CASA last lecture - Basic Shipping Agency Work.pdf

Professional Certificate Course conducted by CASA Basic Ship Agency Functions Delivered by Vasantha Dias – Secretary General / FTZMA ,Visiting Lecturer of CINEC Metro Campus & Shippers’ Academy Obligation of Agents to principals The agent's role, obtaining business, identif...

Professional Certificate Course conducted by CASA Basic Ship Agency Functions Delivered by Vasantha Dias – Secretary General / FTZMA ,Visiting Lecturer of CINEC Metro Campus & Shippers’ Academy Obligation of Agents to principals The agent's role, obtaining business, identifying the Principal The agent's relationship with his principal Errors & omissions & Insurance cover Frauds Liabilities of the agent including authority and breach – fiduciary duties Role of the Agent Port Agent & Shipping Agent Who is Agent? The term agent means someone who acts on behalf of another person or business organizations. Port Agent & Shipping Agent? When it comes to port agents and port agency that they represent, plays a very important role as a part of shipping services in the shipping and marine industry. Comparison Between Shipping and Port Agencies Shipping agencies provide a broader range of services that extend beyond the port's confines, including crew welfare and financial management, while port agencies focus more on the logistical and regulatory requirements within the port. Port Agent & Shipping Agent Shipping agency or shipping agent is the party representing the ship’s owner and charterer (the Principal) in port. The shipping agent is responsible for arranging a berth, all required port and husbandry services, looking after the needs of the Master and crew, clearing the ship with the port and other authorities, preparation and submission of appropriate documentation, along with releasing or receiving cargo on behalf of the Principal.  Port Agent & Shipping Agent When a ship calls at a foreign port, the ship owner or charterer will want to ensure that the visit goes in accordance with the given plan ( Port Rotation). The Port Agent is the organizer that will do everything within his/her power to make sure that this happens on behalf of the ship owner or operator. For example, if there are language issues, the port agent will ensure that they are overcome. If there is paperwork to be filled in, the port agent will make sure it is perfect.  Port Agent & Shipping Agent If port services are needed for the ship call, the port agent will book them. He/she will make sure the berth and stevedores are ready for the ship at its allotted time. The port agent will be one of the first persons aboard the ship when it arrives. He/she brings mail, perhaps local currency, and in return he/she will be given a list of demands from the crew, such as marine fuel and lubricants, engine room spare parts, and fresh provisions. Then, when the ship leaves, the port agent will be responsible for tallying up all the costs that have been incurred during the visit for the ship owner’s account. Who is an agent in shipping? An Agent is a person who does not act on his own account, but only as a legal representative of another person(Principal). In this context port agent is someone who acts on behalf of a principal, when his ship/cargo arrives at a particular port. In other word there has to be an agent to look after the needs of the ship and her personnel while she is arriving at, staying in and when she departs from the port. Further The principal is highly dependent on an agent for feedback on local conditions, changes. Trends, developments etc. Agent information can sometimes decide if the principal will make or loose money ( e.g. port congestion).The agent is the eye and ears of the principal. Role of the ship’s agent Except for the pilot, the first and last person to board or depart during every ship's port call is the ship's agent.” The agent is like a control tower for a ship's port call, coordinating local scheduling and logistics with the key players — the owner, charterer, shipper, receiver, terminal, and, of course, the ship. The Creation of an Agency THE CREATION OF AN AGENCY Just like every other business, the agency must be registered. Then need to get a business name, which must be legal. Once the business name is ready, it'll be easy to obtain all other necessary documents. There are a couple of certifications that'll give you an edge in the industry. Types of services – Agents handle for commercial operation Liner Service. Liner is a Service , where ships are run on a fixed scheduled and regular service offered by the shipping company, between specified number of ports. The schedule is advertised in advanced to the exporters/importers and sailing dates are strictly maintained by the shipping company irrespective whether the ship is full or not. It has a fixed tariff and carries different types of cargo(manufactured merchandise from various shippers )under separate bills of lading for each shipment.. The agent for above service is called liner agent Tramp/Ad-hoc/Casual Callers This has no fixed schedule and each voyage is individually scheduled based on the cargo availability. Tramp trade generally carries homogenous bulk cargoes such as Cement,ironore,oil, grain, iron etc. The carriage of contract is negotiated by each party