Chartering - Module 1

Module 1: Introduction, Market Context and Broking
Certificate in Chartering
Course Director
Alex McIntosh
Partner, Penningtons Manches Cooper LLP
Module Author
Jeffrey Blum FICS FCIArb
Director, Maritime Education and Training Ltd
Director, Interlink International Trading (UK) Ltd
Education Officer, Institute of Chartered Shipbrokers, London & South East Branch
Maritime Arbitrator & Expert Witness
Member, Baltic Exchange
Chairman, Baltic Expert Witness Association
Maritime Commercial Claims Consultant
Visiting Professor, World Maritime University Visiting Professor, Shanghai Maritime University
Course Welcome and Module Introduction
CH APTER 1: TH E B ASICS OF CON TR ACT LAW
Introduction
Offer
Conditions
Warranties
Condition or Warranty
Commercial Certainty
Innominate/Intermediate Term
Stipulations as to Time
CH APTER 2: WH AT IS A CH AR TER PAR TY ?
Introduction
Freight Market Practitioners
CH APTER 3: TH E MAIN TY PES OF CH AR TER PAR TY
Introduction
Voyage Chartering
Consecutive Voyages
Part Charters
Time Charters
Bareboat or Demise Charters
Contracts of Affreightment (COA)

The Decision Whether to Time Charter or Voyage Charter a Ship
CH APTER 4: A SH IPB R OKER 'S R OLE IN N EGOTIATIN G AN D "FIXIN G" CH AR TER PAR TIES
Introduction
Broking Ethics
Duties of a Broker
Broker Categories
International Shipbroking Markets
Duties of Brokers Towards Their Principals and Vice Versa
The Role of Brokers
The Role of the Broker Under Agency Law
Shipbrokers’ Remuneration – Brokerage/Commission
Are Brokers Necessary?
CH APTER 5: SUB JECTS
Introduction
Fixing on Subjects – Be Very Wary of This
Subject Details
Problems with Subjects

CH APTER 6: WAR R AN TY OF AUTH OR ITY
Introduction
Breach of Authority
CH APTER 7: FIR M OFFER S
Introduction
The Fixture
The Importance of Keeping Records During Negotiations
Example of a Fixture
CH APTER 8: CH AR TER PAR TY FOR MS
Introduction
Types of Charterparty Form
Charterparty Forms Part 1
Specialist Tanker Charterparties
Additional Clauses
The Balance between Owners’ and Charterers’ Interests in a Charterparty Form
SUMMAR Y AN D CON CLUSION

Module Summary and Conclusion
EN D OF MODULE
End of Module
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Course Welcome and Module Introduction
Welcome to the Lloyd's Maritime Academy Certificate in Chartering

Module 1: Introduction, Market Context and Broking
After successfully completing this module you will be able to

understand:
the basics of contract law and its importance to

chartering;
the main types and the purpose of charterparties;
the different styles and uses of charterparties used in

different trades; and
a shipbroker’s role in negotiating and “fixing”

charterparties.
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Introduction
Chapter 1: The Basics of Contract Law

A charterparty is a contract between a shipowner or ship operator and a charterer. So all the following
general theory about the formation of contracts and the termination of contracts also applies to
charterparties.
A contract is an agreement between two or more parties (people, groups) who promise to give and receive
something from each other (in legal terms this is known as consideration).
All contracts are agreements. However, there are many agreements which are not contracts. For example,
if an acquaintance promised to pay for the petrol in return for a lift and later omitted to do so, you would not
expect to take the matter to court. There was a certain agreement between you but there was no contract.
Contracts are subject to the law of a certain country, usually and officially the place of performance.
However, because the place of performance of a shipping contract is likely to be in at least two countries,
the usual law which applies to charterparties is English law, partly because that is the law traditionally
associated with international transport and international trade and partly because it is widely accepted as
being the most universally neutral law with little or no conflict of interest for either party.
All charterparties are bilateral contracts, that is, they are agreed to by both parties – the owners and the
charterers – but it is important to realise that it is extremely rare for both parties to agree to be mutually
bound by a blank form of charterparty without any amendments.
Many owners and charterers frequently use “proforma contracts” as the basis for future negotiations, i.e.
previous fixtures which had been negotiated and all their terms agreed upon, so that a new negotiation
would only have to require agreement on basic relevant changes such as:
rates of freight and demurrage or hire;
lay/can dates;
vessel’s description (unless the same vessel is carrying the next cargo);
cargo’s description; and

quantity.
The following points are considered to be essential to the formation of a legally binding contract:
offer and acceptance;
consideration (i.e. payment of freight for voyage charters or hire for time charters);
capacity;
legal relationships;
legality; and
consensus ad idem (agreement – a meeting of minds).

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Offer
Every contract must start with an offer by one person to another, i.e. the offeror intends to be legally bound
by the terms stated, if accepted by the offeree.
I may offer to sell my car to you for £1,000, and, if the offer is accepted, I am legally bound by the terms of
my offer. I may not later increase the price or change the agreed terms.
Acceptance
Once a valid acceptance of an offer has been made and a contract is in existence, neither party can escape
from the terms expressed unless both parties agree.
Acceptance may only be made by the person to whom the offer was made, unless the offer is made to the
public at large.
For example: An offer made to a specific person may be accepted by that person only.
Carlill v Carbolic Smoke Ball Co (1892)
In an advertisement, the company promised to give £100 to anyone who purchased its remedy for
influenza and who nevertheless caught the illness within 14 days. The advertisement added that, in
order to show good faith, the company had deposited £1,000 with a bank to meet any claims.
Mrs Carlill bought the remedy, followed its instructions, caught influenza and claimed £100. The court
awarded Mrs Carlill £100 and held that:
An offer may be made to the world; it does not have to be to a specific person.
Although the general rule is that advertisements are not offers, the fact that £1,000 had been
deposited with a bank showed that it was a firm offer and legal relations were intended.
Communication of acceptance may be implied by the conduct of the acceptor.
Termination of Offer
An offer can be terminated by the events shown below.
The other party refuses to

Refusal
accept the offer.
It may happen that the offeree does
not wish to accept the terms (or all
Counter-offer
of the terms) of the offer made and
suggests changes to the conditions
Depending on the situation, the

offeror may revoke or withdraw the
Revocation
offer at any time before acceptance
has been achieved.
For instance, if a person made an
offer to buy perishable goods, such
as bananas, it would be reasonable
to expect an immediate and prompt
Lapse of Time
acceptance. However, when more
durable goods are on offer, a long
period of time may be considered
reasonable.
Death by either party before

acceptance terminates an offer,
unless the acceptor does not
know of the offeror’s death and
Death the dead person’s personal
representatives are capable of
performing the contract. This
would not apply if the dead
person’s personal services
were needed. However, if the
An Offer Must be Distinguished from an Invitation to Treat

It is important to know which party makes the offer and which party accepts it. In the case of goods on
display in a shop, it has been held (i.e. decided by judges) that it is the customer who makes the offer to
purchase and the shopkeeper who accepts it. The price displayed on goods is not the offer, it is only an
invitation for the customer to make an offer and the amount shown is an indication of an acceptable price.
“Invitation to treat” was originally an invitation to trade (“treat” was old English for “trade”) ~ in shipping
negotiations, such an invitation is known as an “indication”, whereby a shipowner / operator is asked to
provide a non-binding informal freight rate as an idea to start the negotiation process later if the potential
charterer then requests a firm offer.
Consider self-service shops. Goods were individually priced. The customer took them off the shelf and
placed them in a basket. When was the offer made and when was it accepted?
Consideration
Consideration is merely the agreed price in a bargain. The price does not necessarily have to be money,
but it must have monetary value. For example, a bookseller promises to sell you the book and your
consideration is the promise to pay the price. You could pay the equivalent of that price by providing a
service to that value (for example, by cleaning the windows of the shop) or by providing another
commodity of that (or an agreed) value in exchange – this is known as barter trade or counter trade. For
example, fertiliser is frequently sold to Vietnam in exchange for rice or coffee to the same value as the
fertiliser, instead of being bought in exchange for money. Likewise, China is buying crude oil from Nigeria
in exchange for rebuilding the roads and railway systems in Nigeria, rather than for money.
If a person promises to give you £100 as a gift at the end of the month, the promise would not be
enforceable because it is a free gift. It has not been supported by a promise from you to do anything in
return.
Capacity
Usually any person can make a contract, although the law sometimes protects certain classes. When a
person is denied full contractual capacity, the purpose is to protect and not to prohibit and any difficulty
in enforcing the contract is usually experienced by the party with full contractual capacity. This
particularity applies to minors (usually ~ but not everywhere ~ below the age of 18), drunks or mental
patients who have less than full capacity. However, mental patients will be liable for any contracts
made during a lucid period (i.e. when they are sane).
Legal Relations
When dealing with offer and acceptance, it is essential to any contract that the parties intend to create
a legal relationship. This point can be particularly complicated when dealing with social or domestic
agreements.
For example, a married couple, who had decided to separate, reached the agreement that the husband
should take over the wife’s ownership of the house once she had completed the payment of the
mortgage. Since the intention to be legally bound existed between the two parties living apart and
consideration had been provided, this decision was approved.
Legality
There is a rule of law that no court action will arise from an illegal act. Consider, for example:
Contracts to commit a crime.
Contracts to corrupt public life.
Immoral contracts.
Contracts which require either party to act against the law – the court will not help the guilty party.
Knowledge check
Match the items below with the correct definitions.
SUBMIT
Complete the content above before moving on.
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Conditions
Conditions have been described as obligations that go so directly to the root or substance of the contract,
or which are so essential to its very nature, that their non-performance may be fairly considered by the
other party as a substantial failure to perform the contract at all.
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Warranties
Warranties have been described as terms which, although they must be performed, are not so vital that a
failure to perform them goes to the root or substance of the contract.
This becomes important when considering what remedies to apply. Because a condition is a term that is
vital to the contract, breach of a condition gives the innocent party not only the right to damages (i.e. to
seek monetary compensation) but also the right to repudiate the contract, i.e. the right to refuse
performance of their own obligations under the contract.
The innocent party can, however, choose (elect) to affirm the contract and claim only damages. This is
sometimes called “innocent party’s election”. Because a warranty is not so important, a breach will not
justify a refusal to perform the contract. The only remedy for breach of a warranty will be damages.
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Condition or Warranty
Conditions are said to go to the root of the contract. This includes any term that is part of the description of
the thing sold. A condition can be a statement of fact or a promise. If the statement of fact proves to be
untrue, or if the promise is not fulfilled, the innocent party may treat the breach as a repudiation and is then
allowed to refuse further performance of his side of the contract. The following are the tests that the courts
use to ascertain whether a term is a condition or not.
Relative importance to the parties (description of the subject matter).
The more important a term is to the parties, the more likely it is to be a condition.
Glaholm v Hays (1841)

A ship was chartered to go from England to Trieste and load a cargo there, “the vessel to sail from England
on or before 4th day of February next”. The ship sailed from England several days after 4 February and, on
her arrival at Trieste, the charterers refused to load the vessel and treated the contract as repudiated. It
was held that the charterers were entitled to be discharged from the contract. The court claimed to be
looking at the intention of the parties.
They held that the term had been included in the contract in order to make sure that the ship sailed from
England on 4 February, at the latest. The only way to ensure that this would happen was to make the term
a condition.
The underlying idea is that the term is so vital to the contract that, unless it is fulfilled, the other party does
not need to fulfil his side of the bargain. Consider the importance and distinguish from a cancellation clause
(which is neither a condition nor a warranty but an option).
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Commercial Certainty
In commercial contracts, it is important that the parties (or their legal advisers) should be able to know
immediately and unequivocally what their rights are in the event of a breach by the other party and to
make their decisions accordingly. In certain types of commercial contract, certain conditions will be
essential if the business contract is to function properly.
This is especially true of commercial contracts in which one party depends on the next party in a chain of
events. If the term broken is a condition, then the innocent party knows with certainty that the breach
entitles him to terminate the contract immediately. The innocent party is then free to continue the business
transaction with another partner.
The Mihalis Angelos [1971] 1QB 64 (CA)

A contract for the charter of a ship stated that she should be “ready to load” on 1 July at Haiphong, North
Vietnam. The charterers tried to cancel the contract because their cargo was not available due to American
bombing of the railway line to Haiphong.
Cancellation was not allowed under the terms of the contract. However, unknown to the charterers, the
owners had no reason to believe that the ship would be ready on the date stated.
The court held that “ready to load” was a condition. The charterers were, therefore, entitled to treat the
contract as repudiated, irrespective of the consequences of the breach.
Knowing that a term will be a condition gives the advantage of commercial certainty. This is balanced by
the need to be fair and just in individual cases. Any breach of a condition gives the right to terminate even if
it is trivial and little or no loss has been suffered in consequence. This makes the doctrine rigid and means
that the legal remedy of repudiation may be too harsh and out of proportion to the true consequences of
the situation.
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Innominate/Intermediate Term
The rules concerning conditions and warranties are extremely rigid and this can lead to remedies out of all
proportion to the original fault. For example, in one case, a buyer was entitled to reject barrel staves, which
were only one sixteenth of an inch narrower than they should have been, even though they were still
perfectly suitable for the purpose for which they were intended, i.e. for making barrels (Arcos Ltd v E A
Ronaasen & Son [1933] AC 470).
This seems to have disturbed the courts. They have, therefore, introduced a more flexible solution, the
“innominate term”. This is neither a condition nor a warranty. Innominate means “without a name”. They are
sometimes also called “intermediate terms”, i.e. terms somewhere between warranties and conditions.
We can also say that this is only of any relevance when parties want to dispute the terms of a contract, so
that even if both parties agree that there has been a fundamental breach of a condition but that both are
prepared to continue to uphold the contract in a commercially friendly manner, then they could easily agree
that this breach has been of an innominate term which they now jointly interpret to be breach of a
“warranty”.
In the case of innominate terms, the remedy made available depends on the seriousness of the
consequences of the breach of the term in each particular case. This gives the courts far more discretion
and manoeuvrability.
Click on the following flashcards to learn about two case studies.

