IT211 Chartering Shipping PDF

IT211:Chartering Shipping Dr. Arunee Tanvisuth BBA, Thammasat Business School Semester 2/2022 , Feb 16’ 23 (#5) Agenda for Today  Different Types of Cargo  Parcel Size Distribution  Charter Shipping  Three Types of Charter Parties  Classification of Costs 2 3 4 5 Types of Carg...

IT211:Chartering Shipping Dr. Arunee Tanvisuth BBA, Thammasat Business School Semester 2/2022 , Feb 16’ 23 (#5) Agenda for Today  Different Types of Cargo  Parcel Size Distribution  Charter Shipping  Three Types of Charter Parties  Classification of Costs 2 3 4 5 Types of Cargo  Dry Cargo ◦ Iron ore, coal, rice, sugar, fertilizer, etc.  Liquid Cargo ◦ Crude oil, oil products, chemical products, latex, wine, beer, LNG, LPG, etc.  Special Cargo ◦ Heavy lift cargo, refrigerated (reefer) cargo, live animals, etc.  Dangerous Cargo ◦ Explosive, gases, inflammable liquids, poisonous substances, radioactive substances, corrosives, etc.  Shipping industry transports this complex mix of cargoes 6 Types of Cargo in Shipping Business  Bulk Cargo ◦ is commodity cargo that is transported unpackaged in large quantities . It refers to material in either liquid or granular, as a mass of relatively small solids, such as petroleum, grain, coal, or gravel  General Cargo ◦ in shipping, break bulk cargo or general cargo is a term that can be described as goods that must be loaded individually , and not in intermodal containers nor in bulk as with oil or grain 7 Dry Bulk Cargo  5 Major Bulk ◦ Grain (wheat, maize, rice, barley, oat, rye, soybean) ◦ Iron Ore ◦ Coal ◦ Bauxite and Alumina ◦ Phosphate Rock  Minor Bulk ◦ Steel ◦ Cement ◦ Sugar ◦ Wood chips ◦ Sand and gravel ◦ Copper ◦ Etc. 8 Basic Alternatives for Shippers  Shippers’ Requirement ◦ 100,000 tons of coal from Australia to Japan ◦ 55,000 tons of grain from USA to Europe ◦ 5,000 cans of coconut milk from Thailand to Germany  Alternatives for Shippers ◦ Buy a ship ◦ Charter a ship ◦ Use a regular shipping line 9 Parcel Size Distribution (PSD)  A “parcel” is an individual consignment of cargo for shipment ◦ 60,000 tons of grain, 15,000 tons of raw sugar, 100 cases of wine, 5,000 bags of Thai Jasmine Rice  PSD function describes the range of parcel sizes in which that commodity is transported ◦ for coal, individual shipments range in size from 20,000 to 160,000 tons (with clusters around 60,000 tons and 150,000 tons) ◦ for grain, many clustered around 60,000 tons and a second cluster around 25,000 tons ◦ for iron ore, almost all shipped in vessel over 100,000 dwt ◦ for bulk sugar, clusters around 25,000 tons 10 11 12 Parcel Size Distribution (2)  Three factors that determine PSD function ◦ stock levels held by users ◦ the depth of water at loading and discharging ports  BKK Port (27ft/ 8.23m.) ◦ the cost savings by using a bigger ship  It is normal for the same commodity to be shipped in many different parcel sizes ◦ bulk sugar clusters around 25,000 tons and bagged sugar around 15,000 tons 13 14 15 Parcel Size Distribution (3)  “Bulk Cargo” consists of large homogenous cargo parcels big enough to fill the whole ship  “General Cargo” consists of many small consignments, each too small to fill a ship, that have to be packed with other cargo for transport  As trade grows, the proportion of cargo parcels large enough to travel in bulk may increase  trade will gradually switch from being a liner trade to being a minor bulk trade 16 Basic Forms of Operations of Maritime Transport  Charter Shipping  Liner Shipping 17 Charter Shipping (Tramp Business)  Charter services are primarily used for bulk cargo that are carried in complete shiploads  Charter services are offered in auction markets… shippers will put their request for a ship with a broker (shipbroker/ middleman) who will canvass the market for the lowest price ◦ owner’s broker, charterer’s broker  Non - scheduled service w/ no fixed sailing schedule ◦ vessels are engaged or hired out to pick up cargo where it is to be found  Contract/ private carrier 18 Charter Shipping (2)  Charter party ( Charta Partita in L atin) ◦ A contract by which a shipowner agrees to place his ship (or parts of it) at the disposal of a charterer for the carriage of goods from one port to another or for a specific period  Revenue of shipowner or freight rate is determined by demand and supply and usually is in terms