involved( ship owner/charterer/broker) and can have their own terms /freight rate agreed and sign a document named charter party for particular voyage or consecutive voyages. The agent for above service is called Tramp/casual agent Type of appointments as an agent Liner Agency - This is a long term written agency agreement between principal and agent after lengthy negotiations. Based on this principal appoints a company as its agent in a port. Tramp Agency - This is an ad hoc /casual appointment on voyage basis(most of the time). This appointment is made by the ship owner or charterer. Sometimes owner appoints the agent on charterer’s nomination. Business plan Put a Business Plan Together with other documents. Because Without a business plan, it's hard to tell where your business is headed. Many of the decisions you'll make depend on the business proposal. It's also a document that provides more in-depth details about the company, making it appealing to third parties/Authorities. Business plan – continuation.. For example, when looking for investors or business partner, they'll ask for the business plan. It'll guide them in deciding whether to work with you or not. The business plan should have an overview of the scope of the business. Other important details are your reputation & credentials etc. Business plan – continuation.. The competitors' skills and range of prices The value proposition of your business Financial plans Selling proposition Marketing strategies such as SEO tips Threats and opportunities in the industry Exit strategy (Plan for a business to get out of bad situation) SEO - Search Engine Optimization Business plan – continuation.. When writing your business strategy, work with figures and facts around the industry. Be more specific and look at the trends of the country you'll have your business. A comprehensive business plan is the first step towards having a successful shipping business. It'll guide you in managing the business with purpose and precision. You'll know what needs to be done, when, and how. The plan prepares you for challenges and expansion Identifying the Principal Principal is the person/company on whose behalf the agent is acting. A shipping agent is an individual or a specialized company that acts as an intermediary and provides various services to facilitate the efficient and smooth operations of ships and vessels when they arrive at ports. The term "shipping agent" refers to the relationship between the principal (in this case the shipping company conveying the goods) and its representative. The principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. Primary duties of an agent are: act on behalf of and be subject to the control of the principal; act within the scope of authority or power delegated by the principal; discharge his/her duties with appropriate care and diligence; and. avoid conflict between vested interests of the principal.  DUTIES OF THE AGENT / DELEGATED AUTHORITY FROM THE PRINCIPAL At the time of initial appointment, the principal will issue instructions to the agent detailing the services required and the limits of delegated authority. Within the limits of that authority, the agent is entitled to enter into agreements or contracts, disburse funds and make other arrangements that may bind the principal or incur costs on their behalf. Agents generally have the following duties to the principal: Loyalty, Care, Obedience, and Accounting. “AS AGENTS ONLY” Assuming that the agent has not exceeded the delegated authority granted by the principal, the principal agrees to assume the obligations and to indemnify the agent for any costs resulting from any contract or arrangements entered into by the agent on the principal’s behalf. The agent is entitled to benefit from the protections available to it under the above agreement but in order to do so must describe itself in all correspondence, written verbal and otherwise, “as agents only” The agent's relationship with his principal The term "shipping agent" refers to the relationship between the principal (in this case the shipping company conveying the goods) and its representative. The principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. In a principal-agent relationship, one entity authorizes another to perform actions on their behalf. Principals provide instructions to agents and provide them with the agreed compensation. An agent's duties include acting in the principal's best interests and adhering to legal regulations. Important to ponder:- When one person (a 'Principal') cannot be present to make a contract with a third party involving the ship, another party may be appointed representative. This commences an 'Agency' relationship, with obligations and rights that are recognized by others in the shipping business and maritime industry Errors & omissions & Insurance cover Errors and Omission (E&O) insurance protects companies and employees from claims of negligent actions or inadequate work from clients. E&O insurance is a type of professional liability insurance and is typically required by people who provide professional services to their clients. Errors and Omissions insurance covers defense costs, judgment, settlements and fines or penalties resulting from the allegations of misrepresentation, breach of