A ship was chartered for two
years. Clause 1 of the contract
In this case, the principle of the
described her as being “in every
innominate term was
way fitted for ordinary cargo
Hong Kong Fir Shipping Co Ltd challenged. It was argued that
v Kawasaki service”. However, the engines
Cehave NV Kisen Kaisha Ltd
v Bremer as the SGA (Sale of Goods Act
(1962) (CA)
Handelsgesellschaft mbH – were old, and the ship became
1979) classified all terms in
“The Hansa Nord” (1975) unseaworthy after the first
sales contracts as either
month of service under this
conditions or warranties, the
charter.
common law must follow the
statute and could not classify
terms in sales contracts as
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Stipulations as to Time
Bunge Corporation v Tradax Export SA [1981] 1 WLR 7111

In a contract for the sale of soya bean meal, the sellers were required to load goods on board ship at a single
US Gulf port to be named by them by 30 June 1975. The buyers were to give the sellers “at least fifteen
consecutive days’ notice” of the probable readiness of the vessels and of the approximate quantity required
to be loaded. The buyers only gave notice on 17 June.
This meant that less than 15 days of loading time remained. The sellers declared the buyers in default and
claimed damages for repudiation of the contract on the ground that the term “15 days’ notice” was a
condition.
The House of Lords held that the term was a condition by implication so that any breach entitled the sellers
to treat themselves as discharged from their obligations under the contract. They stated that, in general,
“time is of the essence” in mercantile contracts, in particular in this case, where the sellers needed the
information to know which port they should nominate so that the goods would be available for loading on
the ship’s arrival at port.
The Lords rejected the test of whether the innocent party has been deprived of substantially the whole
benefit of the contract, in favour of the existence of a condition which then entitles the innocent party to
repudiate. They held that this was too stringent and that it could always be argued that there was the
possibility of minor breaches.

Declaring such a term to be innominate would expose the parties to arguing whether the supplier could
cope with a delay of one, two, three, seven or however many days. This would be too uncertain in a
commercial environment, especially where other parties might be reliant on terms being fulfilled properly.
Waterfront Shipping Company Ltd v Trafigura AG (the Sabrewing) [2007]

EWHC 2482
A recent case concerning a time-barred claim is Waterfront Shipping Company Ltd v Trafigura AG (the
Sabrewing) [2007] EWHC 2482.
The vessel Sabrewing was chartered on a BEEPEEVOY 3 form to carry a cargo of unleaded gasoline from
New York to Vancouver. The charterparty included a clause which also provided that a claim by the owners
would be time-barred:
“unless a claim in writing has been presented to Charterers together with supporting documentation
substantiating each…constituent part of the claim” (including signed pumping logs) “within 90 days of the
completion of discharge of the cargo carried hereunder.”
The owners presented a claim for demurrage in the sum of US$114,887.40 together with various
supporting documents within the 90-day period provided by Clause 23. However, the supporting
documents were not described on their face as pumping logs and were not signed. The charterers refused
to pay, and the owners brought proceedings to recover the demurrage. The charterers said that the claim
was time-barred because the owners were obliged to provide within the 90-day period
pumping logs signed by a responsible officer of the vessel and by a terminal or charterers’ representative;
or in the absence of a signature from a terminal or charterers’ representative, pumping logs signed by a
responsible officer of the vessel and a note of protest as to the lack of countersignature on such pumping
logs from a terminal or charterers’ representative.
Demurrage time-bar clauses had to be complied with carefully and strictly. Importance was also attached
to requirements for signed documents. The commercial purpose of such clauses was to achieve finality.
The owners’ failure to provide signed pumping logs by 14 November 2005 (being the 90th day) was not de
minimis (i.e. was not of minimal importance).
There was a real commercial purpose and importance in requiring a signed pumping log to support a claim
for additional pumping time in excess of 24 hours, namely to prove that the owners had maintained the
required average pressure throughout the discharge and that the fault lay with the terminal.
The signature of a responsible officer of the vessel was important to show that such a person was prepared
to put his name to the document to confirm its accuracy, to authenticate it and to prove its provenance.
The owners had failed to provide such precise documents within the time limit of 90 days (or even at all).
Held by QBD (Comm Ct) (Gloster J) that summary judgment would be given in favour of the charterers.
However, this Sabrewing judgment was much criticised by shipping practitioners and maritime lawyers as being
contrary to commercial practice. Fortunately, Steel J gave a completely opposite judgment just six months later in
the very similar case Eternity.
Much of the recent case law and most disputes concerning time bars focus on whether the necessary and
correctly issued supporting documents were submitted with the claim.
While not expressly decided until recently, it is implicit from earlier judgments that provided the claim was
divisible into its constituent parts, which can be identified and quantified, a failure to provide documents
which are relevant to only a part of a claim does not mean that the entire claim is time barred.
This was the approach adopted in Transoceanic Co Limited v Newton Shipping Limited [2001]. The
Transoceanic case was consistent with the overall judicial approach to the commercial construction of time
bar clauses of resolving issues in such a way as not to prevent an otherwise legitimate claim from being
pursued.
This approach has, however, not been followed in Waterfront Shipping Co Ltd v Trafigura AG [2007]. The
issue was whether the totality of the demurrage claim was time barred or whether (in the absence of
signed pumping logs) only the excess pumping time should be deducted from the claim, leaving a substantial
balance of demurrage due and owing.
The court ruled that the entire claim was time barred, justified by an overtly legalistic approach to
construction of the clause and the issue. The apparent conflict between the decisions can, perhaps, be
legally justified by the fact that they reflect the diversity of the wording of time bar clauses in use and each
case is decided on the interpretation and construction of a particular clause.
However, it is at the expense of a commercially sensible approach taken by the industry reflected in a
number of other legal authorities. Waterfront Shipping Co Ltd v Trafigura AG stands out as being against
this line of authority and industry practice. The clause by clause approach to the construction of time bar
clauses prevents useful commercial principles of construction, developed over time, from operating for the
benefit of the industry.
The law as it stands is now in conflict and this has created uncertainty by allowing demurrage analysts to
take advantage of this uncertainty by adopting an approach to the analysis of the supporting documents
provided which best suits them at the time.
As far as compliance is concerned, the processing of demurrage claims needs to be done with an awareness
of this diversity of case law and by careful reference to the time bar clause in the contract under which the
claim arises and the vigour with which these requirements can be applied.
Advice to the industry is that, in order to avoid disputes, one should put a system in place to ensure that the
documents comply exactly with the requirements of the demurrage time bar provisions and support all the
amounts claimed.
We now have a very different judgment on a similar set of facts in the case of The Petroleum Oil and Gas
Corporation of South Africa (PTY) Ltd v FR8 Singapore Ltd (2008) 755 LMLN 1. However, the owners’
demurrage claim was a secondary issue.
The main dispute was the charterers’ claim for approximately US$8.3 million for contamination of the
gasoline and gas oil parcels carried on the M/T Eternity from India and the UAE to South Africa.
The court upheld the claim on the grounds that the contamination resulted from the owners’ failure to
separate the vapour phases of the two cargoes from the common inert gas line. This was due either to the
unsatisfactory state of the separation valves or to their incorrect operation. The owners’ liability arose
primarily from a failure to care for the cargo.
Although the owners’ demurrage claim for US$796,357 was a secondary issue, the judgment is of
particular interest to all the demurrage analysts who have been puzzling over the outcome of the
Sabrewing case.
The charterers had contested the demurrage claim on the grounds that the entire claim was time barred as
the owners had failed to provide an appropriately signed copy of the ship’s pumping log, both at the
discharge terminal and for the subsequent Ship-To-Ship (STS) operation for the discharge of the balance of
the cargo.
The owners had accepted that their failure to prove a pumping log signed by the terminal representative
prevented them from claiming for “excess pumping time” at the terminal, but disagreed that the log was
required for the STS discharge or that the failure to provide a pumping log was sufficient to time bar their
entire demurrage claim under the terms of Clause 20 of the BPVOY4 charterparty.
The judge, Mr Justice Steel, agreed with the owners. The pumping Clause 19 of BPVOY4 applied to
discharge at the terminal but not to the STS operation. He said, “As a matter of language it is wholly
inappropriate to describe an STS operation as involving a terminal”.
Furthermore, only the excess pumping time at the terminal would be barred by the owners’ failure to
provide a correctly signed pumping log. The charterers had relied on the judgment in the Sabrewing case to
support their argument that the entire demurrage claim should be barred.
However, the judge rejected this very robustly:
“I confess that I find the proposition that a claim put in on time but in respect of part of which the
accompanying documents are non-contractual gives rise to a bar to the entire claim is a
commercially surprising construction.”
He went on to add:
“I am not persuaded that the clause requires the owners to submit only one composite claim
(even though they would usually do so and in fact they did so).
In my judgment, it was open to the owners to present a number of separate claims if so advised
and in those circumstances the lack of documentation for one or more parts of the claim would
not constitute a bar to the balance. In my judgment, it cannot have been the intention of the
parties that the choice to present a composite claim would give rise to a different outcome.”
So, until there is a similar case which proceeds to the Court of Appeal, we have two deliberately conflicting
judgments covering this important contentious part of commerce and maritime law.
See also two very recent cases concerning time-barred claims : the “Amalie Essberger” [2019] and the
“Maria” Euronav NV v Repsol Trading SA [2021], in which owners could not pursue their demurrage claims
because of lack of attention to details in the governing charter party.
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Introduction
Chapter 2: What is a Charterparty?

International chartering started with the Phoenicians in Carthage, when merchants chartered vessels for
Mediterranean and North European trading. In Ancient Rome, there was a vessel-chartering market of
sorts dealing in Egyptian grain prices on arrival at Ostia (Rome’s seaport). In other words, chartering ships is
not a new concept.
The main difference compared to today is that, until the late 19th century, some masters (i.e. captains) of
vessels often had complete authority to fix cargoes and maximise earnings for the owners in return for a
profit-share agreement. Sometimes the masters owned the vessels (as they still do on some coasters and
Rhine barges today).
However, the master would conduct his own negotiations in person in whatever port his ship was moored,
draw up a contract with a merchant and tore it in half (one half for the merchant, one for the master). This is
the origin of the term “charterparty” – an anglicised version of the Latin words carta partita, meaning a
document (carta) which has been parted or torn or divided (partita).
One interpretation of this is that one of the halves was placed on board the ship and the other half was kept
by the trader. When the ship arrived at her destination, the receiver of the cargo produced the shipper’s half
of the document, thus proving that he was the rightful owner of the goods. However, this is more akin to a
Bill of Lading than to a Charter Party.
The other (and more logical) interpretation is that the contract of carriage was torn (not cut) into two
halves, the owners keeping the right half (traditionally and still bearing the charterers’ signature) and the
charterers keeping the left half (traditionally and still bearing the owners’ signature), so that only those two
parties bearing those two torn halves of the contract could be deemed to be the true parties to that
contract in case of any dispute about it.
The enormous growth of world trade in the 19th and 20th centuries led to faster steamships powered by
coal, followed historically by ships powered by fuel and diesel. Ships were on increasingly longer voyages
away from their “home ports” and the ships’ masters were no longer able to conduct their own negotiations.
So, the shipowners used shipbrokers to find the next cargoes and negotiate the contracts for their carriage.
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Freight Market Practitioners
In any freight market, there are essentially three potential market practitioners. In simple terms, they are
shown below.
SH I PO WN E R C H AR TE R E R O PE R AT O R
Shipowner
Also known as the “owner”.
Note that often “owner” is spelt in the plural as “owners” even when only one owner is specified, i.e. many
charterparty clauses state, for example, that “owners are to arrange for bunker survey” or “owners are to
appoint agents at load port” etc. Usually in charterparties the plural form is used.
The shipowner owns the ships just like you might be described as owning a house or a car. In other words,
the shipowner may own a ship outright with no mortgage (in which case the vessel is “paid off”) or have a
mortgage via a bank or government loan.
Charterer
Also, in charterparties usually named in plural form as “charterers”.
This is the person who, for the purposes of the charterparty, controls the cargo:
In the case of coal, he may own the mine (e.g. BHP Billiton), or have bought the cargo from the mine
owner under a spot contract or long-term sales contract (e.g. Glencore).
With grain, it could be Bunge (who sometimes ship grain from their own estates) or Cargill (who often
buy grain from third parties).
With fertilisers, the charterer could be companies within the Yara International Group.
With crude oil or its products, the charterer could be Trafigura or Vitol.
All you need to remember is that, in simple terms, the charterer controls and provides the cargo under the
charterparty.
In any sale of a commodity there is a seller and a buyer. There are effectively two ways of selling any cargo by
sea:
Free on Board (FOB)
The owner of the cargo brings the cargo to the quay and loads it on to the vessel at his expense. When the
cargo is on board (i.e. “over the ship’s rail” but in practical terms loaded in the hold), the title (ownership) of
the goods transfers to the buyer. In this case, the FOB seller will be “free” of any liability or risk after he has
placed the goods on board, so he will not be responsible for chartering the carrying vessel – the buyer will be
the charterer at his risk. BEWARE of the 2nd paragraph of Seller’s obligation A4 under “FOB” in INCOTERMS
2010, which can cause FOB to become FAS, which would not be recognised by banks involved with letters of
credit ~ this could lead to a major problem if the goods are being carried towards a discharge port but their
commercial documents are rejected by the bank in control of finances and the commercial contract. Also take
care when using the new INCOTERMS 2020 ~ read each term carefully to establish whether it actually
refers to what sellers and buyers require or mean.
Cost and Freight (CFR) or Cost, Insurance and Freight (CIF)
The owner of the cargo not only brings the cargo to the quay and loads it onto the vessel at his expense but
will also charter the carrying vessel and pay for the freight. He may also pay for the premium for insurance of
the cargo at sea and the insurance of the sea freight. In other words, the owner (seller) of the cargo will
charge his buyer the cost of cargo, the amount of the insurance premium to cover an insurance policy for
damage to or loss of that cargo during its carriage and the cost of that carriage, payment of which is known as
Freight.
In this case, the seller of the cargo will perform the chartering at his risk.
Operator
Can also be used in the plural as operators.
This name rarely appears in a charterparty except sometimes as a signatory. In a charterparty, one can only
have an owner(s) or charterer(s). An operator is someone who is speculating on the direction of the freight
market.
In ship owning terms, he will “charter in” tonnage at what he hopes are cheap levels before the market rises
and/or he will “take in” cargoes under the form of a Contract of Affreightment (COA) at hopefully higher
equivalent levels.
In theory, the ships should always have contracts to go in ballast (i.e. empty) to a port of loading and then
carry that loaded (we call this “laden”) cargo. In practice, vessels go out of position and expected dates of
cargo readiness change.
So, depending on the size of operator (i.e. the number of ships on time charter and number of cargoes under
control), the operator may come into the freight market either:
Looking for a Vessel from the Market that Will Carry a Spare Cargo
In this case, if a vessel is “chartered in”, then under that relevant charterparty the operator will become
charterer(s) and the true owners of the chartered vessel will be the actual (or “head” or “beneficial”) owners
Looking for Employment from the Market for a Spare Vessel Within His Chartered
Fleet
In any resulting charterparty, the operator who has the vessel on period time charterparty (as charterers)
becomes the owner(s) for the re-let voyage or time charterparty trip. For the sake of clarity:
the operators who have become owners are sometimes called “disponent” or “time charter” owners; and
the original owners, who still own the ship and pay for its upkeep and for the crew, are called “head
owners” or “beneficial owners”.
These terms are often used in shipping conversations/correspondence and it can become confusing, so it is
important to be precise which type of “owners” are meant.
Good examples of operators are:
Cobelfret;
Bocimar; or
Kleimar.
 Please Note
Operators can sometimes have limited financial strength, since effectively they are
performing a balancing act between chartering in and out. They may be less financially
secure than an owner who owns ships or a charterer who owns a coal or an ore mine. Many
operators, however, are very substantial. Some even move into buying vessels – such
operators are sometimes called “owner operators”...
All this may sound rather confusing. What you need to remember is that, in any
negotiation, the person who controls the vessel and charters her out to charterers is the
owner for the purposes of that charterparty. The person who controls the cargo and
charters in a vessel is the charterer.
The maintenance of the vessel and payment of the crew remain the responsibility of the
head owner under both voyage and time charters, regardless of the number of times the
vessel is subsequently re-let in a chain. In other words, if a grain house charters a vessel
and then re-lets her, that grain house will become the nominal (disponent) owner for the re-
letting (i.e. the second charterparty), even though their basic trade is as a Grain House.
Knowledge Check
Please select the correct statement below.
The FOB seller is responsible for chartering the carrying

