 15

Five principle of WTO

1.Non-Discrimination:
There is two component:
I)Most favored nation(MFN) rule: This rule requires that a WTO member must
apply same condition on all trade with other WTO members. If one country
give favor in trade to other single country ,Need to give same advantage in
trade to all member countries.
II)National treatment policy: It means that imported goods should be treated
same as domestically produce goods. After import of foreign goods with in
the country can not discrepant with their similar local product,can not give in
their local product some benefit by imposing policy or regulations.

2. Reciprocity:
The practice of exchanging goods with others for mutual benefit .Specially
privileges granted by one country to another, It means good for good ,bad for
bad. When two or more country reached bilateral or multi-lateral agreement in
trade or make common union (SAARC,ASSIAN,EU ,NAFTA) must look
interest of other country. This bi lateral agreement should not affect other WTO
member country in their trade.
3.Binding and enforceable commitments: Tariff commitment made by WTO
members in a multi lateral trade negotiation .Fixations of tariffs on import
goods called” binding” , Member countries should stick on binding regarding
import duties during international trade.How ever they can change the binding
,or imposes tax on import goods but need to negotiate with member country in
some cases may give compensation to others.

4.Transparency: WTO members are required to publish their trade regulations

and establish institutions to review administrative decision affecting trade.
Internal transparency need to maintain by WTO member on their policy
making in trade and WTO always discourage for quota or limiting in import.

5.Safety Valve: In specific circumstances government are able to restrict

trade. WTO permit member to take necessary action on import goods when it
affecting environment, public health , animal health and plant health.

3.A) How many payment methods are there in International

Trade?Describe them.
10
PAYMENT METHOD
There are four common payment methods in International trade
1.Cash in Advance
2.Open account
3.Documentar collection
4.Documentary Credit(LC)

1.CASH IN ADVANCE:
The buyer places the funds at the disposal of the seller prior to shipment of the
goods and services. In Simple word buyer send cash to seller account before
shipment of goods and services upon received payment seller used to ship the
goods.
Seller is in advantage, Buyer is in risk, This method is used when the buyers
credit is doubtful, when there is unstable political and economic environment in
the buyers country, Buyer has no assurance that he will receive the goods with
good quality, quantity, or intime.

2.Open account:
An arrangement between the buyer and seller whereby the goods are
manufactured and delivered without payment to the buyer. Buyer give only
commitment of payments specific future date without any legal document. The
seller must have absolute trust that buyer will pay at the agreed date.
In this Method buyer get maximum advantage, seller is in risk. Buyer only pay
after receive the good sand do not have an legal binding for payments.

3.Documentary Collection:
An arrangement where goods are shipped and the relevant shipping documents
(bill of exchange or draft) used to send from seller bank to buyer bank for
payment. Upon received of document buyer bank inform the buyer to pay the
bill and collect the documents to release the goods.
In this Method both Buyer and seller fill secure with their payment and
shipment. Though document sending through bank but they are not liable or
responsible for payment.
Collections may favor the buyer since payments is deferred by him until the
goods arrive. On the other hand seller has some legal option for payment as he
sending the draft through bank.

4.Documentary Credit/letter of credit.

Documentary Credit or Letter of credit is an undertaking from buyers bank to
sellers bank. This is an arrangement usually satisfies the sellers desire for cash
and the buyers desire for credit. This financial instrument serves the interest of
both parties independently. In this method both banks and parties are involve
in legal bindings, sellers bank is liable to ship the goods in agreed date and
buyer’s bank is liable for payment in time.

B) Describe the advantage of letter of credit. 4

Documentary Credit or Letter of credit is an undertaking from buyers bank to

sellers bank.This is an arrangement usually satisfies the seller,s desire for cash
and the buyer,s desire for credit.This financial instrument serves the interest of
both parties independently.In this method both banks and parties are involve in
legal bindings,sellers bank is liable to ship the goods in agreed date and buyer’s
bank is liable for payment in time.
Advantage of Letter of credit:
Facilitates Financing
Clear cut promise of payment.
Guaranty of shipments of goods and service in time with quality
Satisfies the financing needs of the seller and buyer
Seller could get financial help from his bank and buyer get time for his
payment as wel
Reduces or eliminates commercial credit risk
Payment is assured by the bank which issue a letter of credit,seller no longer
rely on buyer’s willingness and capability for payment.
UCP rules are followed in Letter of credit which guided by ICC (international
Chamber of Commerce)
Provides legal protection supported by wide variety of laws and regulations.

C) Discuses Type of Letter of Credit. 6

Type of Letter of credit:

Sight L/C: Under this L/C documents are payable at sight . After presentation
of the correct document by seller bank to buyer’s bank and buyer’s bank must
pay draft or bill immediate. Issuing bank could not make delay for payments .
Days L/Under this L/C bill of exchange or draft,or documents will be payable
after a period .Buyer and His bank will give acceptance and value date
(payment date, maturity date) to sellers bank, automatically on maturity date
buyer bank will release payment to sellers bank. Normally Days L/C are
30,60,90,120,180days sight.
Revocable and Irrevocable Credit:
A revocable LC is a credit in which terms and condition could change by
buyer prior informing the seller
On the other hand under Irrevocable credit buyer could not change the terms
and condition of L/C with out sellers concern. Irrevocable credit is credit,terms
and condition of which can neither be amended nor cancelled.

Confirmed L/C:Under this L/C second bank other than issuing bank give
undertaking or guaranty to the seller’s bank. In this type of L/C seller get
double guaranty for his shipment.In case of failure to make payment by first
bank(issuing bank) second bank is liable for payment.
Back to Back L/C : Exporter (beneficiary, seller) issue single or multiple L/C
from exporter’s bank which he received from his Buyer to collect raw material
to procure his shipment. Normally seller’s bank uses export L/C as guarantee
issue L/C on favor of supplier ,normally can use up to 75% value of export
L/C.
In the Garments sector of Bangladesh Back to Back L/C used widely .
Transferable L/C: Transferable letter of credit is one in which a beneficiary
can transfer his rights to third parties. Such L/C should clearly indicate that it is
transferable L/C.In this L/C beneficiary work as middleman.

Red clause L/C:Under the Red Clause L/C, the issuing bank will make an
advance payment to the exporter.This is usually done to provide aid to the
seller in the form of working capital to purchase raw material,processing the
goods.

