MT1003 L2 Trade Practice and Incoterms Lecture Notes PDF

MT 1003 Trade Practice and Incoterms Lecture 2 / TKH CAPT TAN KIM HOCK Programme Director Maritime Studies 22nd Aug 2024  Lecture Plan // Capt KH Tan Wk 1 Risks and insurance of vessels and cargo, types of marine insurance, market, underwriter, and the standard forms...

MT 1003 Trade Practice and Incoterms Lecture 2 / TKH CAPT TAN KIM HOCK Programme Director Maritime Studies 22nd Aug 2024  Lecture Plan // Capt KH Tan Wk 1 Risks and insurance of vessels and cargo, types of marine insurance, market, underwriter, and the standard forms Wk Legal aspects and some commercial aspects of 2 chartering contracts Wk 3 Basic chartering and ship brokering terms Wk 4 Fundamentals in ship brokerage and chartering  Table of Contents 1. Introduction to Contracts of Carriage – Fundamentals of Charter Party (C/P) – Types of Charter Parties – Importance of Charter Parties in Commercial Shipping 2. Key Elements of a Charter Party – Obligations of a Charter Party – Legal Implications of a Charter Party 3. International Trading Limits – Definition and Importance of International Navigation Limits (INL) – Considerations for Shipowners and Charterers  Table of Contents 4. Lay days vs Laytime – Definitions and Differences – Laycan: Combining Laydays and Cancelling Date – Practical Implications: Despatch and Demurrage 5. Contractual Challenges in Charter Party Agreements – Common Challenges in Negotiating C/Ps – Stages in Fixing a Charter Party Agreement 6. Disputes and Arbitration – Common Areas of Dispute – Arbitration as a Preferred Method of Dispute Resolution Page Divider Contracts of carriage ………. C/P agreements are covered by Carriage of Goods by Sea Act (COGSA) Hand in Hand with Bills of Lading **** Demise charter - charterer is the carrier; **** Time / Voyage charter - shipowner is carrier CHARTER PARTY ………>>> A contract which is negotiated in a free market subject only to the laws of supply and demand. While the relative bargaining strengths of the parties will depend on the current state of the market, shipowner and charterer are otherwise able to negotiate their own terms free of any statutory interference. Charter Party CORE contract of commercial shipping Regulates relationship between the Shipowner and the Charterer Contains terms and conditions wrt ship charter,including ship and cargo operations as well as the payment of freight /hire. *** Source of several disputes leading to arbitration or litigation Charterers >>>>>>>> EITHER the Shippers/Sellers, or the Buyers, or the Freight Forwarders of the cargo, or the Operators of chartered-In Tonnage Ship-Owners >>>>>>>>> possession and legal rights to the ship, or the Managers (On Behalf of Owners to ‘run’ the ship ) or the Disponent Owners (they have a ship under bareboat Charter), Types of Charter Parties: 1. Voyage Charter: The vessel is hired for a specific voyage between two or more ports. 2. Time Charter: The charterer rents the vessel for a specific period. 3. Bareboat Charter (Demise Charter): The charterer takes FULL control of the vessel, including the crew and operating expenses, for a prolonged period. CONTRACT – CHARTER PARTY WHAT ARE THE IMPLIED OBLIGATIONS IN A CHARTER PARTY ?  CONTRACT – CHARTER PARTY 1. Seaworthiness Of Vessel 2. Obligation Of Reasonable Dispatch 3. No Deviation From Agreed Route 4. Nomination Of Safe Port 5. Not To Ship Dangerous Goods 6. Frustration Regulatory Aspects SEAWORTHINESS STATUTORY INSURANCE CARGO  SEAWORTHIN ESS M S Act Criminal Offence Marine Insurance Act – Implied 1. Hague Visby Rules – To warranty provide 2. Carriage of Goods by sea 1971 - Exonerate Vessel from liabilities 1. SEA WORTHINESS very important …………ship FIT to handle Perils Of the sea during her voyage. At Beginning of a Voyage , and throughout… Owners to provide a SEAWORTHY vessel as per description C/P In context of C/P >>> Owners …… 1. To provide a seaworthy ship which complies with the charter party description; 2. To properly and carefully load, handle, stow, carry, keep, care for, discharge /deliver cargo 3. To comply with charterers’ legitimate employment instructions; 4. To prosecute voyages with reasonable dispatch  Provision of competent Officers and crew  Crew and Officers well instructed  Sufficient Bunkers for Voyage  Valid trading Certificates as MANDATORY  Continuous machinery and equipment operations  Safe Stowage of Cargoes  Safe Securing of Vessel to execute Voyage  Safe Management Systems ( ISM , ISPS etc ) 2. REASONABLE DISPATCH Prosecute Voyage ………. Obligation Of Reasonable Dispatch -Proceed without delay - No unjustified deviation - Within controls 3. NO DEVIATION Except ………… 1. SOLAS - ( Safety of Life at Sea ) 2. SAR - ( Search and Rescue ) 4. SAFE PORT Charterers obligations to ensure - Safe approach ( depths, shoals etc) - Safe port stay ( political, wx etc ) - Safe going alongside ( tugs, wx etc) - Emergency Readiness - Security measures - Can Safely Depart  5. NO DANGEROUS CARGO 1. EXPRESSED in C/P clause 2. Charterers in breach 3. Shippers Declarations 4. Cargo Exclusions in T/C 5. Risk assessment as prevailing  6. FRUSTRATION of a Contract >>>Purpose of a contract UNABLE TO ACHIEVE due prevailing factors ………….. Then, - Both parties discharged from liabilities // Clean termination - Different from “ BREACH” - As arising from External factors  6. FRUSTRATION of a Contract - When the contract cannot be completed or materialized without the fault of any party Example …. 