vessel once their goods have been placed on board.
The FOB seller is not responsible for chartering the carrying

vessel once their goods have been placed on board.
SUBMIT

12 of 48
Introduction
Chapter 3: The Main Types of Charterparty

In order to meet the varying needs of the trader and shipowner, a number of different methods of
chartering a ship have evolved. The shipper of the goods is able to decide which of the following methods is
most appropriate to his needs at any given time.
13 of 48
Voyage Chartering
With a voyage or “spot” charterparty, the ship is employed on a single voyage, i.e. from a certain load port
or ports to a discharge port or ports in an agreed area.
Please note that “spot” does not mean all voyage charters, “spot” means that the cargo is available now or
within the next week for shipment (i.e. for loading), whereas cargoes which will be available in 2-3 weeks or
perhaps in one or two months after the negotiation and fixture are described as “prompt” cargoes. Those
cargoes in the market which are described as “spot/prompt” are available immediately and/or in a few
weeks….
The shipowner is responsible for all the expenses of running the ship and also the additional voyage
expenses, such as port charges and bunkers, apart from the cargo-handling costs, which in dry bulk trades
are usually paid for by the charterer.
There are, however, clauses in some of the charterparties regarding overtime costs when loading or
discharging the cargo, including who should benefit from overtime pay – the crew are the responsibility of
the owners, whilst the charterers are responsible for paying the stevedores, at least as regards the
charterparty contract.
With tankers, the problem of costs does not really arise because the shore pumps the cargo into the ship
and, therefore, the costs are effectively paid by the shipper. The ship uses her own pumps to discharge the
cargo which is, therefore, a cost for the shipowner.
The freight is paid, either per tonne of cargo or as a lump sum, which is normally payable either after the
cargo is delivered (tankers) or on signing the bills of lading (dry cargo) or a combination of both, e.g. 80%
payable after signing the bills of lading and 20% payable after (or “upon right and true”) delivery. With
tankers, the use of Worldscale for freight calculations means that the freight covers carriage of cargo to a
range of discharge ports, one of which will be the nominated final destination.
The amount of cargo to be loaded is agreed in advance. The usual method is for the charterer to provide a
full cargo but, because the owner does not know at this stage exactly how much cargo the ship can lift, it is
usually described as a given tonnage with a fixed percentage (5%) more or less:
in owners’ option (MOLOO); or
in charterers’ option (MOLCHOP or sometimes MOLCHOPT).
To use the abbreviation “MOLCO” is considered dangerous, because the handwritten version looks too
similar to its opposite, “MOLOO”, hence the use of MOLCHOP, so that there can be no confusion with
MOLOO.
For example, 50,000 tonnes 5% MOLOO means that the owner can lift up to 50,000 tonnes plus 2,500
tonnes (5%) = 52,500 tonnes or can lift as little as 50,000 tonnes minus 2,500 tonnes (5%) = 47,500
tonnes.
On arrival at the loading port, the master will declare how much cargo the ship is able to load. If the
charterer cannot provide this quantity of cargo, he will be expected to pay freight for that missing cargo to
compensate the owner for loss of revenue resulting from the lack of cargo. This money is known as
“deadfreight” and calculated in such a way as to ensure that the owner is in the same position as he would
have been if a full cargo had been loaded. Charterers paying deadfreight are entitled to the equivalent
amount of laytime, i.e. as the full allowance as if the entire cargo had been loaded.
When the charterer is not certain whether there will be enough cargo to fill the ship, the freight may be paid
as a lump sum, which means that the charterer can load as much or as little cargo as he wants. In this case,
there is no contractual obligation to provide a full cargo, so the question of dead freight will not arise.
Dates are fixed. The charterparty will state, for example, “lay/can 25/30 April”. The abbreviation “lay/can”
means that the “laydays start 25 April, cancelling date 30 April”. This means that the ship must arrive on or
after 25 April and before 30 April. The charterer can refuse to load if the ship arrives before the first date,
in fact the cargo may not be available.
If the ship arrives after the cancelling date (or often after 16:00 on the cancelling date), the charterer is at
liberty (has the “option” but does need to exercise it) to cancel the ship and find another vessel to carry his
cargo. This would prove to be a useful choice if the freight rates had fallen since the charter was fixed and if
the charterer were, therefore, able to obtain a cheaper ship which might also be able to arrive at the
loadport (or at the first of several loadports) before the fixed vessel’s Cancelling date. However, the
converse is not necessarily the case – if a ship arrives late and freight (or hire) rates have risen in the
interim and if the charterer confirms that the ship is still wanted, then the owner must proceed with the
charter.
The ship might be detained in a discharge port under her previous employment, through no fault of the
owners, who may therefore wish to know from the charterers whether or not the charterers will accept her
late arrival at the (first or only) loadport, thereby either making it worthwhile for the owners to pay for
bunkers for the ballast voyage (also known as the approach voyage) from that previous charter party’s
discharge port to this charter party’s loadport or allowing the owners to avoid such ballast cost (bunkers
and operating costs and time).
However, if the owners do take that sensible and honourable precaution of alerting the charterers to the
possibility, or even the likelihood, of the vessel’s late arrival at the loadport, the charterers might argue ~ if
the freight rate market is falling and the charterers are aware of another (cheaper and geographically
nearer) vessel which could better suit their needs ~ that the owners, by alerting the charterers, are
exercising “anticipatory breach” of the contract, i.e. that the owners are anticipating that their vessel will be
in breach of the Cancelling part of the LayDays Clause and that would give the charterers the legal right to
extract themselves from the charter.
Alternatively, the charterers might not yet have a replacement vessel and might therefore accept the
contracted ship’s expected late arrival.
There is one other option open to the charterers : when the owners ask whether or not the charterers
would accept the contracted ship’s late arrival, the charterers could answer “yes” (as above) or “no” (as
above) or “maybe”, which means that the owner would then gamble on having his ship accepted upon arrival
at the c/p’s (first or only) loadport. Such a gamble is obviously uncomfortable for an owner who may have no
choice in a falling market and, although “maybe” is a possible answer legally, it is considered to be morally
undesirable and is not usually used except by the biggest charterers (usually large trading companies) who
have the biggest control over the market by having the biggest number of cargoes to be carried by hungry
owners.
Voyage Estimate
The owner calculates the cost of the proposed voyage by means of the voyage estimate and compares it to
the expected freight in order to be able to decide whether the voyage will be profitable. It is important that
the owner knows how long the intended voyage will take, as the calculations are based on income per day,
hence a delay at sea or in port or ports may make the difference between a profitable or a loss-making
voyage.
Laytime
The amount of time the ship is expected to be in port, mainly for loading and discharging the cargo, is
agreed upon and this is known as “laytime”, i.e. the length of “time” which the vessel is expected to “lay” in
the port or at a berth / quay / terminal wharf. Should the ship be delayed in port due to lack of cargo or
other causes that could and would reasonably be said to be the charterer’s responsibility, then the
shipowner may be entitled to claim compensation in the form of “demurrage”, which is payable by the
charterer, who is in breach of the charterparty terms and is, therefore, under an obligation to compensate
the owner.
Demurrage (from the old French word “demur” which meant delay) is the payment of “liquidated” (pre-
arranged) “damages” ~ damages [plural] means monetary or other compensation, whereas “damage”
[singular] means physical harm or injury ~ for keeping the ship in port for loading or discharging purposes for
a period which is longer than the agreed time. Demurrage rates are based on the vessel’s daily running cost
or her time charter equivalent, as well as being based on market rates current at the time of the fixture. If
the (dry cargo) ship finishes in the port earlier than had been expected, which is good for the owner who can
therefore sooner send his vessel back to sea, the shipowner usually (but not always, subject to pre-fixture
negotiation) pays a grateful bonus (known as “despatch”) to the charterer at a daily rate which is usually
half the equivalent daily rate for demurrage. This is known as “DHD”, meaning “Demurrage Half Despatch”,
although “Despatch at Half the Demurrage rate” would also apply to those abbreviation letters. Note that
this only applies to dry cargo chartering. Note that there is no Despatch in tanker chartering, because
weekends and holidays and other expected exclusions from laytime are usually irrelevant to handling liquid
cargo between shore hoses and the ship’s “lines” or piping system, which does not require constant
supervision or physical handling of cargo, as stevedores have to do with dry cargoes.
The owner always remains the carrier and when the master signs the bills of lading, they are signed on
behalf of the owner. This means that in the event of any claims for shortages or other discrepancies in the
cargo, the owner is responsible and not the charterer.
The exception to this is when the bill of lading states that certain cargoes are carried, for example:
“on deck at charterer’s risk”; or
“…at shipper’s risk”; or
“…at merchant’s risk”.
Knowledge check
using the abbreviation MOLCO is considered safe.
True
False
SUBMIT
If the ship must arrive on or after 23 March and before 28 March, what would be
correct abbreviation?
lay/can 28/23 March
can/lay 23/28 March
lay/can 23/28 March
can/lay 28/23 March
SUBMIT