Stand by L/C: A standby Letter of Credit is a guarantee that is made by bank

on behalf of a client, which ensures payment will be made even if their client
cannot fulfill the payment.Normally this type of L/C not in use it is the last
source of payments instrument of bank in international trade.
Revolving LC: A revolving LC is a single letter of credit that covers multiple
transactions over a long period of time.It is usually used with same buyer same
sellers doing trade with similar item with very long period.
 4.Writ the short notes of the following terms: (Any 8) 20

1) Tariffs: Tariffs is a tax on imports goods by the Governments, it can be two type,
a fixed charge for each unit of good imported ie per unit called Fixed tariff. When it is
charged at a proportion of the value of the imported goods called Ad-Valorem.
Tariffs are pro-producers and anti-consumers.
Tariffs may protect home producer from foreign competition may also raise the price
of good at home.
Tariffs restrict fair competition and effect global supply chain.

2) Subsidies:
It is Government payment to domestic producer (cash grants, low interest loan, tax
break, tax holidays) Subsidies lower the production costs. Mainly granted to the
agriculture, manufacturing and service sector.

3) Import Quotas:
A direct restriction on the quantity of some goods that may imported in to a country.
Government fixed quantity of goods that could only import inside the country.

4) Hybrid Quotas:
also called tariff rate quota, it means that a lower tariff rate applied to imports with
in the quota, while higher tariffs are applied on import over the quota. In other word
lower tax rate with in the quota and higher tax rate beyond the quota.

5) VER:
Voluntary Export restriction, normally quota imposes by importing country, but
when exporting country imposes quota on export goods on the request of importing
country called Voluntary Export Restriction. For Example Japan some time Japan
give restriction to export car to USA on USA governments request.
6) Anti-Dumping Policy:
Dumping is selling goods in a foreign market at below its production cost. Some time
company earning high profit in their home market export excess production to foreign
market in very low price which is bellow production cost then government of
importing country could imposes tax on that specific product called antidumping
policy.
India imposes once antidumping tax on car battery for Bangladeshi Company
Rahim Afroz .Though Bangladesh won the case in WTO.

7) Mercantilism: In this trade theory country will export more import less by means
of gold and silver. Main aim to be trade surplus, Exporting more mean that country
will earn more gold and silver and importing more meant that it spent more gold and
silver.
Thus trade surplus consequently increase nations wealth.
Mercantilism believes that trade is zero-sum game if one country gains in trade
other country will loose automatically. This theory used use in trade in 16th – 17th
century.

8) Neo-Mercantilism: Neo- Mercantilism do not believe or talk about gold and

silver in trading instead of gold and silver they believe to use currency in trading. In
this theory country will export more and import less by surplus trade country will
gain more political and economic power. In this theory trade is a zero-sum game
one country will win other country will lose.
9) Theory Of Absolute Advantage: Adam smith explained in his book ~the wealth
of Nations” trade is not zero-sum game it is a win –win game. Country will export
which item she can produce and import which she do not have or do not produce. In
this world no country is sufficient enough to produce the entire item she required. So
she will export that item she is expert and import which she do not produce but she
need.
For example Ghana produce lot of Cocoa and Korea produce rice .So Ghana will
export cocoa for the rice to Korea and both countries will be benefitted .This theory
talks about free trade and trade should not control by government.
10) Comparative Advantage: This theory explains Country will give more effort
which she can produce effectively and less effort in which item she is not expert.
Country will produce more in which she is in expert and produce less in which she is
not expert.
For example Bangladesh is in expert for producing textile on the other other hand
USA produce computer more effectively. So Bangladesh will produce more textile
and less computer and exchange with USA and do trade. Here trade is positive-sum
game Both country will benefit in trade.
11) Porters Theory:
Why a nation achieves international success in a particular industry,
Why Japan is so successful in automobile industry
Why Switzerland is so expert to produce watch, Usa in computer, Germany in
chemical.
Porter explain four component that help a nation to achieve international success in
certain industry.
1. Factor endowments: Nations position of production it depends on his
resources such as, natural resources, man power, technical know how, infrastructure
,etc.

China is a population endowment country so they will produce textile ,Australia is

mineral resources country so there will more mineral industry.
2. Firm Strategy, Structure and rivalry depend on conditions how companies
are created, management , government policy business environment.
3. 3.Demand condition : Home demand and choice of consumers guide local
industry to produce quality product
4. Related support industry: Support industry make quality component and
supply to big company for producing their products a result the could produce their
quality goods in time more effectively

5.A) What do you mean by incoterms in International Trade?

Incoterms are internationally accepted commercial terms defining the respective
roles and responsibilities (including costs, risks of transportation, duties, selection of
carrier, mode of transportation) between buyer and seller in the arrangement of
transportation.
The incoterms are international rules that arte used in commercial agreements during
transportation.
The term specifies the responsibilities between buyer, seller and carrier. Mainly
following terms
Delivery and receiving of cargo
Division of cost (freight, insurance, port charges, duties,)
The transfer of risk
Proof of delivery, transport documents, etc.
All rules and regulations are published in INCOTERMS 2000

B. Write Group wise incoterms.

Group wise incoterms
There are four group in incoterms on the basis of terms and conditions and
responsibilities between buyer and sellers.
Group E – Departure: Group E define on the basis of departure
EXW – Ex Works (named place) Buyer will receive the goods from sellers premises
all responsibility, charges, duties to carry the goods up to his place is buyers
responsibly.
Group F-Main carriage unpaid : Seller will place the goods up to port or ship
alongside but will not pay freight, from departure port all charges and responsibility
on buyers account.
FAS- Free Alongside Ship(named loading port) FOB- Free On Board(named loading
port)
Group C- Main carriage Paid: In this term seller responsibility up to destination
port. Seller will place the goods and pay all the changes up to destination port
(handling charge, ship freight, insurance etc.)
CFR- Cost and Freight (named destination port)
CIF – Cost, Insurance, and Freight (destination Port)
CPT –Carriage paid to(named place of destinations)
CIP- Carriage and insurance Paid to(named place of destination)
Group D – Arrival: Seller is responsible to delivery the goods up to buyers place.
All charges risk and responsibilities on sellers account( departure and arrival port
charges, insurance, ship freight even duty etc will paid by seller)
DAF- Delivered At Frontier (named place)
DAS –Delivered Ex Ship (named port of destination)
DEQ- Delivered Ex Quay ( named port destination)
DDU- Delivered Duty Unpaid(named destination place)
DDP – Delivered Duty Paid (named destination place)
FCA – Free Carrier (named place)