of freight/ ton of cargo (or lumpsum ) or hire/ day 19 Dry Fixtures Cargo From - To Tonnes $/ tonne Coal Gladstone -YoungHung 150,000 -10% 6.20 Coal Puerto Bolivar -Rotterdam 150,000 -10 % 7.00 Coal Richards Bay -Mundra 150,000 -10 % 6.65 Iron ore Tubarao -Qingdao 170,000 -10% 11.25 Iron ore Pt Dampier - Qingdao 170,000 -10 % 5.50 20 21 22 23 24 25 26 27 28 29 30 31 Three Types of Charter Parties  Voyage Charter ◦ Single voyage charter ◦ Consecutive voyage charter (CV) ◦ Contract of affreightment charter (COA)  Time Charter  Bareboat Charter 32 Single Voyage (Spot) Charter  An arrangement under which the charterer (usually the cargo owner, either buyer or seller) hires a vessel for just one stipulated voyage, carrying a designated quantity of named commodity  The agreement usually defines ◦ the port or ports of cargo loading and discharging… can be a general loading area and destination, e. g. US Gulf and Japan ◦ the dates b/w which the cargo is to be loaded ◦ the cargo handling terms  Shipowner will receive a freight rate in US$/ tons 33 Single Voyage Charter (2)  A voyage charter specifies a period, known as laytime , for loading and unloading the cargo  If laytime is exceeded, the charterer must pay ”demurrage”  If laytime is saved, the charter party may require the shipowner to pay “ despatch ” to the charterer 34 Consecutive Voyage Charter (CV)  The charterer may hire a vessel for, say, two or three successive named voyages b/w nominated loading and discharging ports, carrying a specified volume of cargo  This is common where large volumes of cargo are concerned but this method of chartering lacks the flexibility and perhaps the freight will be higher than COA  use one named ship to transport the cargo  non -earning return voyage (ballast leg) from discharging port to loading port  is common in a rather short distance 35 Contract of Affreightment (COA)  Under COA, the shipowner agrees to carry a series of cargo parcels for a fixed price per ton ◦ 10 consignments of 50,000 tons of coal from Colombia to Rotterdam every month  COA allows the shipowner to plan the use of his ships in the most efficient manner ◦ he can switch cargo b/w vessels to give the best possible operating pattern and consequently a lower charter rate  Most COA business is in the major dry bulk cargoes (iron ore, coal) 36 Time Charter  The charterer obtains the use of a vessel for a set period of time which may vary from a couple of months up to several years  The cargo and the itinerary are basically at charterer discretion, ◦ the charterer is able to trade the vessel to and from whichever loading and discharging ports that he chooses, carrying whichever cargoes he prefers ◦ in practice, shipowner is likely to impose limitations in the contract (trading area and types of cargo)  Payment is in terms of “daily hire rate” 37 Bareboat (or demise) Charter  This is not really a contract for the carriage of goods by sea  The ship is hired or leased by the charterer for an agreed period (usually 10 - 20 yrs, in some cases, for the entire life of the ship) and the charterer has the complete control over the ship and complete responsibility for its operation  The bareboat charterer is sometimes called “ disponent owner”  Bareboat Hire Purchase (BBHP) 38 Main Organizations Issue C/P  The Baltic and International Maritime Conference (BIMCO)  Association of Ship Brokers and Agents (ASBA), USA  Federation of National Association of Ship Brokers and Agents (FONASBA) 39 Standard Charter Party Forms  Voyage Charter ◦ General Purpose  GENCON 1994 (1922, 1976), BIMCO  MULTIFORM 1982, FONASBA ◦ Grain  NORGRAIN 1973, ASBA  SYNACOMEX 1990 (Continent Grain Charter)  AUSTWHEAT 1991 (Australian Wheat Charter) ◦ Coal  AMWELSH 1993 (Americanized Welsh Coal Charter), ASBA 40 Standard Charter Party Forms (2)  Voyage Charter (cont) ◦ Fertilizer  FERTICON, UK Chamber of Shipping ◦ Sugar  CUBASUGAR ◦ Crude Oil & Products  INTERTANKVOY, ASBA II, BEEPEEVOY, SHELLVOY ◦ Gas  GASVOY ◦ Chemicals  BIMCHEMVOY 41 Standard Charter Party Forms (3)  Time Charter ◦ BALTIME 1974, BIMCO ◦ LINERTIME 1974, BIMCO ◦ NYPE (New York Produce Exchange), ASBA ◦ SHELLTIME ◦ BEEPEETIME  Bareboat Charter ◦ BARECON A, BIMCO 42 Typical Clauses in C/P  Bunker Clause ◦ stipulates that the charterer shall accept and pay for all fuel oil in the vessel's bunkers at port