14 of 48
Consecutive Voyages
It is possible for a charterer to fix a ship for a series of round voyages. In such a case, each voyage is
considered a separate entity as far as freight and demurrage are concerned.
Clauses are available to protect the owner should fuel prices or other costs, e.g. war risks, change during
the contract.
15 of 48
Part Charters
When one charterer is not able to provide a complete cargo, it is possible for the owner to arrange a
number of charters, and there will be a separate charterparty for each of the different parcels which are
carried. This type of charter is common in the parcel tanker trade, most usually with liquid chemicals and
vegoils. It is important, therefore, that these charterparties are drawn up so that there is no conflict
between the various interests involved. The calculation of demurrage and distribution of the payments
between the different charterers can be a complex problem with this type of agreement.
A variation of this in dry cargo chartering is known as a “parcelling service”. A charterer will charter a ship
for a particular voyage and then let out the space in the ship to a number of different shippers.
16 of 48
Time Charters
There are two main types of time charter:
Period Time Charter: this, as its name implies, is for a period of time, usually several months
or years; and
Trip Time Charter: this is for a single voyage only – but under time charter conditions.
The time or period charter is where the charterer takes over the ship for a certain period of time – it could
be as short as one month or as long as 20 years, although the latter is not very common. The shipowner still
operates the ship but, instead of earning freight per tonne carried, he is paid “hire” at an agreed amount
either every calendar month or, much more usually, every 15 days in advance, either as a lump sum or
occasionally an amount per deadweight ton per month.
The trip charter is usually for a single voyage. However, the division of responsibilities is the same as those
for a time charter and the usual time charter forms are used. These charters may be used by shipowners
where port delays are expected or during periods of uncertainty over fuel prices and fuel availability.
The advantage of a trip charter as far as the charterer is concerned is the greater freedom which this
allows, because details of the voyage are kept off the market and, therefore, trader competitors will not
know the charterer’s load or discharge ports. The charterer is able to select ports or indeed a trading area
without having to agree to the details with the owner, who is indifferent to any additional costs which may
result from the charterer’s choice of ports, as these costs will be met by the charterer.
The division of responsibilities is spelt out clearly in the different charterparty documents as it forms the
basis of the contract between the owner and charterer.
Examples of how the hire is calculated are taken from the BPTime and the NYPE forms.
N E W Y O R K PR O DUC E
B PT I ME 2 B PT I ME 3
E X C H A N GE F O R ...
BPTime 2
12. Subject as herein provided charterers shall pay for the use and hire of the vessel at the rate of…per
tonne…on vessel’s total deadweight on…summer freeboard as assigned at the date of delivery hereunder,
per calendar month, commencing at and from the time and date of its delivery hereunder, per calendar month,
and continuing until the time and date of its re-delivery to owners.
BPTime 3
8.1 Charterers shall pay hire per day or pro rata for part of a day from the time the vessel is delivered to
charterers until its re-delivery to owners in the currency and at the rate stated in Part 1, Section H. All
calculation of hire shall be by reference to Universal Time Co-ordinated (UTC) [this means Greenwich Mean
Time].
The first payment of hire shall be made on or about the date of delivery, paying the hire in advance up to, but
not including, the first day of the succeeding month. All subsequent payment of hire shall be made monthly in
advance on the first day of each calendar month to the account stipulated in Part 1, Section I in “funds
available to owners on the due date”. If, however, in a given month the due date is a non-banking day in the
United States (if hire is to be paid in US Dollars) or in the country stated in Part 1, Section I, then the subject
month’s hire shall be paid on the next banking day.
New York Produce Exchange Form (NYPE) 1946 & 1993 & 2015
Clause 4:
The charterers shall pay for the use and hire of the said vessel at the rate of…daily or…US Currency per
tonne on vessel’s total deadweight carrying capacity, including bunkers and stores on…summer freeboard,
per calendar month commencing on and from the day of its delivery, as aforesaid, and at and after the same
rate for any part of a month.
Hire shall continue until the hour of the day of its re-delivery in like good order and condition, ordinary wear
and tear excepted, to the owners (unless vessel is lost) at…unless otherwise mutually agreed. Charterers
shall give owners not less than… days’ notice of vessel’s expected date of re-delivery and probable port.
The charterer is responsible for employing the ship, finding the cargo and paying port, canal, cargo handling,
tank/hold cleaning and fuel costs. The management of the ship, however, remains the responsibility of the
owner.
A time-charterer may sublet the ship, i.e. operate her on the voyage market. In this case, he becomes the
disponent owner. This means that, although he does not own the ship, he is entitled to the benefits that are
obtained from trading her during the period of the charter. The time-charterer is the carrier and the master
signs the bills of lading on his behalf.
Thus, any claims for cargo damage or shortage must first be met by the charterer, although the charterer may
subsequently claim reimbursement from the “beneficial” (= actual) owner. Regardless of the number of sub-
charters, the head or first charterer is always responsible to the owner for the employment of the ship.
Examples of dry cargo time charter forms are the New York Produce Exchange form (NYPE) and the
BALTIME. The former is produced by the Association of Shipbrokers and Agents, New York (ASBA) and
considered to favour the charterer, while the latter is produced by BIMCO and is considered to be more
biased in favour of owners.
The new NYPE 2015 is even more detailed and worth using, as it is fair to both owners and charterers.
The newer GENTIME and LINERTIME charterparties are used less often. Tanker forms include:
Shelltime 4; and
BPTime 3.
17 of 48
Bareboat or Demise Charters
With this type of charter, the charterer both manages and operates the ship. The shipowner, possibly a
financial institution, virtually gives up control for a fixed period of time. The charterer is the disponent
owner responsible for both crewing and managing, as well as employing, the ship.
The owner will receive the fixed rate of hire at regular intervals during the period of the charter. There will
also be agreements regarding dry-docking and surveys in order for the owner to ensure that the ship is
being properly maintained.
Bareboat or demise chartering is frequently used in ship finance where it may suit a bank to own the ship,
frequently because of tax advantages, but they do not want to get involved in running her. They may also
have re-possessed a ship, but in any case, because they do not have the necessary knowledge or
experience, they need to find an owner to run the ship.
At the same time, the disponent owner can manage the ship profitably but the current market rates will not
repay the full capital costs of the ship within the period of a bank loan, so by bareboat chartering it may well
be possible for both the bank and the disponent owner to make a profit from the ship. There is frequently an
option to purchase at the end of the demise charter. Bareboat charters are often used within a ship-owning
group for fiscal purposes. 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).

These are bareboat charterparties produced by BIMCO and are occasionally still used today, despite
BIMCO’s revised version BARECON 2017.
18 of 48
Contracts of Affreightment (COA)
These are used when a shipowner or operator agrees to transport a given quantity over a fixed period of
time. Unlike other charterparties, no specific ship is named in the charterparty. It is up to the owner or
operator to provide ships as needed for the project.
With tankers, due to the sensitivity of port states regarding oil pollution, it is likely that the contract will
include specific requirements regarding the ships employed, which would probably extend to the owner
having to provide the charterer with a list of ships likely to be employed in the contract.
This type of contract gives the owner considerable freedom to manage his fleet to the best advantage,
even to the extent of “chartering in” ships if his own fleet is engaged in more profitable employment
elsewhere. This type of contract is common with owners of small coasters employed in short voyages, as it
saves having to charter a ship for each movement. It is also used by government charterers for inter-
nation trades.
There are several standard documents for this purpose, one of which is the Volcoa – basically for dry cargo
– and the Intercoa. These forms are designed to be used in conjunction with voyage charter forms for each
voyage which is undertaken under the COA.
Knowledge check
For contracts of affreightment (COA), a specific ship is named.
True
False
SUBMIT
19 of 48
The Decision Whether to Time Charter or Voyage

Charter a Ship
Different circumstances influence the selection of a particular type of charter by either an owner or
charterer.
The voyage charter is favoured by the trader with the “one off” cargo or by the utility company or steel
company who need to supplement a fleet of owned or time-chartered ships. Voyage chartering is also used
by traders who ship “speculative” cargoes. These are cargoes where the final destination has not been
fixed. The trader loads a cargo for a port or range of ports. When the cargo has been loaded and the ship
has left the loading port, the trader sells the cargo.
Under this system, a cargo may change hands several times during a voyage. It is important, therefore, that
all the terms agreed upon during the chartering fixture are clearly spelt out so that the eventual buyers of
the cargo, who were not involved in the original negotiations, will understand their responsibilities under
both the charterparty and the bill of lading.
With a voyage charter, the owner undertakes to carry a cargo for a single voyage. At the end of the voyage,
the ship is available to carry other cargoes and the owner has no assurance of further employment. The
expectation is that the extra risk of the voyage charter will produce higher rewards, although it does not
always happen in practice. The consequence of these expectations and the owners’ and charterers’
behaviour is that the freight rates on the voyage charter markets are extremely volatile and the earnings
per day for a ship can double or halve within a short period, frequently within less than six months.
To avoid this volatility, traders may use period time charters as a means of controlling costs, as they are
protected from the freight rate fluctuations which are a feature of “spot” market trading.
The shipowner may also prefer period time charters for the greater security, which comes from knowing
that the ship has secure and profitable employment for a known period of time which may be as long as
several years.
Time charters may be used as part of the security for bank loans when financing a ship. The second- hand
price of a ship varies according to the freight rates, so she is not considered sufficient security for the loan.
Bankers like the secure earnings that a period time charter with a reputable charterer provides when
advancing loans to finance a ship, even if the time charter does not extend for the full period of the loan. It is
possible to design a ship financing package to bridge the gap between current freight rates and the high
capital costs of new ships using both time and demise charters.
The decision on how to charter a ship is also based on the market perception of future freight rates. When
rates are low and likely to rise, owners will be looking for short-term contracts in order to leave their ships
free in order to obtain more profitable employment when the rates have risen. In this situation owners will,
therefore, not accept time charters other than trip charters, unless they are above the current spot market
rate, something which the charterers are not likely to concede.
Conversely, when rates are high and the perception is that they are likely to fall, owners will seek period
time charters, to retain the higher earnings for as long as possible, while the charterers want to keep their
contracts as short as possible. Thus, period time charters are only seen when the market is in a relatively
stable position and both parties are willing to enter into long-term contracts.
20 of 48
Introduction
Chapter 4: A Shipbroker's Role in Negotiating and Fixing Charterparties

Chartering forms the most important method of employing a ship and there is a world-wide network of
brokers involved in chartering vessels. Traditionally, these brokers may work as owners’ brokers,
charterers’ agents or as competitive brokers. In London, this distinction is not so clear, as most charterers
put their business out through several brokers, so a large charterer may employ a number of brokers.
Owners frequently have the brokering function in-house, hence the term “house broker”.
21 of 48
Broking Ethics
The motto of both the Baltic Exchange and the Institute of Chartered Shipbrokers is “Our Word Our Bond”,
which embodies a very strong code of ethics. The need for a code of ethics comes from the fact that much of
the business is based on “word of mouth” and is only followed later by written confirmation, usually a
recapitulation of the terms agreed ~ known as a “recap” ~ which is often the only typed proof of the
agreement, i.e. there may be no time in a busy market for the brokers to prepare a full charter party with all
the agreed clauses. The full C/P will often only be prepared if there is an incident / loss or damage / breach
of contract resulting in the need for lawyers to see the precise words used in the fixture in order to prepare
for dispute resolution by mediation, arbitration or litigation.
The spoken word legally binds both principals to each other via the broker or brokers – this is a very
powerful negotiating tool and is only useable by approximately 6,000 brokers world-wide, comprising
approximately 2,500 members of the Baltic Exchange, some of whom are also amongst the approximately
4,500 Members and Fellows of the Institute of Chartered Shipbrokers. The value of this code is that it
makes it possible to transact business from a position of trust, without which it would be very difficult to
“fix” (i.e. contract) ships.
BIMCO also recommend to their members various principles of chartering. There are three types of
shipbroking activity:
dry cargo;
tanker; and
sale and purchase.
Exclusive brokers have a luxury in this respect, as nobody can bypass them – theoretically.
A shipbroker should never forget to add his or her own commission before submitting any buyers’ or
owners’ offer and likewise deducting own commission when passing back any counter-offer to the buyers or
owners.
All vessels have to be registered with a classification society in order to trade. The records held there show
how a vessel is being maintained according to the required survey cycles and any recurring problems will be
evident. Also, if a vessel has a record of changing from one classification society to another quite frequently
during its life, this could indicate that the maintenance may be poor.
The inspection of the class (classification) records gives the inspector of the actual vessel some guidelines
for any areas that may need to be especially considered when the physical inspection of the vessel takes
place.
The inspection of the vessel’s class records and a physical inspection of the vessel would normally be
carried out by the buyers’ own technical staff but sometimes independent surveyors are used.
It is most important for a broker to build up a network with other brokers who will give support when
dealing with clients. This is very much a “people” business and good contacts (whom you know) are often
more important than what you know.
Brokers should try not to rely on “screen trading”: make those phone calls and, whenever possible, meet
your contacts.
22 of 48
Duties of a Broker
Brokers are still (wrongly) considered by some principals as parasites. Yet they form an essential part of
negotiating and their skills are far more wide-ranging than simply having the right contacts. The majority
of brokers should be neither abused nor ignored by the trading and legal professions. Of course, there are
always some rotten apples to be avoided. Conversely, many brokers would be well advised to take a good
look at their principals, some of whom are not always of the best calibre….
The broker is the owners’/charterers’ link with the market, so it is up to the broker to keep their principals
(i.e. the owners or charterers) informed about developments in the market, even though the principal may
not be planning any market operations at the moment. It is this information that makes it possible for both
parties to plan ahead.
To assist with this, most of the large brokers maintain a computer database giving the current position and
status of all ships in which they specialise. The charterers are, therefore, able to check on the tonnage that
is available before they enter the market. This helps them to ensure that they can get a good rate, since
there may be several owners interested in their business.
It is the job of the owners’ broker to ensure that all charterers who may have a cargo from an area where
his ship could load know the position and the details of his vessel. This entails contacting not only the
charterer’s agents but the competitive brokers as well. The function of the charterer’s broker is to ensure
that all possible owners are aware of his need for a ship in order to enable him to obtain the best possible
rate.
In addition to the chartering function, brokers also have:
Post-fixture Departments
These departments are staffed with experts in the different aspects of

chartering. Their function is to resolve disputes between owners and
charterers and, if possible, eliminate the need to resort to arbitration or
the courts.
Research Departments
In order to provide the sort of information needed by both owners and