C.Define shortly following terms. 10

EXW: Ex Works, Seller will place the goods on his premises ,from sellers point to
ship, departure port charges, ships freight ,insurance ,arrival port charges , duties etc
are buyers responsibilities.
In Ex work seller has no obligation but all responsibilities on buyers head.
FCA: Free Carrier , seller must delivery the goods from his premises to the carrier
(Ships cargo agent)or person nominated by buyer (freight forwarder)
Departure port charges, shipping freight, insurance, arrival port charges, duties etc.
are buyers responsibility. In this term sell has minimum obligation and buyer has
more obligation.
FAS: Free Alongside ,Under FAS seller is required to provide delivery at a point
close enough to the carrying vessel ,near loading crain.
Loading truck, container , port clearance, etch are sellers responsibility.
Shipping charges ,arrival port clearances, duty, insurance are buyers obligations.
This term used when cargo loads from lighter vessel to mother vessel.

FOB: Free on Board, Sellers obligations to place the cargo up to ships rail or
onboard. Port clearances, handling charges ,truck fair, loading charges etc. are sellers
obligations, on the other hand shipping freight, insurance, arrival port charges duties
are buyer obligation.
Sells risk to reach the cargo up to ships rail , from ships rail is buyers responsibility.

CFR: Frequently called C&F, cost and freight ,Seller will carry the goods up to ships
rail, responsible for port clearance, loading, shipping freight etc. Seller is responsible
to reach cargo up to destination port, Buyers responsibility start from departure port.
Insurance will cover by the buyer, hence seller is not responsible if any cargo damage
in transit during voyage.
CIF: Cost ,insurance and freight ,All terms and condition like CFR in edition sellers
need to do insurance for cargo. Sellers responsibility to reach the cargo up to
destination port. departure port clearance ,loading, handling charges, shipping
freight,. insurance etc. are sellers responsibility. During voyage any cargo damage
,sellers is responsible as he covering the cargo insurance often called marine
insurance.
CPT: Carriage paid to this term is opposite to FCA. Seller is responsible to reach the
cargo up to buyers specific place in departure port area. This term mainly use when
handling bulk cargo in anchorage out side of port.
CPT can be used all transportation modes, such as ship, truck, rail ,inland waterway.
Dep. Port charges, export clearances, freight etc. all are sellers responsibility.

DAF: Delivery at Frontier, Seller will pay export clearance, shipping cost, handle the
loading truck, train, barge board other at the sellers facility all are sellers
responsibility up to stipulated place. Buyer will do imp-ort clearance.
Neither party is required to do insurance in DAF
This term mainly use in land boarder trading.
DES: Delivered Ex Ship, DES is restricted to vessel shipments. The seller is
responsible for:
Loading the truck, train, barge or other means at the sellers facility
Pre carriage
Export clearance
Main carriage.
Buyer is responsible for export clearance ,vessel unloading.
DDP: Deliver Duty Paid, is the exact opposite of Ex works(EXW),seller is
responsible to reach cargo up to buyer stipulated place which can be buyers premises.
It is door to door delivery by sellers in international trade.
5.Seller is responsible and will do all formalities ,duties, charges,
clearances to reach the cargo up to buyers premises. Buyer will
only receive the goods.
A) Describe shortly how shipping is the backbone of international
trade.
The international shipping industry is responsible for the carriage of around 90% of
world trade. Shipping is the life blood of the global economy. Without shipping,
intercontinental trade, the bulk transport of raw materials, and the import/export of
affordable food and manufactured goods would simply not be possible. Seaborne
trade continues to expand, bringing benefits for consumers across the world through
competitive freight costs. Thanks to the growing efficiency of shipping as a mode of
transport and increased economic liberalisation, the prospects for the industry's
further growth continue to be strong.

There are over 50,000 merchant ships trading internationally, transporting every kind
of cargo. The world fleet is registered in over 150 nations, and manned by over a
million seafarers of virtually every nationality. Ships are technically sophisticated,
high value assets (larger hi-tech vessels can cost over US $200 million to build), and
the operation of merchant ships generates an estimated annual income of over half a
trillion US Dollars in freight rates.
In International Trade 90% of world trade completed by ship & around 14 lac
seafarers are engaged in shipping for their livelihood. This sea born trade increasing
every year at the rate of 4%.
Throughout history the oceans have been important to people around the world as a
means of transportation. Unlike a few decades ago, however, ships are now carrying
goods rather than people. Tankers, bulk carriers and container ships are today's most
important means of transportation and each year carry billions of tonnes of goods
along a few principal trade routes.
The main reason behind the massive increase in shipping has been the growth in
world trade. But institutional and technological factors also had a role to play.
In the past, the liberalization achievements under GATT and its successor the WTO
provided a new momentum to world trade. China’s economic opening to the outside
world, which led to its 2001 admission to the WTO, was also very significant – its
exports quadrupled within 5 years. Another example of integrated markets boosting
international trade is a trebling of exports from Mexico to the USA within 6 years of
NAFTA being established.
The appetites of the industrial nations and newly-industrializing emerging economies
for energy and mineral resources led to increasing quantities of goods being
transported from far-distant countries.
The information and communications technology revolution dramatically reduced the
costs of mobility and accessibility. It allowed new network connections and
production processes such as just-in-time production, outsourcing and offshoring, and
provided a tremendous stimulus to logistics. As a result of rising demand,
transportation costs fell. Ships increased in size. Economies of scale were exploited.
Furthermore, there were technological advances and organizational improvements in
port management – of general cargo traffic, for instance. Of overriding importance
was containerization, the greatest transportation revolution of the 20th century. 10