professional services, wrongful business practices, misleading advice and conflict of interest. Otherwise known as Professional Liability Insurance. What does E&O insurance not cover? E&O insurance often does not cover bodily injury inflicted by your business as that is typically covered by general liability insurance. It's crucial that your E&O policy has a limit of liability large enough to cover the total cost of a property that your client has purchased. What are the exclusions for errors and omissions? Dishonest, Intentional, Malicious or Criminal Acts While E&O policies cover negligent acts, errors and omissions, they generally exclude claims arising out of dishonesty, intentional wrongdoing or criminal acts. Frauds in shipping agency Maritime fraud occurs when one of these parties succeeds, unjustly or illegally, in obtaining money or goods from another party to whom, on the face of it, he has undertaken specific trade, transport and financial obligations.” Understanding shipping fraud – Key Frauds 1. Double brokering One of the most common shipping fraud schemes is double brokering. In this deceptive practice, a fraudulent broker intermediates between the shipper and the carrier, pretending to have the authority to arrange the shipment. Unbeknownst to both parties, the fraudster often lacks the resources and connections to fulfill their promises. This results in delayed or lost shipments, leaving businesses with substantial financial losses. Double brokering often begins with a convincing online presence and attractive rates, luring shippers to trust them with their cargo. However, once the cargo is in their possession, the fraudsters may disappear or demand additional payments to complete the shipment, causing significant disruption to the supply chain. 2. Shipment misdirection Shipment misdirection are another perilous form of shipping fraud. In this scheme, criminals intercept cargo while it's in transit, diverting it to unauthorized destinations. Often, this involves the manipulation of shipping documentation or hacking into communication systems to reroute shipments. These fraudulent actions lead to a range of consequences for businesses, including delayed deliveries, additional costs, and the potential loss of valuable cargo. Moreover, the reputational damage incurred from failing to meet customer expectations can be long-lasting and difficult to repair. 3. Fictitious pick-ups Fictitious pick-ups involve criminals posing as authorized personnel to collect cargo from shippers' facilities. They use counterfeit documents or impersonate legitimate carriers to gain access to the goods. Once the cargo is in their possession, it is often sold on the black market, leaving the shipper with a considerable loss. Another method utilized is starting up a licensed business for appearances but quickly shutting down after several thefts; the processes is then repeated to avoid detection. Finally, failing to deliver on promises can severely damage a company's reputation. Customers who experience shipping delays or lost cargo may lose trust in the business, leading to decreased customer loyalty and negative word-of-mouth. Liabilities of an agent to Principal The agent is personally liable for his wrongful acts and must reimburse the principal for any damages the principal was forced to pay, as long as the principal did not authorize the wrongful conduct. The agent directed to commit a tort remains liable for his own conduct but is not obliged to repay the principal. Liabilities of the agent including authority and breach Primary duties/responsibilities of an agent are: 1. Commercial. Agent is to ensure in filling the ship space with high revenue cargo to enable principal to maximize profits. Further he should be mindful of maintenance of minimum port stay. 2. Financial- Agent should exercise due diligence handling principals funds , when dealing with third parties. If we discuss further on the above broad responsibilities , following key functions are incorporated. 1. Commercial Booking of berth- Agent must liaise with the ports authority to ensure most suitable berth , on arrival. Also inform other relevant authorities wherever necessary and receivers who take direct delivery( for bulk cargo). Booking of cargo: Mostly this applies to liner trade , where agent has to canvass for cargo to fill ship space /allocation. Boarding on arrival: Agent should send a responsible ,officer onboard when ship arrives to the berth or other discharge point. He should be fully conversant with formalities and must assist the master in complying with local regulations. Ensuring quick turnaround: Agent should have proper cargo arrangement prior to arrival , with close liaising with shippers, consignees and ensure/monitor the cargo operation to quick ship turnaround. Documentation: Agent should have own accurate information documented re ship arrival/departure and cargo operation. Statements of facts , necessary reports should be properly and correctly maintained. Ship Husbanding: Agent should promptly attend to ship requirements such as water,bunkers,stores, crew matters etc. 2. Financial Proper use of funds: Agent should not misuse principals funds , when dealing with third parties. Calling for only the essential funds: Agent has to evaluate the port call