charterers, many brokers operate research departments to keep up to
date with the latest developments in world trade. Many of these
departments have a world-wide reputation for their publications.
23 of 48
Broker Categories
Brokers usually work in one of three categories:
Exclusive brokers to owners
Exclusive brokers to charterers
Competitive brokers
Owners’ Brokers
–
They work exclusively for one or possibly several tramp shipowners. Their duty is to locate the best possible
cargo at the best possible freight rate for their owners’ vessels from a port as near as possible to the load
ports, where those vessels are scheduled to discharge their previous cargoes.
They work these vessels on either a voyage charter or a time charter basis, whichever is more advantageous
for their owners within the constraints of the charterers’ requirements. Many brokers work as direct brokers
for several owners and use broking skills in their local geographic area and time zone to cover their local
market. Many owners have several direct brokers spread across the globe, each of whom reports directly to
the owner and each of them covers a different region and market.
Charterers’ Brokers
–
They will often work exclusively for (and sometimes even be owned by) one charterer, often a large trading
house or one of the oil majors, although these brokers will not necessarily bear the same name as their
parent company.
They could well be independent brokers who specialise in working for a number of charterers, in which case
these charterers might retain them on an “exclusive” basis. Some brokers also look after all the post-fixture
work for their charterers, thereby sometimes earning a retainer fee as well as the usual broker’s commission,
which is 1.25% of the value of the total freight.
This exclusivity may perhaps apply only to the trading centre (i.e. city or country) where the broker is
situated – e.g. exclusive for the UK – or he may be totally exclusive on a worldwide basis. Such a totally
exclusive broker will not have to share his exclusivity/work with any other broker but an exclusivity which is
restricted to one country or region may well mean that a number of “semi-exclusive” brokers may be called
upon by the trader to find a suitable vessel.
Some brokers who work in this way call themselves direct brokers, thereby distinguishing themselves from
those other brokers whom they approach in the course of trying to locate the right vessel for their principals.
Such brokers report directly to the charterers rather than via a competitive intermediary.
Beware: They are also known as charterers’ agents – this name sometimes causes confusion, since it also
refers to those port agents who have been nominated by charterers.
Competitive Brokers
–
They work as independent brokers, trying to match many different cargoes with vessels from many different
tramp owners’ fleets. The majority of brokers work in this independent way, because they feel that it does
not restrict them to only one or very few principals.
They used to be known as cabling brokers, which harks back to the days when brokers in London, New York
and the US West Coast would pass trade on to each other by cable at the close of each centre’s business
working day. Their function was to compare the freight markets of the two countries on a daily/overnight
basis. Thus, they reported on the cargoes and vessels available, as well as on the fixtures reported done that
day. Their work is highly competitive and nowadays often involves working from home long after close of
normal business hours. A modern broker is no longer restricted by the day’s final cable.
Several of the larger broking houses in the main chartering centres in the world (London, New York,
Singapore, Hong Kong, Shanghai, Melbourne) in fact perform all three functions, having departments within
each office, which deal with owners or charterers on an exclusive or semi-exclusive basis and also deal with
the wider market on a purely competitive basis.
Other large broking houses have departments which specialise in particular fields, such as certain
geographical areas, or certain types of vessel, or servicing certain industries (such as the oil offshore
industry) or only handling trade which pertains to one particular commodity. They feel that their
specialisation sets them apart from the broker who is more bound to one principal and that they do not have
to fight as hard as the competitive broker to attract custom.
However, in the climate of trade nowadays, very few brokers feel that they can rely on any one principal or
commodity or vessel type to make a living. Thus, many brokers spread their net and may have a few semi-
exclusive accounts, as well as some specialisations and as much competitive work as they can muster.
Brokers are wholly dependent on the volume of trade in their market – which of course is true of brokers in
any field. Shipping, as principally a service industry is, of course, totally subject to the cyclical, political and
seasonal vagaries of the markets it serves. Baltic Exchange brokers in London are no longer literally “walking
the floor”, as the trading floor no longer exists and has been replaced by yet another wine bar – or should that
be “whine bar”?
24 of 48
International Shipbroking Markets
International shipbroking markets are in three geographic areas:
A ME R I C A S A SI A E UR O PE
Represented by New York, with assistance from brokers in San Francisco and Vancouver;
Tokyo, Seoul, Shanghai, Hong Kong, Singapore, Sydney and Melbourne;
Piraeus, Oslo, Hamburg and Copenhagen for owners, Paris and Geneva / Lausanne for charterers (especially
traders of soft commodities) and London, which is still the main centre of international shipbroking within
Europe and until recently covered approximately 45% of all world shipping trades. This is a reduction from
the dominance of London brokers who handled 75% of world shipping until 1992, when the IRA exploded a
huge bomb outside the Baltic Exchange, causing some injuries to a few people (by far the worst injured
survivor being the author of this Module !) and causing a lot of structural damage to many buildings. However,
the “spirit” of the Baltic Exchange camaraderie was not damaged: many smaller member companies moved
away from the City towards the suburbs, thereby reducing the day-to-day face-to-face marketplace. London
still covers more than most minor chartering broking centres combined. This is still true since November
2016, when the Singapore Exchange (SGX) bought the Baltic Exchange but on condition that the building in
the City of London and the club atmosphere and all that the Baltic Exchange does should remain in place “for
at least 5 years”, possibly longer: at the end of 2021, the building’s lease was sold to property developers
who are now refurbishing and repairing the inside, with the aim of the administration of the Baltic Exchange
returning to 38 St Mary Axe in 2024. See ‘www.balticexchange.com’ for many details in the public domain.
25 of 48
Duties of Brokers Towards Their Principals and Vice

Versa
Brokers must be aware of the necessary application of basic agency law. Above all, they must always work
within their “warranty of authority” as defined by their principal shipowner or charterer. Even if brokers
take on the mantle of an “agent of necessity”, they should always ensure that their principal ratifies their
actions within time, otherwise the brokers might find that they have become a principal, which will have
several potentially devastating effects:
they will almost certainly not be able to afford to become that principal by providing a vessel
or a cargo;
they might be accused of misrepresentation;
they might not be able to defend their error;
their action might invite an expensive law suit;
the result of such action could ruin the brokers financially;
irrespective of any legal action, the brokers’ reputation would probably never recover.
Awareness of rights and obligations of a broker:

A principal can ruin a broker’s market by over-quoting his own ship or cargo, thereby forcing
the market against him by giving the impression of being desperate. A principal who changes
his mind mid-negotiation by “back-trading” will damage both his own reputation and also his
broker’s future credibility.
There is a fine line between a broker giving advice and being perceived as interfering with his
principal’s business. This balancing act depends on experience and the trust and needs of the
principal.
It is wise for both brokers and principals to vet each other, if possible well in advance of
needing to work with each other.
Shipbrokers and their commission are nowadays protected by the Contracts (Rights of Third
Parties) Act 1999 under English law, which law governs most charterparties.
There is a benefit with being associated with a professional institution such as the Baltic
Exchange or the Institute of Chartered Shipbrokers.
Unlike in the insurance market, in which initial full disclosure of all facts is a legal duty,
shipbrokers know that ethically it is vital to establish trust and to maintain a good reputation
in the market place.
Disclosure of too many facts too early could be abused by a principal, in which case that
principal could be shunned by the broking fraternity, if necessary world-wide. Eventually news
will spread to future charterers or owners.
26 of 48
The Role of Brokers
Along the transportation chain, agents and brokers each have three main functions:
provide information (of current, developing and projected markets);
be an effective and efficient intermediary (between two principals); and
co-ordinate the negotiations to conclude a fixture.
Brokers can either act for one or for both principals, often working to bring them together to their mutual
agreement, whereas agents usually only act for one principal. Brokers tend to have no formal contract with
their principals but can rely on a contract which is implied by their conduct. Agents, especially when they
are brokers who work “exclusively” for charterers or owners, do usually have a formal contract with their
principal.
Knowledge check: Fill in the missing words

Along the transportation chain, agents and brokers each have three main functions:
Provide ___________ of current, developing and projected markets

Type your answer here
SUBMIT
Be an effective and efficient ___________ between two principals
SUBMIT
Co-ordinate the ___________ to conclude a fixture.
SUBMIT
27 of 48
The Role of the Broker Under Agency Law
A broker (or agent) must always only work strictly within the specified authority given by the principal, who
may have very good financial reasons for not wanting to go beyond those limits; or the principal may simply
want to manipulate the market, either for this fixture or for the next few fixtures…
A broker may be able to act beyond the principal’s authority but only if there is already a very well-
established relationship between principal and broker, who could then be acting under the rules of Agency
of Necessity.
A broker (who may also be known as an owners’ or a charterer’s “agent”) may work so closely with the
principal that he/she will be permitted to sign the contract (COA or charterparty) on behalf of that principal.
However, great care must be exercised here, otherwise the broker is in danger of committing
himself/herself and thereby becoming a principal to the contract. Therefore, a careful broker:
will always sign “for and on behalf of [name of principal owner or charterer] as agent only”; and
ideally
will add “by written authority”.
This exposes the dangers of undisclosed agency:
The legal aspect.

The practical aspect.
Possibility of inviting lawsuits.
Probability of an eventual claim being large enough to close a (small) broking house.
28 of 48
Shipbrokers’ Remuneration – Brokerage/Commission
Each shipbroking company traditionally earns brokerage or commission at the long-established rate of
1.25% of the value of the freight, dead freight, demurrage, damages for detention, hire and ballast bonus.
(Commission on demurrage is not always paid by US major oil companies.) This usual percentage rate of
1.25% may be altered by mutual consent of all three groups of parties involved in the commercial
transaction, i.e. the owners, the charterers and all the brokers. Commission is payable to each broker. An
owner may give all his business to one exclusive broker in return for a smaller commission (1%).
The only usual exception is brokers involved in the coastal trades, who generally do as much work as a
deepsea broker but, because the traffic is in much smaller vessels, the value of the freight is
correspondingly smaller, so these brokers usually earn 2.5% of the value of the freight.
Address commission is paid to the time charterer to cover the cost of managing the ship while she is on
charter. Traditionally, address commission (“adcom”) is taken by the trader charterers on a voyage charter
in order to cover the cost of their shipping departments, which are frequently at a different physical address
from the trading office, hence the name.
Such a commission is often hidden within the charterparty commission clause as (e.g.) “5% commission to
Joe Bloggs, Shipbrokers, for division with others”. One of those “others” might be the charterers, so for
example, the division could be 1.25% to Joe Bloggs (shipbroker), 1.25% to Mary Smith (shipbroker) and
2.5% address commission to the charterers. The key point here is that the charterers do not want the
buyers of their commodities to know that they are taking additional profit this way, so it is also called a
“hidden commission”.
In deepsea tanker chartering, address commission is not always requested and depends on the nature of
the trade – some traders want 4%, others 1% or 1.25%, or 2.5%. This commission is usually deducted
directly from the freight or hire, rather than the charterers paying the full freight or hire to the beneficial
owners and then waiting for those owners to remit the commission back to the charterers.
The only party benefitting from such a protracted transaction would be the banks involved, because they
take a slice of the monies transacted as their fee.
Sale and Purchase (S&P) brokers traditionally earn 1% of the sale value of the vessel, which might seem
excessively generous until it is realised that this large amount must cover (often many) months of broking
work, including a lot of high telecommunication costs, lawyers’ fees, surveys and possible travel expenses,
as well as the time spent on all those deals which never materialised.
Of course, this last item is relevant to all brokers, whose efforts are unrewarded unless there is a fixture or
sale at the end of negotiations. Sometimes brokers will agree to cut their own commissions in order to
effect a sale (or a charter), particularly in difficult markets.
R I SK O F F R A UD C O N T R A C T S ( R I GH T S O F T H I R D PA ...
Risk of Fraud
Some charterers may not want their identity to be revealed to the owner until the negotiations have been
completed. This may be for commercial reasons, i.e. not allowing a competitor to know that they are buying a
cargo. This situation can cause difficulties for an owner and in this situation the broker will refer to his
principal as a “first class charterer”. The use of this term can have implications as far as the broker is
concerned should the charterer prove to be less than “first class”. It is, therefore, important that the broker is
careful when making such statements.
One of the items in the Baltic Exchange’s code of ethics (the Baltic Code) is that a broker will inform the
owner in writing if he has no specific or reliable knowledge of the charterer. In this situation, the owner
would be advised to fix “subject to owners’ approval of charterer”.
The broker would also advise the owner in writing to insist on freight Before Breaking Bulk (BBB). This means
that the owners can retain a lien on the cargo in the event of the freight not being paid. The owner should
also refuse a letter of indemnity unless provided with a bank guarantee. BIMCO and the International
Maritime Bureau (IMB) maintain registers of good and bad charterers and shipowners.
One of the sanctions that the Baltic Exchange can have on owners, brokers or charterers who disregard the
code of ethics is to be “posted on the Baltic”. The name of the guilty party and the offence is put on the notice
board in the Baltic Exchange as a warning for anyone (i.e. any member) contemplating conducting any
business with them.
R I SK O F F R A UD C O N T R A C T S ( R I GH T S O F T H I R D PA ...
Contracts (Rights of Third Parties) Act 1999