B) Discuss various types of ship involve in international trade

that involve for carrying the goods in worldwide.
Specialization in the shipbuilding industry has brought massive changes to ocean
shipping. As a result, special ships have increasingly been constructed for different
types of freight. Specialisation helps speed up cargo handling, thus reducing the
costs per unit transported.
 General cargo ships
General cargo ships can be compared with bulk carriers but are in fact shipping
specialists. A large proportion of the goods they transport are awkwardly-shaped
and bulky, and do not fit into standard containers. Their cargo includes heavy goods
and project cargo for major building projects such as power stations, offshore
installations and mining. Some pieces of cargo weigh more than 1000 tonnes.
Tankers - crude oil, petroleum products, chemicals, liquid gas and juice concentrate
The capacity of the global oil tanker fleet is huge and stood at 418 million tonnes in
2009. This makes oil tankers the most important cargo ships in the global fleet next
to bulk carriers. Pollution from tanker accidents has reduced considerably in past
decades, despite the increased volumes of oil transported. This can mainly be traced
back to improvements in shipping technology.
Container ships - general cargo for long hauls
The container shipping industry has grown considerably in importance over past
decades. Standard container sizes have led to significant savings of time spent on
unloading and transferring cargo to trucks and rail. In terms of capacity per ship,
container ships are now far larger than general cargo ships.
Bulk carriers - ores, coal, grain
Bulk carriers, like oil tankers, accounted for 35 per cent of the total capacity of the
global fleet in 2009. These ships transport goods such as ores, coal and cereals. The
principal routes for ore shipments are from South America and Australia to Europe
and China.
Passenger and cruise ships
The total capacity of passenger ships and cruise ships, accounting for only one per
cent of the global fleet, is relatively small. Nonetheless the activity is booming.
Despite the economic crisis the major shipyards are continuing to build bigger and
increasingly elaborate ships.
Other
In addition, ferries for shipping trucks as well as roll-on/roll-off (Ro-Ro) ships,
which carry articulated lorries to drive the cargo onto the ship, are taking over the
tasks of general cargo vessels on short-haul routes, while refrigerated vessels
("reefers") specialise in transporting fruit and other perishable goods, mainly from
the Southern Hemisphere.
10
6. A) Discuss basic structure of shipping.
The structure of shipping
Basic structure of Shipping consists of 3 components.
1. Shipping
2. Cargo
3. Ancillary services
Shipping: In shipping involve, Ship-owner, Ship manager, Shipping line, Carrier.
Ship- owner handle the ship, Ship Manger manage the ship, Shipping line operate
ships between advertised ports on a regular basis.
Cargo: In cargo interest there are involvement between three parties. Shipper,
Charterer, Freight forwarder.
Shipper: Mainly who own the cargo, Charterer: Mainly cargo broker, Freight
forwarder: Who handle the cargo in the port.
Ancillary Service: Broker, Insurers, Surveyor, Classification societies, Flag state
officials, Port management, Stevedores, Port authorities, Coastguard.
Broker: All are provide ancillary service in shipping and cargo transit.

B) Write short note of following terms (any 8) 16

Shipper: A person or company who enters into a contract with a liner conference,
shipping line or ship-owner for the carriage of goods.
The shipper could be the seller of the cargo, the buyer of the cargo or some third
party that solely arranges the transportation of the cargo. shipper is mainly
owner of cargo. He has full authority of cargo. He arrange the ship, handover
the cargo to charterer or shipping line etc.
Freight forwarder: Freight forwarder is a person or company who handle the cargo
in arrival and departure port. Their responsibility to loading unloading the cargo to the
ship. They used to do middle man between shipper and carrier. After receiving of
cargo their main duty to do all port formalities and over to the cargo to carrier/ships.
Surveyor: Surveyors is a general term used by anybody wanting to inspect the ship or
its cargo, its procedures or operation.
They can be associated with
The company-superintendents, auditors etc.
Quality/sep/ism code
P&i clubs
Underwriters
Classification societies
Flag state authorities
Port state authorities
Cargo
Possible buyer of vessel

Broker: In shipping term broker can be a person or company who do as a

middle man for cargo, insurance, ship broker etc. When he arranges insurance
for the ship or cargo called insurance broker. When he engaged to buy and sell
entire ship call ship broker. Like this way they are shop owner’s brokers,
loading broker/liner brokers, charterer’s or merchant’s broker, chartering
brokers.
Ship’s agent/shipping agent: though technically not a broker, the ship’s agent
does attend to the ship owner’s commercial stay in port.
The ship’s agent represents the ship-owner with regard to the official requirements
needed for the ship to enter port, arranging with the port authorities for the allocation
of berthing space to load/unload the ship, advising import and loading/unloading the
cargo.
The ship’s agent will also attend to the customs requirements of the port, and
pay (to be later reimbursed by the ship-owner) all chargers and dues the ship
incurs.
Stevedore: Stevedores is a waterfront manual laborer who is involved in
loading and unloading ships, trucks, trains or airplanes. Loading and unloading
ships requires knowledge of the operation of loading equipment, the proper
techniques for lifting and stowing cargo, and correct handling of hazardous
materials. In addition, workers must be physically strong and able to follow
orders attentively. So this skill people together engaged in stevedore firm and
handle the cargo loading unloading in ship and port. In UK they called Dockers,
In USA and Canada they called long shore man.
Charterer: Charterer is the party that has chartered (think of simple word “hired”)
the ship. If the shipper has chartered the entire ship then shipper will also be the
charterer.
In most of the cases, charterer is a kind of middle man between shipper(s) and ship-
owners. This is particularly the case if there is more than one shipper. For example, if
the vessel is to load 50000 tons of cargo, there could be 10 shippers, say each of them
with 5000 tons of cargo.
Alone none of the shipper would want to hire the entire vessel of 50000 tons capacity
of their 5000 tons of cargo.
So they contact a charterer for transporting their cargo. The caterer’s job is to find a
vessel for the cargoes they have from different shippers and maximizing the space on
ship they plan to hire.
Charterers may not be the only person involved in filling the gap between ship-
owner and shipper.
Charterer party: A charterer party (sometimes charter-party) is a maritime contract
between a ship-owner and a “charterer” for the hire of either a ship for the carriage of
passengers or cargo, or a yacht for pleasure purposes.
Charter party is a contract of carriage of goods in the case of employment of a tramp.
It means that the charter party will clearly and unambigously set out the rights and
responsibilities of the ship owner and the charterers and any subsequent dispute
between them will be settled in the court of law or any agreed forum with reference to
the agreed terms and conditions as embodied in the charter party. The name “charter
party” is an Anglicization of the French charte partie, or “split paper”, i.e. a document
written in duplicates so that each party retains half.
Charter party agreement is three type: Time charter, Voyage charter, Demise
charter.
Classification society: A ship classification society or ship classification organization
is a non-governmental organization that establishes and maintains technical standards
for the construction and operation of ships and offshore structures. Classification of a
vessel complies with relevant standards and carries out regular surveys in service to
ensure continuing compliance with the standards. Currently, more than organizations
describe their activities as including marine classification, twelve of which are
members of the international Association of classification societies.
Because of this, a trust was established between the classification society and the
shipping industry and if a ship was ‘in class’ or was given a the class a Lloyds, the
cargo owner or underwriter could be confident that the ship was well found and had
been built to the highest possible standard, that she had been surveyed during the
building process and all her ancillary equipment, eg engines, plates, etc., had also
been surveyed and passed as complete. Once the ship was classed by the society it
had to maintain an extensive and regular survey schedule to maintain that class, this
would entail dry docking, under the society’s supervision, on board inspections and
dismantling of potentially hazardous equipment for detailed examination eg boilers.
The ship-owner could gain by having his ship in class be obtaining more favorable
insurance rates and better chartering arrangements.

