Introduction
High cyclicality, volatility and unpredictability characterize the economic environment of a shipping industry. The risk profile of the market is high. In international events (political, economic, technological, social, etc.) the freight levels and therefore the contract relations between ship-owners and charterers have significant impacts. In particular in the areas of safety and pollution, the industry is becoming more regulated. Seafarers’ liability systems are becoming more stringent.[1]
What is Charter Party?
A charter party is an arrangement under which the owner of a ship rents it out to others for the purpose of transporting goods. The ship-owner retains charge of the vessel’s navigation and management, but the charterer uses its carrying power.[2]
Each charter party has a separate set of obligations and rights, some of which favor the owner and others the charterer. In the negotiating battle the relative strength of these two players will determine who is to fall more heavily. Therefore, it is essential to know which charters are in favor with each other and why even if freight rates are not attractive to achieve successful negotiation.[3]
Due to the frequency at which vessels are delayed in port, the expense associated with such delays, and the sometimes ambiguous language in charter parties and contracts for the selling of goods, lay time has historically been one of the most contentious issues in the shipping industry.[4]
Managing Risks that may lead to Charter Party Disputes
It is preferable to avoid charter party conflicts in order to preserve a harmonious business partnership between ship-owners and charterers. As a result, it is critical for both parties to provide a simple and solid contractual basis for lay time calculations and demurrage rules.[5] A sound understanding of law and practical problems with demurrage can be important when securing advantageous trade agreements, and in case of unfortunate charter delays, costly legal disputes may be avoided. The charter party plays a central role in commercial shipping as it governs the relationship between the ship-owner and the charterer. Nevertheless many disputes arise out of disputes between charters parties and can lead to arbitration or litigation. This increases party costs and reduces potential profits to a minimum.[6]
Managing Counter Party Risk
A ship owner must have a seaworthy vessel to handle a counterparty risk, and the charterer must be able to remit the hire or freight within the period stated in the charter party. It is critical for each party to review the history and profile of its counter-party before beginning negotiations to ensure that it will be able to fulfill its key obligations under the charter party.[7]
As corporate transport especially the dry mass market is closely related to a huge number of actors, the establishment of a counterpart is not easy to know or have the choice for every situation. In this respect, there are an immense number of authentic discussions concerning the default of the ship-owner or charterer. The ship-owner must be able to give a constant vessel, whilst the charterer must have an alternative to forward the contract or payload within the time set by the charter party. It is essential for everyone to monitor the creation and the profile of their counterparty in order to ensure that they have the right to fulfill their main duties under the Charter Party after the start of courses of action. The mention of references from other social opportunities and past institutions will contribute to such an assessment.
Managing Legal Risk
The charter party provisions and forms should be agreed upon by all parties. Thus, all parties should exchange transparent offers and keep a proper record of all of these transactions to prevent later unilateral interpretation of any provision. Clear exchanges and a well-drafted charter property would aid the parties in resolving future conflicts in a commercial manner while avoiding unnecessary legal fees.[8]
A shaky Charter party can cause confusion and mislead people of every obstacle it faces. The two social events should work on tentative arrangements and structures of charter parties and ensure that each edge of the group is explained without giving one party an imperative favorable position on the other, so that they are unpleasant or impressive to any party. Often, as shown by English law, the transactions between the two social affairs, under some circumstances, do have legal impact. As a result, the two parties should exchange straightforward offers and maintain an accurate record of all of these exchanges in order to avoid ambiguous interpretations in the future. The social activities will be pushed by explicitly explained exchanges and a clearly drafted charter group to, pleasingly, resolve future discussions in a business manner and avoid needless authentic costs.[9]
Managing Operating Risk
According to P&I club annual reports, the most persistent cases are for improper stress handling, accounting for more than 30% of full scale cases. The emphasis on ship and cargo operations aids in the management of operational risk by reducing the likelihood of allegations such as unsafe cargo handling. Other considerations include charter party provisions, which detail issues such as the vessel’s necessary condition, cargo characteristics and their condition upon boarding, and off-hire events(in case of time charter) and lay time or demurrage (in case of voyage charter ). Cargoes specified in the IMDGcode can cause a number of issues if they are not loaded and stowed according to international standards. Both of these conditions, as well as the security measures that should be taken, should be explicitly stated in the charter party and adhered to by the parties.[10]
Seek for Long Term Relationship
Whether or not one has the necessary expertise to effectively manage all of the major risks, it is strongly recommended in any situation to establish long-term relationships with sensible and stable counterparties with whom you can consult and resolve any problem that arises before it becomes a debate. [11]Long-distance associations not only help you cope with problems mechanically, but they also help smooth out the company’s business in terms of market shifts by fixing load rates, passing on quantities, and rate change conditions. This is inherently more fair and profitable over time than being tough during negotiations in order to get a few extra pennies for a particular mechanical assembly.
The Key Employment of the Ship Broker
The reliable shipbroker who regularly participates between the two social occasions is a key task to manage perils, collect strong associations and avoid genuine enquiries. Working with a shipbroker who is familiar with transport practices in the target region can help to get closer to the next group and better investigate its introduction. In the same way, Shipbroker is the person who manages the business, makes suggestions on the terms to be included and draws up the charter party, so its joint commitment is fundamental for a powerful outcome.[12]
Conclusion
The most important aspects of commercial risks arising
from charter parties, operations and claims issues. Shipments are the business
of service; ship demand depends upon various cost, speed, reliability and
security factors. Shipping the shipper’s aim is to get better and less
expensive transportation of goods from source to destination throughout the
whole distance. In the transport process, ports play a vital role. The shipping
company has been transformed by automated cargo handling and investment in
specialist terminals. There are several important functions at ports that make
ship trading between them essential to their efficiency. In this context, price
and investment policies of ports play an important role in speeding up the
service of the charterers and thus in preventing delay risks.
[1]Retrieved from <file:///C:/Users/Tabassum%20Islam/Downloads/1-JSOE-E20160629-1-Commercial_Risks_arising_from_Chartering_Vessels.pdf> Accessed on 10th March 2021.
[2] Retrieved from <https://www.britannica.com/topic/charter-party> Accessed on 8th March 2021
[3] Retrieved from <https://catz.co.uk/courses/ldcp.html> Accessed on 9th of march 2021
[4]Plomaritou, E. 2015.Charterparty Contracts. London: Lloyds Maritime Academy, 28-30
[5] Anna Smith ,” Risk Management in Charter Party Dispute” Retrieved form <https://www.quitalks.com/risk-management-in-charter-party-disputes/> Accessed on 9th March 2021
[6] Ibid
[7]Plomaritou, E., and Goulielmos, A. 2014. “The Shipping Marketing Strategies within the Framework ofComplexity Theory.” British Journal of Economics, Management & Trade 7 (4): 1128-42.
[8]Plomaritou, E. 2014.Chartering Policy & Marketing Strategy of Shipping Companies. London: Lloyds Maritime Academy.
[9]Dr Chao Wu, “ What are the key charterers risk?” Retrieved from <https://www.ukpandi.com/news-and-resources/briefings/2014/what-are-the-key-charterers-risks/> Accessed on 9th March 2021
[10]Retrieved from <https://catz.co.uk/courses/ldcp.html> Accessed on 10th March 2021.
[11]Plomaritou, E. 2014.Chartering Policy & Marketing Strategy of Shipping Companies. London: Lloyds Maritime Academy.
[12] Ibid
