Ship chartering

The Top Ship Chartering Mistakes and How to Avoid Them

by Manish Singh
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Hiring a ship is complex . The charterer is responsible for carrying out the operations and taking care of many details. They need industry-specific knowledge of the transportation of maritime cargo movement. Mistakes in this area can cause huge losses. To transport cargo, it is vital for charterers to be clear about their responsibilities and know the mistakes to avoid.

The Charterer’s Key responsibilities

The charterer must guarantee that the chartered ship meets its deadline. Also, they must understand the maritime processes. The person who rents the ship also must guarantee the documentation. The charterer also needs to know the port’s restrictions with regard to the allowed size of the boat. They also must be familiar with the loading and unloading ports and the administration required. With this knowledge, they will know if a vessel can dock at a given port, or not. It is key to know:

  • The depth of the port
  • The draft restriction
  • Canal tolls
  • If the ship can enter the port
  • If the ship can sail partly loaded

The charterer’s role also requires getting an estimate for the entire journey. This must  be done by measuring the dimensions of the port and the vessel, as well as taking the costs into account. These crucial steps will help a charterer avoid major mistakes.

The Top mistakes  charterers make

Ship chartering is generally a voyage charter or time charter. The type chosen will influence the transportation type. These are some of the mistakes made by charterers:

Lack of Research of the Counterparty

In ship chartering, it is crucial to know the other party in the negotiation. Don’t forget to opt for a credit check. It is important to evaluate the financial capacity of the other business. This is an essential step. It will help to prevent issues with the contract.

Lack of Research of the Market

The charterer should be able to feel the pulse of the market. They need to have a clear idea of sea freight shipping charges. A professional charterer will know what is going on in the market. This helps them to identify the right time to put their cargo in the market, to look for a ship, or buy or sell cargo.

Miscalculating the loading and unloading boards

The ship charterer should monitor the loading and unloading process and cargo.  They should also manage all the details which can result in demurrage. Simply put, the charterer should identify and manage the risks.

Demurrage is a fine that is levied on charterers if they use the ship for an extended period beyond that agreed in the contract. This is a fine the charterer pays to the shipowner. On the other side, should the vessel be released earlier than agreed, the despatch may be paid by the shipowner to the charterer.

Lack of knowledge of the charter party

The chartering letter and the charter party should be reviewed in detail. When dealing with big companies, the charterer should get legal advice that includes important clauses. Failing to know and understand them may expose the charterer.

Closing a deal quickly

The charterer needs to know the moment when the deal is finalized. In normal circumstances, certain conditions that need to be followed are mentioned in the negotiation terms. These must be met when someone charters a ship or cargo.

Some terms are:

  • When the negotiations are for a bigger contract, the charter party details are needed.
  • Approval of the vessel.
  • Approval from the board of directors. (The party buying the shipment needs to agree the contract with the director within 24 hours)

The charterer will not have the contract agreed until each of these points have been addressed. Economically, the shipping industry is volatile. If the shipowner is unhappy with the negotiations made with the charterer for freight shipping, they may exit the negotiation. Similarly, if the market collapses and the price of the charter falls below the agreed price, then the charterer may exit.

Not using a shipping agent

Retaining a good shipping agent is one of the best ways to avoid mistakes. A good shipping agent, will keep the charterer informed and maintain updated information about  port restrictions, costs, vessel queues and departure times.

Summary

Knowing what to avoid will enable the charterer to execute tasks smoothly. The charterer should be cautious when choosing the shippers. They should keep abreast of the fluctuations in maritime shipping. The credibility of the shipowner and counterparties in sea freight shipping is important.

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