5.A) What do you understand about the term “Charterer” and

“Charter Party”?

Charterer: Charterer is the party that has chartered (think of simple word “hired”)
the ship. If the shipper has chartered the entire ship then shipper will also be the
charterer. In most of the cases, charterer is a kind of middle man between shipper(s)
and ship-owners. This is particularly the case if there is more than one shipper. For
example, if the vessel is to load 50000 tons of cargo, there could be 10 shippers, say
each of them with 5000 tons of cargo.
Alone none of the shipper would want to hire the entire vessel of 50000 tons capacity
of their 5000 tons of cargo.
So they contact a charterer for transporting their cargo. The caterer’s job is to find a
vessel for the cargoes they have from different shippers and maximizing the space on
ship they plan to hire.
Charterers may not be the only person involved in filling the gap between ship-
owner and shipper.
 Charterer party: A charterer party (sometimes charter-party) is a maritime contract
between a ship-owner and a “charterer” for the hire of either a ship for the carriage of
passengers or cargo, or a yacht for pleasure purposes. Charter party is a contract of
carriage of goods in the case of employment of a tramp. It means that the charter party
will clearly and unambiguously set out the rights and responsibilities of the ship
owner and the charterers and any subsequent dispute between them will be settled in
the court of law or any agreed forum with reference to the agreed terms and
conditions as embodied in the charter party. The name “charter party” is an
Anglicization of the French charter parties, or “split paper”, i.e. a document written in
duplicates so that each party retains half.
5

B) What is the different between charterer & Charter party?

Differences between charterer & Charter party are following:

Charterer Charter party
Chartering is an activity within the shipping A charterparty (sometimes charter-party)
industry whereby a shipowner hires out the is a maritime contract between
use of their vessel to a charterer. a shipowner and a "charterer" for the hire of
either a ship for the carriage of passengers
or cargo, or a yacht for pleasure purposes.
The contract between the parties is called Charter party is a contract of carriage of
a charterparty (from the French "charte goods in the case of employment of a tramp.
partie", or "parted document").
Depending on the type of ship and the type The name "charterparty" is
of charter, normally a standard contract form an anglicisation of the French charte partie,
called a charter party is used to record the or "split paper", i.e. a document written in
exact rate, duration and terms agreed duplicate so that each party retains half.
between the shipowner and the charterer.
A Charterers' Liability Insurance is a type of Whereas a charterparty is the contract
insurance meant to protect shipping between a shipowner and a charterer, a
businesses from certain risk or liabilities. contract of carriage lies between the shipper
and the carrier.
Charterers may not be the only person Charter party is a contract of carriage of
involved in filling the gap between goods in the case of employment of a tramp.
ship-owner and shipper.

5
B) How many type of charter party and describe each shortly?
Charter party agreement is three type: Time charter, Voyage charter, Demise charter.
Types of charterparty
There are three main types of charterparties. They are-
1. Voyage charterparty
2. Time charterparty
3. Bareboat or demise charterparty

1. Voyage charterparty
Under a voyage charterparty, a shipowner undertakes to carry specified goods in
named vessel on one or several voyages. The charterer is obliged to furnish the agreed
cargo and pay the freight, which is usually calculated according to the quantity of
cargo loaded or carried, or sometimes lump sum freight. The shipowner retains
control of equipping and managing the vessel and renders services through his Master
and crew. In the case of the voyage charter he undertakes to carry a cargo between
specified points. A typical example of a voyage charter is provided by a seller of
goods under a c.i.f. contract who, having agreed to ship the goods to the buyer, then
charters a vessel to carry them to their destination. Normally, (unless there is an
express terms to the contrary) shipowner is responsible for all the operating costs of
the ship. For example crew cost, repair and maintenance costs, marine insurance and
P&I, stores, spares and lubrications oil costs etc. An example of a voyage charter
party which is used for the carriage of dry bulk cargo is the Gencon 94 charterparty
while an example of a voyage charterparty which is used for the carriage of liquid
bulk cargo is the Tankervoy 87.
2. Time charterparty
Under a time charterparty, a shipowner undertakes to render services for a specific
period of time (e.g.1 year) or for the period of a defined “trip” by his Master and crew
to carry goods. In a time charter shipowner agrees to place the carrying capacity of his
vessel at the disposal of the charterer for a specified period of time. The shipowner
retains control of equipping and managing the vessel and renders services through his
Master and crew. The time charter or, simply, "period charter ", is for a specific
period. The period can be a "flat period " for example,” twelve months" without a
"margin", or with a margin, for example, "minimum 11 maximum 12 months". A
clause in the charter will normally the precise length of the charter period in days,
months, or year. The consideration/remuneration payable by the charterer is usually
called “hire” and is calculated in proportion to the time during which the carrier is
entitled to the use of the vessel. Hire is the payment the charterer is under obligation
to pay to the shipowner. Actually ‘A time charter is not a contract of carriage but a
contract for the provision of the services of a crewed vessel’.
An example of a time charter party which is widely used in the dry bulk market is the
NYPE 93 charter party while an example of a time charter party which is used in the
tanker market is the Intertanktime 80.
3. Bareboat or demise charterparty
An agreement between the registered or legal owner of a ship and the bareboat
charterer, pursuant to which the owner transfers (demises) to the bareboat charterer
possession of the ship and the right to trade it as he chooses for a specified period. By
this type of charter, the shipowner leases his entire vessel and the charterer has the
responsibility of operating it as though it were his own vessel. In essence the vessel
owners put the vessel (without any crew) at the complete disposal of the charterer and
pay the capital costs, but (usually) no other costs. Under this type of contract, the
charterer will employ the crew and be responsible for all Technical Operation and
Commercial Operation and Management expenses. The charterer by demise is
virtually acting as owner of the vessel.
The bareboat charterer pays the hire (a specified amount, usually per day and payable
monthly in advance), maintain and insure the ship and indemnify the owner against
liabilities incurred by the ship. Hire payments may include installments of the
purchase price, and transfer of ownership may follow the final installment.
Actually, it operates as a lease of the vessel and not as a contract of carriage. Under a
demise charter the charterer displaces the owner and, for the period of the ‘lease’,
takes possession and complete control of the ship. Charterparties used for this type of
charter are BARECON ‘A’ (short term 3-8 years) and BARECON ‘B’ (longer term 8-
15 or 20 years). An example of a bareboat charterparty which is used in the dry bulk
market is the Barecon 2001 charterparty. 10
Charterparty/ Charter-party

Definition and concept:

The term ‘charterparty’ (commonly abbreviated to “C/P”) derives from Latin words “carta partita”
which means “contract divided”, i.e. a document written in duplicate so that each party retains half.