Until this Act came into force on 11 May 2000, brokers were at the mercy of the party who usually pays all
brokers, i.e. the shipowner. This is so even if the broker is a charterer’s broker. Prior to this Act, a broker was
a party mentioned in charterparties but was not a party to the charterparty. This subtle distinction gave
unscrupulous owners an excuse not to pay brokers, who were hitherto unable to sue under the contract (the
charterparty) under which they had no rights.
The 1999 Act has created important changes to the rules regarding privity of contract, one of the most
fundamental areas of English contract law. The doctrine of privity of contract has been described (in Chitty on
Contracts, 26th Edition, Section 1321) thus:
“a contract cannot (as a general rule) confer rights or impose obligations arising under it on any person except the
parties to it.”
This was emphasised in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 in which Lord
Haldane LC said:
“In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can
sue on it.”
The basic premise of this rule has not changed, save as regards the rights of a third party who would
previously not have been protected.
Thus, a typical problem for a broker could occur when he or she acted as a charterer’s agent when
negotiating a fixture with a broker who represented the shipowner. If the fixture were concluded, a clause
would be included which would provide that a certain amount of commission (usually 1.25%, as described
earlier) would be paid to each broker involved in the creation of the contract. Previously, if the owner then did
not pay one or more of these brokers, they were unable to sue under the contract, since they were not a
party to it, despite the inclusion of a clause specifically for the brokers’ benefit.
Brokers had, therefore, to resort to other methods of ensuring their remuneration would be settled, such as
using the only effective asset in a broker’s armoury – word of mouth. It does not take very long for rumours to
be fuelled – especially powerful if such rumours serve to diminish the reputation of shipowners who depend
on those same broking communities for their vessels’ income.
However, great care had to be taken by the broker not to spread false rumours for fear of being accused by
the owners of slander (or of libel if the brokers told anyone in writing about those owners).
Under the 1999 Act, Section 1 states that:
1. Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his
own right enforce a term of the contract if
a. the contract expressly provides that he may, or
b. if there is a subject to a subsection by which the term purports to confer a benefit on him.”
The strength of this Act for brokers is that they are now entitled to sue for their earned commission provided
– per Section 1(3) – they are expressly defined in the contract by:
name;
as a member of a “class” (which needs definition); or
as answering a particular “description”.
There is currently some discussion among brokers and their legal advisers that broker ABC who, for reasons
of confidentiality, for example, is included in a general bracket description of 5% commission to be paid to
broker XYZ, for division with others is still covered under the new Act by being a “member of a class” or
description, i.e. is a broker similar to broker XYZ, who is specifically named in the contract.
This will have wider implications for undeclared or unspecified address commissions for the charterers, who
frequently shun any publicity which might alert their clients (the receivers of the goods, for example) to this
additional hidden profit.
There is much to commend this Act and brokers would be well advised to ensure that they are included in
charterparties by name or, failing that, by description if linked to other named brokers.
The Act does allow these rights for brokers to be nullified by an express contractual provision to the contrary,
but since the contract has been negotiated and will be physically created by those same brokers, the inclusion
of such a clause would be most unlikely.
However, the Act does give the contractual parties the right not to pay commissions to brokers who created
it, if it appears that the parties to the contract did not intend the term to be enforceable by a third party. So if
both principals agree, without the broker’s knowledge, that they do not intend to reward the broker for
bringing them together under the terms of that contract, then the broker has little, if any, right to sue
successfully for earned commission. It may then become necessary for a court to decide what was the
intention of the parties and whether they were entitled to agree not to pay commission to their broker.
This Act should do much to obviate the need for charterers to come to the unofficial aid of their brokers, as
hitherto. The Act should also considerably reduce the number of legitimate commission claims, although
these may not be completely eradicated because of the regrettably haphazard manner in which some brokers
construct charterparty clauses, which will ultimately bind all parties, including themselves.
29 of 48
Are Brokers Necessary?
They are indeed necessary if they act as a fast and efficient database, not as a mere recycling post-box.
They facilitate negotiations at arm’s length, thereby helping their principals from being perceived by the
market as being “desperate”, which would inevitably drive the market away from them. In other words, if a
shipowner makes 200 telephone calls to potential charterers, who of course discuss the market amongst
themselves, they will collectively assume that that owner needs to fix a cargo very soon. Therefore, the
charterers will negotiate the freight much lower than if the owner had allowed a broker to place the vessel
in the market place and make a few discreet phone calls.
Brokers’ specialist knowledge could save the principal both time (which is equal to money) and disputes,
possibly otherwise leading to an arbitration or a court case.
F&F Broker
Beware the “F&F broker”, who simply wishes to:
Fix a cargo or a ship; and then
Forget about any post fixture (or after sales) service!
It is always preferable to choose a broker who is qualified as a Member or a Fellow of the Institute of
Chartered Shipbrokers, although (unfortunately) it is not yet compulsory within the profession to take ICS
exams.
Port agents can be qualified shipbrokers too, thereby extending their knowledge and giving a broader
service to their clients.
Fixture Negotiations
Obviously, the basics of contract law offer and counter-offer apply:
For a contract to be valid, there must be
an offer;
a clean acceptance of that offer;
consideration (i.e. payment in some form of money, goods or service); and
legality.
In tramp chartering, consideration means payment of freight. Freight can take the form of a lump sum, or of
“pro rata” per ton loaded (as evidenced in the bill of lading) or discharged (the “out-turned weight”), or of
advance freight, backfreight, distance freight or dead freight.
Until such time as the offer has been fully and unconditionally accepted, there can be no payment of
consideration and, therefore, there is no valid contract.
There are very few charter fixtures which are the result of an immediate clean acceptance of an initial offer,
unless it is on the basis of so-called repeat business, in which case the merest of details change, such as
perhaps the name of the vessel or the lay/can dates or the amount of freight to be levied, and otherwise “all
other terms, conditions and exceptions of the previous charterparty dated…to apply”.
However, the vast majority of charterparty contracts are the result of some (often many) counter-offers,
which are finally resolved in a mutually acceptable agreement.
Offer: If the shipowner is the first to initiate negotiations, this is called an offer;
Bid: If the charterer is the first to initiate negotiations, this is called a bid;
Counter-offer: Thereafter every counter-move made during the negotiations by either party
is called a counter-offer or usually a “counter”.
Prior to negotiations commencing, there is often an exchange of indications, in which case the principal
merely wishes to test the water on a certain point or points, often using the broker as a thermometer.
If one party makes a counter-offer during negotiations to the other party, usually for reply within a certain
stipulated time, it will be made as a firm counter, in which case both parties know that the offer has thereby
bound himself not to offer the same vessel or cargo to any other party prior to the expiry of the self-
imposed time limit.
For a reply/counter-offer to be valid, it must be made in good time:
Even one minute late can result in the substitution of that owner or charterer by another
charterer or owner; so, it is best to counter well within time, if possible, especially in a volatile
market.
If you know that it is not going to be possible for you (as principal) or your principal client (if you are a
broker) to reply in good time, the best (and the most courteous) safeguard is to advise your counterpart
that it looks most unlikely that you will be able to reply in time and could you or your client please be
granted an extension for the reply time.
It is not always easy to reply in good time – this could be due to the number of parties in a broker chain, for
example, or due to poor telephonic connections with certain countries. Thus, the number of counters should
be kept to a minimum if these circumstances should prevail.
Naturally, the negotiations should whittle down the contentious points as much and as soon as possible.
Therefore, it is the broker’s skill and knowledge of his principals and/or of the prevailing market which will
facilitate this process.
An owner/charterer can only be firm to one charterer/owner at any one time.

30 of 48
Introduction
Chapter 5: Subjects
When a firm offer is made and accepted, it may be subject to something else happening before negotiations
can become a fixture, i.e. a legally binding contract. This “subject” (or proviso) is an indication that the main
parts of the business have been agreed upon, but there are still some details to be finalised.
Brokers should avoid peppering the “main terms” with too many “subjects” before the final contract can be
concluded as a “fixture”. However, some “subjects” (i.e. provisos) are necessary, the important ones being:
subject to owners’ approval of the charterers;
subject to the charterers’ approval of the owners;
subject to the cargo shippers’ or receivers’ approval of the owners or of the vessel
subject to the board of directors’ approval of the fixture;
subject to enough merchandise (i.e. cargo) being available – known as STEM (or strangely but
most usually as “subject STEM”);
Subject
To
Enough
Merchandise
subject details, i.e. there is no fixture until all the details have been agreed (see below);
subject open – subject to the vessel being available to be negotiated and fixed.
These “subjects” are to be declared by a given time or within a specific period after fixing the main terms
and the details.
Under English law, there is no fixture until all the subjects are lifted therefore, as far as an owner is
concerned, it is important that there is a time limit on the subjects.

31 of 48
Fixing on Subjects – Be Very Wary of This
The Institute of Chartered Shipbrokers, BIMCO and the Baltic Exchange warn against abuse
by this practice.
It does not make for speedy culmination of negotiations, even though it might well help
charterers/merchants to conclude their trade in the interim.
In an owners’ market, it does leave owners open to fix elsewhere if the charterers cannot
release the “subjects” in time.
In a charterers’ market, this practice does allow charterers to look around for a better
(cheaper or bigger or smaller or younger or earlier or later) vessel and have that extra
knowledge up their sleeves in case they fail on subjects with the first owners. However, as
above, they can only hold one vessel firm at any one time.
⛶ ⛶ ⛶
Fixed “Subject to Receivers’ Approval”

Sometimes a trader’s receivers will insist on a certain type of vessel and will need to approve the vessel
before it can be chartered, either by the trader (if the sale of goods is on a CFR/CIF basis) or by the receivers
(if they purchase the merchandise on an FOB basis).
Alternatively, the trader (potential charterer) may not be aware that the cargo buyer (receiver) has a dispute
with this particular shipowner from a previous carriage of cargo and that the receiver, therefore, refuses to
accept any future cargoes to be carried by the owner’s ships until the dispute is resolved – this prevents the
trader from chartering a vessel from that shipowner at that time.
For example, a dry cargo vessel may need to be fully geared up to a certain stipulated SWL (Safe Working
Load) capacity. Alternatively, it may need to be Australian hold ladders fitted or (Great) Lakes fitted. However,
you should be aware that this information should be made available in the owners’ initial offer, which includes
a full description of the vessel. Older vessels may even need to be described as having no wooden ceiling, to
avoid damage by the receivers’ grabs when discharging bulk cargo.
In the case of liquid cargo, a tanker may need to be approved by the receiver, for example whether that tanker
has caused oil pollution in the recent past, or whether it is known to have inefficient pumps and is, therefore,
typically slow at discharging cargo, or even as simple a question as what were the previous three cargoes
carried. If they are incompatible with the cargo to be carried, the vessel may be rejected unless or until it is
warranted as having been fully cleaned.
Of course, a broker should also be wary of proposing a single-skinned vessel to a principal charterer wishing
to carry liquid cargo to or from the United States since the Oil Pollution Act (OPA) 1990 after the Exxon
Valdez incident in US Alaskan waters in March 1989.
There is currently much talk of the advent of a similar European Oil Pollution Act (EUROPA) to combat oil
pollution in European waters, particularly after the Erika incident off the northern coast of France in
December 1999 and the Prestige off Galicia in northern Spain in December 2002.
Nevertheless, the majority of charterers who request this have a genuine trading need to do so and are,
therefore, caught in somewhat of a Catch 22 situation.
Owners are of course aware of this and, depending on the state of the market, they will either take the
commercial decision to continue their negotiations with this charterer, possibly because of traditional
loyalties or because of the scarcity of other good and/or high-paying charterers, or be aware of market forces
and factors and seek alternative employment elsewhere.
⛶ ⛶ ⛶
Fixed “Subject to Enough Merchandise (STEM)”

Beware of charterers who may try to use this as a bargaining ploy in a weak (i.e. charterers’) market.
Nevertheless, the majority of charterers do genuinely need to confirm this with their suppliers and can only
do so once they have a vessel firm in hand.
The origin of the word “stem” in this shipping context is from the time when sailing ships had to wait for their
cargoes and were not allowed to come alongside the berth until all the cargo was available to be loaded. The
bowsprit (also called the “stem”) of the vessel, being the boom for the foresail and the most prominent front
part of every mercantile sailing ship, was the first part of the ship to arrive at the berth and that stem (plus
the rest of the ship, obviously) could only moor alongside (“all fast”) at the berth when all the cargo had
arrived at the berth, ready to be loaded, in order to avoid the vessel waiting for cargo and thereby causing
delay to other vessels which could have berthed to load other cargo which was available. The word “stem”
therefore came to mean that the contracted cargo had arrived at the load berth and was available to be
loaded. The word “stem” has been used as an abbreviation for “Subject To Enough Merchandise” or
sometimes “Subject To Enough Material”.
⛶ ⛶ ⛶
Fixed “Subject to Supplier’s Approval”

Linked with “STEM” is “Subject to Supplier’s Approval” ~ usually meaning that the cargo suppliers need to
approve the vessel or her Estimated Time of Arrival (ETA) at the load port or her owners or certain terms e.g.
quantity of cargo expected to be loaded per day according to the proposed charter party, which might not
mirror those same “terms” (rate of loading) in the commercial contract.
The latest case on this precise point is Nautica v Trafigura [2020] EWHC 1986 (Comm), in which it was
“held” (i.e. decided in judgment) that Trafigura’s “Subject to Supplier’s Approval” was a “pre-condition” (which
prevents a binding contract from coming into existence), as Trafigura argued, rather than a “performance
condition” (which does not prevent a binding contract from coming into existence), as the owners
unsuccessfully argued. Therefore, although the owners believed they had a binding contract which was
reliant on performance by the charterers who were awaiting and expecting their cargo suppliers to approve
the c/p contract, the court was persuaded by the charterers, Trafigura, that no c/p contract existed without
the “lifting” of that “Subject to Supplier’s Approval” and, because the supplier did not provide cargo, the
charterers were not bound by any c/p contract with the owners. The judgment included the strong
recommendation that all parties (including third parties such as shipbrokers or other agents) to any contract
(a charter party or commercial sale or purchase contract) must have clarity of meaning. The old adage “Say
What You Mean And Mean What You Say” is particularly relevant in this context.
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Subject Details
It is important to distinguish between details and “terms”. It is dangerous practice to leave details to the
end (i.e. only to start negotiating Details after the Main Terms have been agreed) and this is discouraged by
INTERTANKO and BIMCO.
Fixed “Subject Details” in London