1. Chartered is lost or becomes constructive total loss ( CTL ) 2. Change in legislations causing contract to loose validity 3. War // Canal closed 4. Prolonged delay in rectifying CHARTERPARTY - Trading Limits as covered by H&M INL ( International Navigation Limits ) are often referred to in the trading limits clauses of charterparties, ( Was known as IWL – Institute Warranty Limits). - geographical limits within which ships are able to operate without incurring additional insurance premium from hull and machinery - Unless prior agreement by underwriters , vessels should never enter, navigate or remain in the areas as specified per INL. CHARTERPARTY - Trading Limits - OWNERS must take into account of INL …… when fixing ships to ports/regions …making sure they fall within the INL. - Outside the INL, are areas with significant hazards such as ice, could lead to damage to the ship and delay due to resulting repairs.  If a shipowner intends to allow the charterer to trade outside INL, He should notify his underwriters and ensure that the charterparty takes into account the possible outcomes of trading outside INL Typical challenges in C/P work 1. Common that C/P done up under time constraints >>>>>>>>>>>> Tight market conditions Seasonal peaks Contingencies Supply/demand forces “ Time means $$$$$$$$$ !!! “  Typical challenges in C/P work 2. Lacking / missed out details in clauses for typically used standard BIMCO Form ! (** Baltic and International Maritime Council ) - Subsequent make deletions, modifications and amendments (note: the actual charterparty will often contain more rider clauses ) - several ambiguities may appear *** parties must be very careful when making Amendments  Typical challenges in C/P work 3. No legal requirement that a charter agreement has to be made in writing, >>>> an agreement will be deemed binding when the parties are in agreement irrespective of any form ! Stages in fixing up C/P Negotiations thru phone and emails Agreed on “Main Terms” “Subjects “ along with “Main Terms” to be lifted >>>>> Then becomes “ Binding “ !! >>> vessel is FIXED ! “Recap” will be drafted out for both parties Signing of C/P by parties *** The accepted recap may then be the legally binding agreement, even ……….. if the charterparty is only signed later ; and vessel commenced her voyage. *** The CHARTER is already executed this point of time ! Common areas of disputes Cargo quantities, Laytime, Demurrage, Despatch, Bunkers, Damages to vessel , etc Note: In most cases the parties choose to settle their disputes by arbitration rather than by court proceedings. LAYTIME Concept in a Voyage Charter Party Number of days as agreed for loading n discharging of Charterers cargo If complete within window …DESPATCH awarded to Chtrs If complete after laytime …DEMURRAGE penalty n payable to Owners LAYCAN (pls differentiate) PERIOD / RANGE FOR OWNERS TO PRESENT VESSEL AT AGREED LOAD PORT LAST DATE IS : CANCELLING DATE > CHARTERERS MAY CANCEL C/P 1. Laydays : Laydays refers to a period of specified days ( Ex. “ Jan8/18” ) ……..during which owners must present the vessel for loading Cancelling Date : Final layday is known as the “Cancelling Date”, …………….In this case ……..18th Jan ! >>>>>>>>>>>>>>> After which Charterer have the right to CANCEL C/P if vessel fails to arrive. ** Cancelling Clause LAYCAN: Together, laydays + cancelling is termed as “LAYCAN” Example >>>>>>>>>>> If the vessel arrives EARLIER than first day of the period, charterers NOT OBLIGED to accept her until commencement of agreed laydays in the C/P via LAYCAN MOST COMMONLY USED VOYAGE CHARTER PARTY FORMS GENCON General purpose BIMCO form, box layou available OREVOY Iron ore BIMCO form with box layout GRAINVOY Grain BIMCO form BEEPEEVOY Tanker BP form; used by many companies SHELLVOY Tanker Shell form; used by many companies  Common Disputes in C/P 1. Freight and Hire Payment Issues 2. Off-Hire Disputes (Time Charter) 3. Laytime and Demurrage Disputes (Voyage Charter) 4. Ship Performance Disputes 5. Cargo Damage or Shortage  Common Disputes in C/P 6. Seaworthiness 7. Deviation from the Agreed Route 8. Breach of Safe Port/Safe Berth 9. Force Majeure and Frustration 10. Redelivery (Time Charters) 11. Speed and Bunker 12. Interpretation of Clauses Page Divider  TUTORIAL 2 QUESTIONS_29TH Aug 2024 1. Discuss the common challenges in negotiating Charter parties? 2. Identify the common areas of disputes in charter parties 3. Differentiate between Laytime, Laydays, and Laycan. 4. What are the main obligations of the shipowner under a charter party agreement? 5. What are International Navigation Limits (INL), and why are they significant in fixing a charter party? Provide an example of a scenario where breaching INL could impact the charter party.