A deed between a shipowner and a trader (charterer) for the hire of a ship and the delivery of cargo.

A contract of affreightment/ contract of carriage in writing, by which the owner of a ship lets the
whole, or a part of her, to a merchant or other person (called charterer) for the conveyance of goods in
consideration of payment (money).

A contract in which the ship owner agrees to place his vessel or a part of it at the disposal of a third
party, the charterer, for the carriage of goods for which he receives a freight per ton cargo, or to let his
vessel for a definite period or trip for which a hire is paid.

According to the BMLA (British Maritime Law Association)-

‘Any agreement in writing executed by or on behalf of two or more parties whereby one party agrees
to charter from another one or more ships [or any part of proportion of one or more ships] whether on
a voyage, time or bareboat basis, whether the ship or ships are named in the agreement or are to
be nominated subsequently and whether for the carriage of one cargo or for the carriage of a series of
cargoes’

The charterer may intend to carry cargo on his own behalf, or alternatively he may sub-charter the
vessel or employ the vessel as a general ship.

Charterparties are made in writing and in the majority of cases on the basis of standard Forms in use.
There is a large number of standard charter party Forms, especially with respect to voyage charter
parties. More than fifty charter parties have been approved by the Baltic and International Maritime
Council (BIMCO), most of which are voyage charter parties covering various trades.

Types of charterparty

There are three main types of charterparties. They are-

1. Voyage charterparty
2. Time charterparty
3. Bareboat or demise charterparty

1. Voyage charterparty

Under a voyage charterparty, a shipowner undertakes to carry specified goods in named vessel on one
or several voyages. The charterer is obliged to furnish the agreed cargo and pay the freight, which is
usually calculated according to the quantity of cargo loaded or carried, or sometimes lump sum freight.

The shipowner retains control of equipping and managing the vessel and renders services through his
Master and crew. In the case of the voyage charter he undertakes to carry a cargo between specified
points.
A typical example of a voyage charter is provided by a seller of goods under a c.i.f. contract who,
having agreed to ship the goods to the buyer, then charters a vessel to carry them to their destination.
Normally, (unless there is an express terms to the contrary) shipowner is responsible for all the
operating costs of the ship. For example crew cost, repair and maintenance costs, marine insurance and
P&I, stores, spares and lubrications oil costs etc.

An example of a voyage charter party which is used for the carriage of dry bulk cargo is the Gencon 94
charterparty while an example of a voyage charterparty which is used for the carriage of liquid bulk
cargo is the Tankervoy 87.

2. Time charterparty

Under a time charterparty, a shipowner undertakes to render services for a specific period of time (e.g.
1 year) or for the period of a defined “trip” by his Master and crew to carry goods.

In a time charter shipowner agrees to place the carrying capacity of his vessel at the disposal of the
charterer for a specified period of time.

The shipowner retains control of equipping and managing the vessel and renders services through his
Master and crew.

The time charter or, simply, "period charter ", is for a specific period. The period can be a "flat period "
for example,” twelve months" without a "margin", or with a margin, for example, "minimum 11
maximum 12 months". A clause in the charter will normally the precise length of the charter period in
days, months, or year.

The consideration/remuneration payable by the charterer is usually called “hire” and is calculated in
proportion to the time during which the carrier is entitled to the use of the vessel. Hire is the payment
the charterer is under obligation to pay to the shipowner.

Actually ‘A time charter is not a contract of carriage but a contract for the provision of the services of a
crewed vessel’.

An example of a time charter party which is widely used in the dry bulk market is the NYPE 93 charter
party while an example of a time charter party which is used in the tanker market is the Intertanktime
80.

3. Bareboat or demise charterparty

An agreement between the registered or legal owner of a ship and the bareboat charterer, pursuant to
which the owner transfers (demises) to the bareboat charterer possession of the ship and the right to
trade it as he chooses for a specified period. By this type of charter, the shipowner leases his entire
vessel and the charterer has the responsibility of operating it as though it were his own vessel.

In essence the vessel owners put the vessel (without any crew) at the complete disposal of the charterer
and pay the capital costs, but (usually) no other costs.
Under this type of contract, the charterer will employ the crew and be responsible for all Technical
Operation and Commercial Operation and Management expenses. The charterer by demise is virtually
acting as owner of the vessel.

The bareboat charterer pays the hire (a specified amount, usually per day and payable monthly in
advance), maintain and insure the ship and indemnify the owner against liabilities incurred by the ship.
Hire payments may include installments of the purchase price, and transfer of ownership may follow
the final installment.

Actually it operates as a lease of the vessel and not as a contract of carriage. Under a demise charter the
charterer displaces the owner and, for the period of the ‘lease’, takes possession and complete control
of the ship.

Charterparties used for this type of charter are BARECON ‘A’ (short term 3-8 years) and BARECON
‘B’ (longer term 8-15 or 20 years).

An example of a bareboat charterparty which is used in the dry bulk market is the Barecon 2001
charterparty.

Charterer’s obligations in voyage charter

The charterer’s obligations are:

1. In a voyage charter, the charterer is under an implied obligation to nominate safe ports for the cargo
to be loaded and discharged. In the majority of charters, this implied obligation is reinforced by an
express term in the charterparty.

A port is safe when the particular ship can reach it, use it and return from it without, in the absence of
some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and
seamanship.

If the shipowner is aware that the port is inherently unsafe then he has the right to refuse the charterer’s
nomination in order to minimize the risks arisen from an unsafe port (such as cargoes’ damage or loss,
personal injury, pollution).