Under English law, this means precisely that the vessel will not be considered as having been fixed until all
the details of the charterparty clauses have been agreed. Fixing on “main terms” is merely the first stage in
negotiations. Therefore, under English law, there is no fixture if agreement cannot be reached on the
details, even if all the Main Terms have been agreed. It is also possible, although considered unethical, to
reopen negotiations on the main terms if the subsequent details appear to warrant further negotiation.
Fixed “Subject Details” in New York

Under US Federal or New York State law, a contract exists as soon as the “main terms” have been agreed
and therefore the vessel has then been fixed, even if some of the “details” or even some or all of the other
cargo-related “Subjects” cannot be “lifted”. It is up to the parties (and their brokers) to resolve any
disagreements or disputes as speedily as possible in the best and most mutually satisfactory way.
Regrettably, this often leads to one party instigating proceedings in NY arbitration or NY court in order to
resolve what the rest of the world outside New York considers is not yet a contract, so there is great
conflict of law in this area. It is, therefore, advisable to establish the ground rules before negotiations begin.
One way round this would be to insist that the negotiations must start with agreement of all Details and
lifting of Subjects before the Main Terms can be negotiated and agreed : this is obviously both impractical
and illogical, although possible, so the only other way to avoid such a conflict is to insist that English law
should apply to negotiations to lead to the creation of that c/p contract…
It is, therefore, important that the subjects are clarified by suitable wording.
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Problems with Subjects
BIMCO have produced a warning in their bulletin regarding the abuse of subjects. They quote experiences
with charterers who:
use the subjects to work and fix several ships at the same time, eventually taking the
cheapest ship;
do not bother to check the suitability of the ship for the cargo, using the failure of the subject
as a pretext to get out of the ensuing difficulties;
fix a ship with two days “sub stem” when they already have their own vessel and are covering
the possibility of finding better employment for their own ship.
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Introduction
Chapter 6: Warranty of Authority

When fixing a ship, the broker is deemed to be acting with the full authority of the owner or charterer. It is,
therefore, important that the broker obtains this authority before making offers or counter-offers.
Alternatively, the principal must ratify the broker’s action within a set time period.
If the broker does not have the authority, he may be sued by the person receiving or accepting the
worthless offer.
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Breach of Authority
Such an action would be on the basis of breach of authority, either:
with or
without negligence.
Breach with Negligence

In the case of a breach with negligence, the broker passes on or accepts/agrees an incorrect offer, either by
mistake or deliberately.
Breach Without Negligence

Should the mistake be made by another party and passed on by the broker, then it becomes a breach
without negligence.
In both cases, the broker can be liable for damages but when it is without negligence the broker has the
chance of recovery from the party who passed the incorrect information to him.
Chartering is a fast-moving business, it is always possible to make mistakes, so most brokers will be
covered by professional indemnity insurance against negligence. Before a broker can trade on London’s
Baltic Exchange, he must demonstrate that he is covered by professional indemnity insurance. This is
usually (but not exclusively) handled by the Shipbrokers’ P & I Club, formally known at ITIC = International
Transport Intermediaries Club, which was founded in 1925 by a London law firm and the Institute of
Chartered Shipbrokers.
Knowledge check
Select the correct statement/s underneath.
A breach without negligence occurs when the mistake is made

by another party and passed on by the broker.
In both a breach with and without negligence, the broker can

be liable for damages.
If the broker passes on or accepts an incorrect offer by

mistake, this cannot be classed as a breach with negligence'.
In the case of a breach without negligence, the broker has the

chance of recovery from the party who passed the incorrect
information to them.
SUBMIT
C O NT I NU E
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Introduction
Chapter 7: Firm Offers

When an owner makes an offer to a charterer or vice-versa, this is known as a firm offer. A very important
aspect of the ethics of shipbroking is the treatment of firm offers. The code of ethics of the Baltic Exchange,
of the Institute of Chartered Shipbrokers and of all other sensible brokers prohibits the making or the
holding of more than one firm offer at one time.
When negotiating, it is not possible to hold two firm offers. When a broker acting on behalf of the owner
makes a firm offer, the ship cannot be offered elsewhere at the same time. Equally a charterer cannot make
an offer to two ships at once, otherwise he could be obliged to provide two cargoes. All offers, therefore,
have a time limit attached. It must be clear in what place (or time zone) the time limit is to apply, e.g. “10
pm Tokyo time”.
This system has advantages for both owners and charterers, as each party knows that the other is
interested in their business and that a contract or “fixture” will follow, provided they can agree on all the
terms. They also know that they are not in competition with another party, i.e. the owner knows that the
charterer is not talking to another owner and the owner knows that his is the only ship which the charterer
is fixing.
It is possible to offer a ship or cargo subject open or subject unfixed, thus indicating that negotiations are
being conducted with other parties. Many owners or charterers refuse to do business on this basis.
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The Fixture
Voyage Charters
When a charterer requires a ship, they will instruct their brokers or several brokers, giving details such as:
Cargo.
Loading and discharge port or ports (with tankers this is more likely to be a geographical
range rather than a port).
Freight (indications).
Type of charterparty and clauses.
Dates.
This is known as “an invitation to treat”.
The owner will make an offer via a broker. This will contain some or all of the following information:
O F F E R I N F O R MAT I O N
Ship’s name and previous name.
Flag, year of build, class.
Description of vessel, including cargo-handling equipment.
Last three cargoes.
Cargo details and quantity, including percentage more or less.
Loading and discharge ranges.
Freight rate, how to be paid, e.g. US$ to owners’ bank in New York.
Laydays/cancelling, ETA … position.
Demurrage.
Name of charterparty and additional terms.
Worldscale terms and conditions (tankers) or loading and discharge rates (dry cargo ships) and laytime
conditions, e.g. SHEX / FHEX or SHINC / FHINC.
Owners’ option to slow steam down to … knots.
Commission.
Time limit on the offer.
This offer will be passed to the charterers via the broker, and if passed verbally it will be followed by a telex.
The reason that the telex is still used (in countries where it is still valid but unfortunately no longer in the
UK, Norway or Italy except to or from vessels) is that it has an “answerback” facility and this will provide
evidence of when the offer is received by the other party. This is very important in a situation where it is
necessary to establish whether an offer was “in time” or not. An alternative method is to send a fax or an
email and then telephone the recipient to confirm receipt of the message.
The charterer can then:

reject
accept;
counter;
“accept/except”; or
“accept on subjects”.
The negotiations will continue with each side making counter-offers until the details including terms are
agreed and the charter will be agreed apart from the subjects.
 Note: Under English law, there is no contract until all the subjects are lifted. This is not the
same under US Federal (and specifically New York State) law, according to which there is a
contract as soon as main terms have been agreed, thereby ignoring the many details and
the “subjects” being negotiated. (See 5.3. above)
When the subjects are finally “lifted”, the negotiated terms are collated into the charterparty.
While waiting for the subjects to be lifted and before the charterparty is produced, the broker will send a
“recap” (recapitulation) message to both parties, detailing all the points agreed by the parties.
This is the point at which the owner and charterer check with their notes and corrections, if any are made,
to ensure that the charterparty reflects what has been agreed.
In order to save time, a fixture may be made on the basis of last done. This means that the terms and
conditions that were agreed on a previous fixture will be repeated with certain agreed exceptions. Thus, it
is important that both parties are clear about what this means.
Time Charters
These are fixed in the same way. However, the details required for the firm offer will be different, and a time
charterer needs to know a great deal more about the ship and her suitability for his requirements. Thus, a
firm offer for time charter would look like this:
“ Reply by
For account of
Name and description of ship including speed and consumption (note that this has to be realistic as it
forms the basis of performance assessments).
Delivery (when/where ready, Dropping Outward Pilot (DOP), passing X).
Period/trip
Redelivery (when/where ready)
Trading area, always within institute warranties, excluded countries intended trade, excluded cargoes.
Rate of Hire (daily or $ per dwt per month) ballast bonus.
Cargo-handling equipment overtime.
Where and how paid bunkers.
Quantities and prices on delivery and re-delivery charterparty form.
Commission subjects.”
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The Importance of Keeping Records During

Negotiations
A record of all offers, bids and counter-offers and the times when they are made should be maintained. This
is important because, in the event of a dispute, the courts may have to decide on what the intention of the
parties was at the time when the contract was agreed. The record of times is important if either party
considers that a counter-offer was out of time. It is good practice to log all telephone calls and many offices
have telephone monitoring equipment that is used for this purpose.
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Example of a Fixture
Introduction
This is an example of a fixture which shows how the procedures were followed.
The owner was informed by his broker that a tanker charterer was looking for a VLCC to load
Oman/Gulf for Western discharge options. The broker also informed the owner that one of his
ships was in a suitable position and acceptable to the charterer.
1
The owners’ first offer to the charterer was:
Name, Flag, dwt 211,597
210,000 5% MOLOO 1 grade Crude Oil, No heat
1 SP Oman
1-2 SP UK Cont Gib/Hamb Range or CHOPT
1-2 SP EuroMed NEOBIG (Not East Of But Including Greece) excluding

Falconara/Fiumicino/Ravenna and Albania.
1-2 SP US Atlantic Coast if New York not north of George Washington Bridge, excluding
Florida.
1-2 SP US Gulf excluding Florida. 25/27 May 2007
Owners’ option to slow steam down to 12 kts weather and safe navigation permitting
Asbatankvoy
Freight US$ to owners’ designated bank in New York GA & Arbitration London
General Average York Antwerp 2004 Conoco Weather Clause FMC/USCG
Worldscale Terms and conditions rates to apply
Rate Extras Demurrage Worldscale 60 UK, Cont, Med
Worldscale 65 USA
Chevron War Risk clause, First 14 days owners’ account, rate as per date of CP, (currently
present time) any inclusions for charterer’s account.
Commissions 1.25%
Reply 18.35 hrs
2
The time expired before a reply was made. After enquiring

whether the owner was still open, the charterer sent the
following:
Name, 211597 dwt on 63’ 5” 326 m LOA 48.2m beam
IGS/COW 98% nil slops 261698.5 cbm, 1646000 bbls 98% Based on charterer’s or broker’s
information.
Please advise BCM 162m
Derricks 2 x 15t
TPI 356 mt (full cond) KTM 55.7m
Last three cargoes
Full cargo 210,000 mt 5% MOLOO no heat crude, max 2 grades within vessel’s natural
segregation.
1-2 ports AG including Oman
1-2 ports UK cont Gib/Hamb range or Charterer’s Option 1-2 ports Med excl Albania
1-2 ports Caribbean
and or 1 or 2 ports US Gulf
and or 1-2 ports US Atlantic Coast if New York not North of George Washington Bridge
or 1-2 ports East coast Canada (Always Within Institute Warranty Limits) 25-27 May 2007
Charterers CP
Worldscale 55 Cape/Cape
Demurrage 15,000$ per day pro rata WS Hours
Freight US$ to owners’ account NY

Vessel to Arrive loading ports with clean ballast
Vessel to proceed loaded leg at 12 knots, weather and safe navigation permitting Please
advise maximum speed at 1 WS point per knot or pro rata
Owners’ warrant vessel is fitted with two bow chain stoppers compressors and complies
with OCIMF recommendations for loading discharging at SBM/SPM Subject questionnaire
satisfactorily answered
Subject suppliers’ and management approval
1700 London 16th or 1 hour after receipt of questionnaire whichever latest

3
The Owners’ reply was:
Accept/except
+ combination Caribbean US Gulf or Caribbean US Atlantic Coast Maximum 2 discharge

ports, always good rotation
Speed about 12 kts, 13 max +1.5 pts per knot Vessel to bunker after loading
No NE cert willing to get it
Freight taxes if any to charterer’s account Chevron War Risk clause
1 SP Oman 25/27
1 SP AG Not North of Ras Tanura excl Iraq and Iran 25/30 Excluding Florida
Demurrage 25,000 US$ per day pr

4
The Charterer’s reply was:
Repeat except
1-2 Ports AG Not North of but including Ras Tanura incl Oman exc Iran Iraq Delete safe
Discharge excluding Florida Owners’ Combinations OK
If Falconara, Fiumicino, Ravenna any weather delays to count in full as used laytime or
demurrage if on demurrage
25/27 Oman 25/30 AG Dem $16,000
Max 2 discharge ports excluding lighterage Max 13kts at 1 pt WS per knot
Chevron War Risk clause Bunkering after loading noted

5
The Owner replied:
Accept/Except Insert Safe
25/27 2400 hrs Oman 25/30 Ag
Demurrage 24,000$ About 12 kts
Freight taxes if any charterer’s account Subs noon tomorrow

6
From Charterer:
Safe, add qualification charterparty Freight taxes for charterer’s account US$19,000
Subs 1,700
7
From Owner:
US$21,000
Subs 1,400
Summary
With the subjects lifted, the recap telex followed.