and scope of agency and requests only essential funds from principals. Collection of dues to principals: Agent should collect all the dues such as freight , handling fees, demurrages etc. promptly due from the customers on behalf of the principals. Remitting available funds: Agent has to remit whatever funds to principal in agreed manner, without any delay. Controlling costs for the principal: Agent should always negotiate the best price in favour of the principal for the services. Disbursement accounts: Disbursement account is divided into 2 – Pro forma – where agent gives an estimated account prior to arrival of the ship , based on the scope of work and calling for necessary funds from the principals. Final:- Agent has to give account to the principal, giving how he disbursed the funds with necessary supporting documents. Establishing who will pay what: agent should adjudicate, who pays what in certain occasions ( between charterer/owner in tramp) and partners in liner consortiums. Ensuring maximum income for principal Agent should always canvass and solicit cargo from the customer, at whatever the higher freight rate possible to maximize revenue to the principal. Besides freight, other charges, such as handling fees , demurrages, container deposits,. delivery order fees etc should be promptly recovered. Any damage to the equipments should to promptly notified to the customers and recoveries should be made. Services that agent should offer Communication; Agent should be fully equipped with proper communicating methods when dealing with principals ie; Telephone, Facsimile, Telex, computer, email, internet Operations; Agent must be employed with knowledgeable and efficient staff to attend to the ship with necessary communication , transportation. Marketing: Agent should have dedicated marketing structure to canvass cargo on behalf of the principals. Documentation: Again, knowledgeable staff should be employed to handle shipping documents such as : manifests, delivery order, bills of lading. Accounts: Agent should be equipped with efficient account division to handle finances of the funds on behalf of the principals Information technology: IT is a must in present business environment, especially in shipping agency to process timely, and accurate information. Legal: Agency should have internal or external legal assistance program to solve disputes that may arise when dealing with third parties on behalf of principals. Breach of Agency agreement 1. Avoiding any potential risks to the principal. Agent Should never perform anything that will risk the principal. The most probable risky areas are If any Credit facility offered to customers should be done with utmost care and with some kind of guarantee. Issue of b/ls- Issuance of bill of lading should be done, after vessel sailing with said cargo. Protection of valuable cargo- Provision of seaworthy containers, Careful Monitor of container movement such as for perishable cargo. 2. Conflict of interest- This happens when an agent represents more than one principal ,in same business. a.Liner: Agent is representing more than one line. Agent should be prudent enough to avoid any conflict of interest and treats principals separately. Most of the principals may not like this type of situations. Therefore agent should have separate entities to handle each principal with separate office, staff , computer systems etc. b. Tramp: This may happens if charterers agent becomes port agent. Agent should try to be impartial and perform whatever the right. Agent should be extra careful in handling if there is a dispute. In certain cases, owner will appoint a protective agent to look after his interest in crucial matter. Lack of responsibility: Presently we notice , many instances of agents behaving in irresponsible manner , which may result far reaching consequences to the principals. 1. Backdating of bill of lading- This falls under in the nature of maritime fraud. Agent should never resort to this kind activity. 2.Credit to shippers: There will be occasions, where agent is compelled to give credit to shipper, due to unavoidable circumstances. But precautions should be taken and action to recover this as early as possible. Frequent credit is not favorable to the principal and agent will be held liable. 3,Bribing to cover up mistakes :Bribing is generally is a social evil. If agent is bribing a third party to cover , his errors. Its not a healthy situation, as far as the relationship with the principal. 4. Undercutting freight rates: Agent may do this in good faith to fill the ship, but in long term, it brings less revenue to the principal and may cause suspension of services too. Finally agent will loose his business. Responsibility towards own company: Most of the agents in Sri lanka are local companies, representing foreign principals. In this business agents remuneration is the commission, obtained from principals , for the cargo loaded/discharged.While serving the principal to maximize his revenue, agent should be mindful of the fact that, he must do this in most cost effective manner, so to enhance the profits for the agency. Also timely and prompt recovery of dues(freight and other) on behalf of the principals , will create good cash flow to the agent , for this sustenance in the agency business.