2. Furthermore, under a voyage charter, various duties have to be performed by the charterer:

i. He must not ship dangerous goods without first notifying the shipowner of their particular
characteristics. The charterer will be liable to indemnify the owner for any property damage or
personal injury arising from loading or carriage of dangerous cargo (such as where cargoes are
corrosive or explosive);

ii. He must procure the appropriate quantity and quality of the cargo (described at the charterparty).
The charterer must have the cargo in readiness on the quay;

iii. He must bring the cargo alongside the ship in order to avoid the risk of delays during the loading
operations. Where the charterparty stipulates that the cargo is to be brought alongside by the charterer,
the expense and risk of doing so are transferred to him;
iv. He must load a full and complete cargo. Where the charterer fails to load a full and complete cargo,
the shipowner has the right to claim deadfreight and obtain other cargo in order to minimize the loss;

v. He must load in the stipulated time (known as laytime), otherwise the charterer will have to pay
demurrage or damages for detention as the case maybe.

3. The charterer is primarily liable for the payment of freight. There are different types of freight.
When there is no provision to the contrary, freight is payable on the delivery of goods at the
discharging port and is calculated on the amount of cargo actually delivered. Freight will not be
payable unless the goods are delivered in such condition that they are substantially and in mercantile
sense the same goods as those shipped.

4. If there are “FIOST terms” (Free in out Stowed Trimmed) at the charterparty, the charterer is
responsible for the payment of cargo handling expenses. However, a charterparty may stipulate “liner
terms” or “gross terms”, in which case the loading and discharging costs are covered by the freight
(paid by the shipowner).

Short Note:

Notice of Readiness (NOR):

A Notice of Readiness (“NOR”) is a notification by the vessel that she is ready to start the charter
service (upon delivery) or is ready to load or discharge cargo. Giving an NOR has two purposes:

(i) to inform the charterers that the vessel is at their disposal; and
(ii) to start the running of hire or laytime.

There are three requirements to be met in order to tender a valid NOR:

1) The vessel must have reached the agreed place (being an “arrived ship”); e.g. port, berth or dock in
accordance with charterparty.

2) The vessel must be “physically ready”,

The requirement for the vessel to be physically ready will include that the holds are suitable to receive
cargo in accordance with the charter. The vessel generally needs to be ready in all respects to load or to
discharge the whole cargo. This extends to all equipment required for the cargo operations (such as,
hatches, cargo gear and equipment etc.).
3) The vessel must be “legally ready”
In order to tender a valid NOR the vessel (not the cargo) must be legally ready.
This requirement will include:
• Customs clearance or entry;
• Immigration and police approval; and
• Health or free pratique etc.
NOR may be (and is often) given by the ship’s agent on the master’s behalf. (In many cases the Notice
of Readiness is sent by the ship’s agent to an agent of the charterer.)
Laytime:
Laytime is the period allowed to the charterers for loading and/or discharging without payment
additional to the freight.

A period of time during the vessel is being lied at charterer’s disposal for the purpose of loading/
discharging the cargo. When the ship arrives to load or discharge it tenders a Notice of Readiness
(NOR) to the charterer, stating that they are ready to load/ discharge. After a period of time of giving
notification the charterer to have been able to start loading/ discharging, so layitme starts to run.

In commercial shipping, laytime is the amount of time allowed (in hours or days) in a voyage charter
for the loading and discharging of cargo.

If the laytime is exceeded, demurrage is incurred and a charge payable to the shipowner by the
charterer. If the whole period of laytime is not needed, despatch may be payable by the shipowner to
the charterer, depending on the terms of the charterparty.

Demurrage:
Demurrage is damages which are payable by the charterer to the shipowner if they fail to complete the
loading/ discharging within the agreed time/ period of laytime.

Once the charterer used up their laytime allowance, then the time switches to demurrage.

The damages or compensation may be in per day (or pro rata per hour) that they must pay to the
shipowner for holding up the ship for longer than agreed.

When laytime is being exceeded then demurrage or damages for detention become payable to the
shipowner.

Charter party term used to define one method by which demurrage money is calculated, that is, by
deducting laytime allowed from laytime used.

If for example, a charter party provides for 6 days for loading/ discharging and the charterer uses 7
days, the shipowner is entitled to 1 day demurrage money.

Despatch/ dispatch:
Money paid to the charterer where loading or discharging of a ship is completed before the expiration
of the laytime.

Charter party term used to define one method by which despatch money is calculated, that is, by
deducting laytime used from laytime allowed.

If for example, a charter party provides for 6 days for loading/ discharging and the charterer uses only
3 days, the charterer is entitled to 3 days despatch money.

Disponent Owner:
The owner of a ship can choose not to operate his ship himself but to entrust this to third person or
company (third party). This can be done in several ways: by “bareboat or demise charter”, by “time
charter” or via a “managing company”.
The person who hires a ship (or several ships) in bareboat charter or in time charter is called
“disponent owner”.
Distinguish between Charterparty and Bill of Lading

Charterparty Bill of Lading

1 Contract and Charterparty is a contract between Bill of lading is an evidence of
Evidence the ship owner and shipper about receiving the goods.
hiring the ship.
2 Transferable Charter party is not transferable. A bill of lading can be transferred
by endorsement and delivery.
3 Title to the Goods Charterparty is not a document A bill of lading is a document
which declares the title of the which declares the title to the
goods. goods specified.
4 Drawn in Sets A charterparty is not drawn in A bill of lading is drawn in these
sets. sets.
5 Leasing of Ship A charterparty may be for amount Such type of intention is not
to a lease of the ship. conveyed in the bill of lading.
6 Particular A charter party may be for the A bill of lading is related with the
Destination particular voyage. particular destination.
7 Case of Freight In case of charterparty the freight The freight is to be paid in
is usually paid when the ship advance, in case of bill of lading.
reaches to the port.
Shipping Management

ship chartering

By:
Md. Masud Mia,
BBA; MBA(AIS), MSc in Maritime Affairs (WMU)
1) Shipping Commercial Management:

Ship Commercial Management

Contents:

 Ship Chartering
 Introduction;
 Chartering Types;
 Procedure and Practice;
Chartering activates Under the commercial activities/management:

Ship
owner
Chartering department/Broker (Agent)

Outside…….. Broker (Agent)

Cargo owner-01
Charterer Cargo owner-02
 Ship Chartering:
• A shipowner agrees to rent out a ship to a cargo owner
for a certain time being or to move the cargo from Point A
to Point B.