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Introduction
Chapter 8: Charterparty Forms

The long history of chartering means that there are a large number of charterparty forms in use, many of
these are written for a specific trade and, therefore, deal with the customs of the ports involved while
others are suitable, with additional clauses, for any voyage.
There is a strong tradition in shipping to stick to tried and trusted forms, so many of the charterparty forms
are old and do not properly take into account the massive changes brought about by the use of large bulk
carriers or the latest tanker practices.
They, therefore, have to be modified by the inclusion of additional or side clauses. This leads to
complications and disputes over the meaning of these clauses, particularly where they have been badly
drafted which may be the case when they have been made up on the spur of the moment. To alleviate this,
organisations like BIMCO and INTERTANKO have drawn up a number of charterparty forms to avoid the
use of additional clauses.
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Types of Charterparty Form
In dry cargo chartering members of BIMCO are expected to comply with the following:
An “official” charterparty form is a form that has been agreed and passed by an official body such as
BIMCO, these are distinguished from other forms which are not considered to be as suitable for use,
possibly because they unduly favour one or other of the parties involved. The shipowner is advised
whenever possible to use these forms because they are usually well drafted and balanced forms.
The “official” forms may be described as shown below:
Agreed Charterparty
–
This is a form which has been agreed between BIMCO or another group of shipowners and charterers for
the trade concerned, the terms must not be altered in any way. The use of this form is compulsory for that
particular trade. Examples of agreed forms are Polcoalvoy and Sovcoalvoy.
Adopted Charterparty
–
If a charterparty has been agreed by two organisations, and another organisation wishes to make use of it,
they may then adopt the charterparty. Thus, BIMCO may adopt a charterparty agreed by the Chamber of
Shipping of the UK and a number of charterers. BIMCO members would then be expected to use this
document whenever possible.
Recommended Charterparty
–
This is used where no specific charterparty exists for a particular trade and an organisation like BIMCO
would recommend a particular charterparty, such as Gencon, for use by its members in that particular trade.
In practice, the choice of form is dictated by the charterer and not by the shipowner.
Dry Cargo Charterparty Forms

–
A wide range of different forms are used in dry cargo chartering. Some are general purpose while others are
for specific trades.
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General Purpose Forms
Gencon, this is a “general contract” multi-purpose voyage charterparty for dry cargoes which
is considered fair to both parties.
Universal Voyage charterparty 1984 (NUVOY – 84).
Multiform, this is a general purpose charterparty issued by FONASBA, (Federation of National

Shipbrokers and Agents).
Some specialised charterparty forms in common use include:
Polcoalvoy
Sovcoal
Americanised Welsh Coal Charter (Amwelsh)
Australian Coal Charter
C Ore 7 (for iron ore) ; NipponOre (for iron ore to Japan or on Japanese flagged vessels)
Norgrain, Austwheat, Ausbar, Synacomex and Centrocon (used for carriage of grain)
Sugar 77 and Sugar 99
Africanphos
NuBaltWood
Fertivoy
Time Charter Forms

There are no specific charterparty forms for bulk cargo cargoes, common forms are:
New York Produce Exchange (NYPE 1993 & 2015).
Baltime 1939 (revised 2001) Gentime.
Gentime
Linertime
Boxtime 2004
Bareboat Charter Forms (Demise)
Barecon 2001.
Contract of Affreightment Forms
Intercoa Volcoa.
These forms are not always used, frequently a letter is used stating the main terms of the COA and then
voyage charterparties are used for each voyage. Note that forms marked with an * are issued or
recommended by BIMCO.
Knowledge check
Drag the items below into the correct box.
General Purpose Forms
Gencon NUVOY – 84
Time Charter Forms

NYPE 1993 & 2015 Shelltime 4
Bareboat Charter Forms
Barecon 2001
Contract of Affreightment
Forms
Intercoa Volcoa
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Tanker Charterparty Forms

There are fewer tanker charterparty forms than there are for dry cargo, this is because there is not the
variety of cargoes that are found in the dry cargo trades. Therefore, there is not the same need for
specialised charterparty forms.
In general the tanker charterparty forms are of three types:
Those produced by the oil companies

Which include:
SHELLVOY 6 (produced by Shell).
SHELLTIME 4.
BEEPEEVOY 5 (produced by BP)
BEEPEETIME 3.
EXXONVOY MOBILVOY 2012.
TEXACOVOY and TEXACOTIME (although Texaco’s parent Chevron usually use ShellVoy or
ShellTime).
VELAVOY 2005 (hardly ever used nowadays, for Saudi Arabian trade).
Supplytime 2017.
These charterparties were drawn up by the major oil companies and hence some owners consider them to
favour the charterer, although this is not necessarily the case. When chartering to these companies, the
tanker owner will almost certainly be required to use the companies’ charterparty form although, in a good
market, the owner should be able to have some of the clauses to which he objects removed or at least
modified by incorporating additional or side or “rider” clauses.
It should be noted, however, that the oil companies are also shipowners and use their own forms when their
own vessels are chartered out. Therefore, in fact, these forms are not as biased as some owners think.
Those charterparties produced by Association of Shipbrokers and Agents,

USA (ASBA)
The ASBATANKVOY
This was formally the EXXONVOY 69 which was taken over by ASBA. It is
the most common tanker charterparty form used by traders. This
charterparty was not drafted very well and does not relate to current
tanker practice, hence most of the court cases in tanker chartering
concern the Asbatankvoy. In practice, whenever the Asbatankvoy is used,
it is heavily modified by additional clauses.
ASBA II Voyage
This was developed by Esso and previously known as the STB. It is

considered to be heavily biased towards the charterer. In practice it is
rarely used.
ASBATIME time charterparty produced by ASBA.
This is also rarely used.
The INTERTANKVOY and INTERTANKTIME were produced by INTERTANKO in Oslo
These are considered to favour the owners and, therefore, are not in fact
used. INTERCONSEC is available for consecutive voyages. They do,
however, provide an example of well-drafted charterparties, which are
fair to both sides.
Students are advised to study them for examples of good practice.

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Specialist Tanker Charterparties
These are for the specialist tanker voyages and include:
BISCOILVOY is used for vegetable oils, animal oils and fats; VEGOILVOY for vegetable oils.
London Form and IMOL 78 are used for molasses. The London form is sometimes used in
small tanker products trades, it normally requires some additional clauses.
GASVOY is a BIMCO charter used for LPG cargoes.
CHEMTANKVOY is a BIMCO charter used for chemical cargoes.

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Additional Clauses
It is most unlikely that a charterparty would be agreed without any additional clauses, known as rider
clauses, being added. These clauses always take precedence over the printed ones in the charterparty.
Although these clauses may be drafted by the owner or the broker to cover a particular situation, there are
a number of recognised clauses available.
The advantage of using such clauses is that they are well known and their meaning is usually understood.
This presents less risk of a dispute than would be the case if the clause has to be specially drafted.
INTERTANKO provide a book containing a large number of such clauses. The use of “recognised” clauses is
more common with tanker chartering than dry cargo chartering.
An important use for these clauses is in a situation where additional costs that are not mentioned in the
charterparty document are incurred. An example is in American Ports loading bulk cargo where the owner
will want to include “dumping and trimming’ costs to be paid by the charterer. With older ships, the cargo
had to be trimmed, that is levelled off, before the ship could proceed to sea.
Although it is not as important now, these costs are frequently included in the port costs and it needs to be
spelt out who is to pay for them. Other common examples are for weather delays, e.g. the Conoco Weather
Clause.
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The Balance between Owners’ and Charterers’

Interests in a Charterparty Form
For many years the clauses in a bill of lading have been subject to statute law, the defences that a
shipowner may claim in order to avoid paying compensation for damage to the cargo, which is entrusted to
his care for the voyage, are limited by international conventions. The latest of these conventions have been
codified into the Hague Visby rules and have been incorporated into English national legislation as the
Carriage of Goods by Sea Act 1971.
The Hamburg Rules of 1978 became effective in 1992 and cover the additional obligations of carriers
under multi-modal transport. The purpose of these rules is to protect the shipper, who may have little
experience of the perils of the sea, from a shipowner who could, and certainly did, make use of the
monopoly powers which the conference system provided in order to avoid any liability for damage to the
cargo.
It remains to be seen how the new Rotterdam Rules will affect the market. They were created on 23
September 2009 with ratification from five countries to date.
The requisite additional fifteen countries (giving the minimum 20 countries for international regulations)
included the USA in October 2009 but to date the USA is still waiting for the UK to ratify the Rotterdam
Rules. Because most (90%) charterparties are governed by English law, the viability of the Rotterdam Rules
will probably have to wait until the UK (or at least England) ratifies them, which is unlikely. The USA has
announced for several years that it might ratify the Rotterdam Rules without England’s approval of the
Rules but so far the USA has not yet done so.
The construction of charterparty forms, on the other hand, has always been left up to the owners and
charterers to agree, the assumption being that both shipowners and charterers understood the
complexities of chartering and could, therefore, be left to draw up a charterparty without the need for any
statutes to provide protection.
The consequences of this are that when a charter is being negotiated, the choice of charterparty form is one
of the first items discussed in the negotiations. When freight rates are high, then the owner has a better
chance to obtain what he considers to be a fair charterparty, or at least to have the most objectionable
clauses removed from the charterer’s preferred form. When the market favours the charterer, then the
charterer will be able to impose his favoured form without any modification.
Voyage Charters
Most charterparties are in three main parts shown below.
The ASBATANKVOY charterparty and Gencon 1994 are used as examples in the following notes.
The student should make a point of reading the different charterparties that are in common use, it is only in
this way that it is possible to become familiar with the way the different clauses are drafted.
a) The Preamble
This is just a general outline to the charterparty and includes:
i. Place Where the Contract is Made
This is essential because, in the absence of a clause to the contrary,

any disputes arising under the charter will be settled according to the
law of the country where the contract is made.
This is not usually the business abode of the principals concerned but
very often the country where the principal broker carries out his
business.
ii. Date of Charterparty
This is the date when the negotiations are concluded, i.e. all “subjects”
are lifted.
iii. Names and Addresses
Names and addresses of the contracting parties.
iv. Name of the Ship
In chartering, the ship’s name is always on the charterparty and no

substitutions are allowed unless agreed.
b) The Main Terms
These are printed clauses which differ between varying types of

charterparty, depending on the trades for which they are used. Much of the
negotiation between owners and charterers is concentrated on which
words to delete from the printed clauses, to be replaced by rider clauses
(see below).
c) The Details or “Rider Clauses”

These have been specifically agreed. If there is any conflict with the
printed words in the main terms, the rider clauses will always prevail.
There can be many rider clauses, or just a few, depending on the nature of
the trade and on the type of charter, the relationship between the parties
and the necessity to alter the printed clauses.
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Module Summary and Conclusion
By now you will have a good idea of the importance of a strong grounding in contract law in order to
negotiate charterparties effectively. You have seen the basics of what is meant by “a contract”, how it is
created, how it can be breached and how it is concluded or closed. You have also seen the necessity for
extreme clarity when negotiating and when finally drafting the contract, in order not to misinterpret what
was agreed.
You can now realise the crucial essence of “reading between the lines” and, therefore, at looking for what
the parties intended, what they meant to have stated, what their custom of trade would expect them to
have agreed – all of which might differ from what a lay person (the so-called “man on the Clapham omnibus”
or Joe Public) would understand by the precise words in the contract. Those involved at the sharp end of
any industry – in our case, the shipping industry – must be acutely aware of the importance of misplaced
words or even erroneous letters in words.
We are also aware of the importance of trust, of reliance on the spoken word – the motto of both the Baltic
Exchange and the Institute of Chartered Shipbrokers is:
“Our Word is our Bond”
Contract law incorporates many facets – in shipping, this includes charter parties and booking notes, bills of
lading and seaway bills, agency law, the international rules which govern the carriage of goods by sea and
many other general and specific documents, which you will be studying in the next chapters of this course.
Online Assessment
When you are ready, please go online to complete the online assessment for this module. If you don’t
achieve at least 70%, you may revise the module and attempt the test again to improve your score.
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Chartering - Module 1

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Module 1: Introduction, Market Context and Broking

Course Welcome and Module Introduction

CH APTER 1: TH E B ASICS OF CON TR ACT LAW

CH APTER 2: WH AT IS A CH AR TER PAR TY ?

Freight Market Practitioners

CH APTER 3: TH E MAIN TY PES OF CH AR TER PAR TY

Bareboat or Demise Charters

Contracts of Affreightment (COA)

International Shipbroking Markets

Duties of Brokers Towards Their Principals and Vice Versa

The Role of Brokers

The Role of the Broker Under Agency Law

Shipbrokers’ Remuneration – Brokerage/Commission

Are Brokers Necessary?

CH APTER 5: SUB JECTS

Fixing on Subjects – Be Very Wary of This

Problems with Subjects

CH APTER 7: FIR M OFFER S

The Importance of Keeping Records During Negotiations

CH APTER 8: CH AR TER PAR TY FOR MS

Types of Charterparty Form

Charterparty Forms Part 1

Charterparty Forms Part 2

Specialist Tanker Charterparties

The Balance between Owners’ and Charterers’ Interests in a Charterparty Form

SUMMAR Y AN D CON CLUSION

Course Welcome and Module Introduction

Welcome to the Lloyd's Maritime Academy Certificate in Chartering

After successfully completing this module you will be able to

the basics of contract law and its importance to

the main types and the purpose of charterparties;

the different styles and uses of charterparties used in

a shipbroker’s role in negotiating and “fixing”

Chapter 1: The Basics of Contract Law

bound by a blank form of charterparty without any amendments.

rates of freight and demurrage or hire;

cargo’s description; and

offer and acceptance;

consensus ad idem (agreement – a meeting of minds).

Carlill v Carbolic Smoke Ball Co (1892)

awarded Mrs Carlill £100 and held that:

Communication of acceptance may be implied by the conduct of the acceptor.

The other party refuses to

Depending on the situation, the

Death by either party before

An Offer Must be Distinguished from an Invitation to Treat

charterer then requests a firm offer.

Contracts to commit a crime.

Contracts to corrupt public life.

Relative importance to the parties (description of the subject matter).

Glaholm v Hays (1841)

The Mihalis Angelos [1971] 1QB 64 (CA)

Click on the following flashcards to learn about two case studies.

Bunge Corporation v Tradax Export SA [1981] 1 WLR 7111

the ship’s arrival at port.

possibility of minor breaches.

Waterfront Shipping Company Ltd v Trafigura AG (the Sabrewing) [2007]

logs from a terminal or charterers’ representative.

minimis (i.e. was not of minimal importance).

case is decided on the interpretation and construction of a particular clause.

Chapter 2: What is a Charterparty?

not a new concept.

Rhine barges today).