of delivery and conversely, owner shall pay for all fuel oil in the vessel's bunkers at port of re - delivery at current price at the respective ports ◦ it is customary to agree upon a certain minimum and maximum quantity in bunkers on re - delivery of the vessel  Ship Clause ◦ the shipowner writes clearly that the ship would be “seaworthy” at the start of the voyage in every respect 43 Typical Clauses in C/P (2)  Ice Clause ◦ a n ice clause is inserted in a charter party when a vessel is bound for a port or ports which may be closed to shipping by ice when the vessel arrives or after the vessel's arrival  Negligence Clause ◦ clause in a Bill of Lading or Charter Party which seeks to relieve the shipowner or carrier of liability for losses caused by the negligence of his servants or agents 44 45 46 The Classification of Costs  Costs of acquiring ships  Operating Costs  Voyage Costs  Cargo Handling Costs ◦ Loading Costs ◦ Discharging Costs  Landside Costs 47 Costs of Acquiring Ships, Containers  Depend on the way the ship has been financed ◦ Internal funding… dividends to equity ◦ Debt financing… interest and capital payments 48 Operating Costs  Constitute the expenses involved in the day - to - day running of the ship  Manning/ Crew costs ◦ Basic salary and wage, leave pay, overtime, food allowance, travelling expenses, medical insurance  Stores and consumables ◦ Spare parts, deck and engine room equipment, cabin stores, lubrication oil 49 Operating Costs (2)  Maintenance and repairs ◦ Routine maintenance (an allowance for day -to -day repairs and maintenance, but not major dry - docking) ◦ Breakdowns ◦ Periodic maintenance (special surveys to maintain class for insurance purposes)  Insurance ◦ Hull and Machinery (H&M) ◦ Protection and Indemnity (P&I)  Administration 50 Voyage Costs  Variable costs associated with a specific voyage  Bunker/ fuel costs ◦ Fuel oil for main engine and diesel oil for auxiliary engines  Port expenses ◦ Loading and discharging port disbursement account such as harbor dues, pilotage , towage (tug), mooring/ unmooring, customs & immigration, agency remuneration, etc.  Canal charges/ dues ◦ Suez canal (Suez Canal Net Ton (SCNT), Special Drawing Rights (SDRs)), Panama canal (PCNT) 51 Loading Costs  Stevedoring  Dunnage  Tally  Checker  Preloading survey (condition of cargo before loading onboard the vessel)  Cargo Claims 52 Discharging Costs  Stevedoring at discharging port  Tally  Checker  Cargo discharging survey (condition of cargo before discharging out of the vessel)  Cargo Claims 53 Landside Costs  Cargo wharfage  Warehouse rent  Onward transportation  etc. …. till reaching the customer’s place 54 Loading & Discharging Costs b/w Shipowner and Charterer  FIO… Free In & Out  LIFO… Liner In Free Out  FILO… Free In Liner Out  Full Liner Term Note: Free is “Free to Owner” 55 Capital Cost Operating Cost Voyage Cost Loading Cost Discharging Cost Landside Cost Not Applicable Owner’s Cost Charterer’s Cost Bareboat Time FIO LIFO FILO (Full)Liner 56 Factors that Determine Running Cost  The Ship ◦ Fuel consumption, number of crew required to operate it, its physical condition (requirement for repair and maintenance)  Inflation in the cost of bought - in items ◦ Bunkers, consumables, crew wages, ship repair costs, interest rates  Costs depend on how efficiently the owner manages the company ◦ Administrative overhead, operational efficiency 57 Some Facts of Ship Costs  As ship ages its capital cost reduces, but its operating and voyage costs increase relative to newer ships (technical involvement, the effect of ageing)  Unit cost and economies of scale ◦ Operating, voyage, and capital costs do not increase in proportion to the deadweight of the vessel 58 Economies of Scale in Bulk Shipping Ship size Optg Bunker Total Cost/dwt 30,000 1414 680 2095 70 40,000 1476 778 2254 56 65,000 1633 972 2605 40 150,000 1940 1458 3398 23 170,000 2120 1620 3740 22 Source: Drewry Shipping Consultants (1997) Assuming 270 days at sea per annum at 14 knots Note: Operating, Bunker, and Total Costs are in $’000 Cost per dwt is $ per annum 59 Ship Revenues  Cargo Capacity ◦ Ship size, bunker and stores  Ship Productivity ◦ Operational planning, backhauls, operating speed, off hire time, deadweight utilization, port time  Freight Rates ◦ Market balance, quality of service, competition 60