• Type of activities in Shipping whereby a ship owner hire

out the use of their vessels to a charterer.
- Ship owner & his intermediary
-Head owner
-Disponent owner

Vs
- Charterer or sub charterer & his intermediary

Contact between ship-

ship-owner and Charterer is called charter party.
Chartering types (Rent out a ship) :

1. Voyage Charter:
For a/few/consecutive voyage(s),
i.e Port A to B A trip time
charter
(mix of Voyage
2. Time Charter and Time charter)
For certain time/period.
i.e for 06 months/12months so on…

3. Bareboat charter:
Total and whole ship for a long period of time:
i.e for 10/15 years so on…

N.B: some bareboat charter include demise clause which is

treated as Bareboat demise charter party.
 (Ship Charter types)

Bareboat
Voyage Time
Charter
Charter Charter
(Demise*)

For a or few For a certain time

voyage(s); being; Not specific but
for a long time
(06 Months, 01 (5years) or
years etc.) voyage.
Master appoint by
Master appoint by Master appoint
owner and owner owner but owner
by Charter but
is carriers is not carriers. owner is not
carriers.

*Demise Clause contained in a CP is denote as demise charter.

Sub-charter

It is common for the terms of both time and voyage charters

to permit the charterers to sub-let the vessel in whole or in
part:
for example:
1. Owned by A bank or finance house;
2. Leased or bareboat chartered to company B;
3. Time-chartered from company A by company C;
4. Voyage-chartered from company C by company D;
5. Employed by company D in its own liner service, or
even sub-chartered from Company D by Company E.
 Ship commercial Management & Charter party contract

Ship
Voyage Time Charter Bareboat
Management
Charter Party Party Charter
Types
Crew Despondent
Ship Owner Ship Owner
Management Owner
Technical Despondent
Ship Owner Ship Owner
Management Owner
Commercial Despondent
Ship Owner Charterer
Management Owner
Task & Financial Involvement in different Chartering options
 Activities or operation under chartering

Charterer:
Ship Charterers will plan a voyage, calculate the costs
involved, organize clearance and dispatch of ships, and
handle ship and cargo-related documents.
(Technical issues only if it is a Bareboat charter)

Owner’s
Owner’s activities are mainly focused on crew
management and technical management depend on
types of charter party.
Advantages & Disadvantages of chartering to owner
Types Voyage Time Charter
-Suitable when market
Advantages

-Constant profit ensured.

freight rate is high.
-No uncertainty of ship
-Freedom of utilization by
employment.
route and time control.
-Risk in lower freight
-Control on ship relatively
Disadvantages

market.
tough.
-Ships employment is not
guaranteed. -Opportunity lost during
continuous rising freight
-May not suitable for market
owner of many ships
 Contract Of Affreightment (COA)

•For big amount of cargos transport (coal and oil,

LNG etc.);

•No specification of ships (Numbers of ships);

• Big amount of tentative cargo is identified;

•No lay time or demurrages;

 Shipping pools

- Collections of ships from different ship-owners;

- Ship-owners as member of board of directors ;

- Managed by a single company;

- Cargo management company;

- Proportion of profit distributed considering ship
performance and age;
Workfellow of the Chartering (an example)
• Enquiry (Market entry);

• Receipt of Offers,
•Evaluation of offers
• Counter offer/negotiations,
• Fixtures on Subjects
• Subject recap
• Negotiation and
• Draft the charter party
Chartering activates Under the commercial
activities/management:
Series Task Descriptions Example in voyage Charter

Fixture negotiation -Offer and counter offer & acceptance

Task: 01
& finalization -finalization of fixture.

CP negotiation -Prepare draft, review and revise

Task: 02
& finalization -Signature of CP
-Voyage order from charter and pass it to
master ;
Post Fixture -Agents (Load & discharge port)
Task: 03
operation -PDA & FDA
-Monitor cargo operations, Loading,
voyage & discharge
-Due fright claim, dispatch and
Financial
Task: 04 demurrage calculations and claim
settlement,
-Settlement.
PDA: Proforma Disbursement Account; FDA:Final Disbursement Account
 A offer May contain the following information

• Reply by : (place and time limit)

• For account of : (name and background of charterers)
• The ship’s name and particulars (description)
• Name of shipowner (full style)
• Cargo quantity and description of the commodity (more or less %)
• Loading and discharging ports and berths (always afloat! naabsa)
• Laydays! canceling day
• Loading and discharging rates (per weather working day,
PWWD/Sundays Holidays Included or Excluded, SHINC/SHEX)
• Demurrage and dispatch rates
• Freight amount and conditions for payment of freight
• Clauses governing time counting, ice clause, etc. (not imperative)
• Commissions (address/brokerage)
• Charter party form
• Subjects (detail/stem/shipper’s-receiver’s approval/owner’s-
charterer’s board of directors’ approval)
 Example of an offer for Voyage Charter
Firm for reply today (date:….) lO:--hrs GMT
• M/V “Ship Name” (built, type, class, flag, etc.)
• Owners: Bulk Owners Ltd
• Cargo: 30,000 mts of fertilizer
• Load/disch. port: 1 sp Rosario/I sp Paranagua
• Always afloat bends except naabsa where customary
• Laycan: March 15-20,2012,00:01-23:59 hrs LT
• Load/disch. rate: 5,000 mts PWWD SHINC / 4,000 mts
PWWDSHINC
• Dem: USD 9,000 pd/half dispatch
• Freight rate: USD 26.00 pmt FIO
• Frt payable 95% less commission within 7 bank working days
after signing/releasing B/L
• Commissions: 2.50 % add. com. +1.25% ABC brokers
• All other terms and conditions to be discussed and mutually .
• Subjects (detail/stem/shippers’-receivers’ approval/owner’s-
charterer’s board of directors 'approval)

Reference: More offer samples at https://www.handybulk.com/voyage-charter-firm-offer-example/

More shipping abbreviation at http://www.strand-shipping.no/resources/abbreviations/
 Reference:

1. Class handout for the class of 2016 WMU;

2. More offer samples at https://www.handybulk.com/voyage-charter-firm-offer-example/

3. More shipping abbreviation at http://www.strand-shipping.no/resources/abbreviations/

4. https://www.maritimeinfo.org/en/Gu%C3%ADa%20de%20carrera/ship-charterer