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CHARTERING OF TANKERS

CHARTERING OF TANKERS. Tanker Trade - History. Crude-produced commercially in USA in 1859 1861 Elisabeth Watts carried 900 wooden barrels to London 1866 German vsl. Glukauf – 8 tanks, steam engine 1913 first middle east refinery at Abadan started

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CHARTERING OF TANKERS

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  1. CHARTERING OF TANKERS

  2. Tanker Trade - History • Crude-produced commercially in USA in 1859 • 1861 Elisabeth Watts carried 900 wooden barrels to London • 1866 German vsl. Glukauf – 8 tanks, steam engine • 1913 first middle east refinery at Abadan started • Tankers were owned by Oil cos like Shell,trading trading betweenLondon Europe, USA &Russia • 1920-1940 tankers of 10000 – 12000 tons size were built.

  3. Tanker Trade – History • 1940 large oil finds in Saudi Arabia. • 1950 tkr size increased to 40000 tons. • 1960 – VLCC over 2 lac DWT mostly ordered by Shell. • 1979 largest tkr. / ship – 564843 tons ULCC mt Seawise Giant (currently trading as mt Jehre Viking) was built. • ULCCs are committed to major producers/refiners

  4. Tanker Trade – History • Demand for tankers is measured in ton/mile. • Political/economical factor like closure of suez, source etc. influences no. /size of tankers required. • 1939 to 1969 six fold increase in oil demand – 10 to 64 million Bbls/day. • Tanker trade got serious setback in 1973 due OPEC price increase • Four fold increase From $ 2.75 to $10.84/bbls in Jan 1974. • 1982 increased to $ 34 which dropped below $10 in July 86 - due Iraq/Kuwait war?

  5. Tanker Trade - History • What is the Current price of crude per Bbls? Indian/ OMC basket? Where to look up for daily update ? • 1974-84depression in tkr mkt due OPEC price increase lead to vsl proceeding to lay up from new building yard - increased scrapping. • Oil & Tanker market operates within a framework formed by the crude oil reserves (Producing countries) vis-a-vis major consumers like USA, Europe, Japan, China, Korea & India.

  6. VOYAGE CHARTER FOR ONE VOYAGE 1 OR 2 LOAD PORT/ DISPORTS FREIGHT, DEMURRAGE DEAD FREIGHT BUNKER PORT CHARGES ON SHIP OWNERS A/C. CARGO RELATED CHARGES ON CHARTERERS A/C. TIME CHARTER FOR TIME/PERIOD. VESSEL AT CHARTERERS DISPOSAL. MONTHLY CHARTER HIRE IN ADVANCE. BUNKER & PORT CHARGES ON CHARTERERS ACCOUNT CARGO RELATED CHARGES ON CHARTERERS A/C. TYPE OF CHARTER

  7. VOYAGE CHARTER : CRUDE : VOYAGE – RASTANURA TO VIZAG SMAX (140000 MT) $ 28.23 / MT LS FREIGHT $ 3.95 MILLION RS. 15.80 CRORES AT WS 335 LPG : VOYAGE – RASTANURA TO VIZAG VLGC (39000 MT) $ 50.00 / MT LS FREIGHT $ 1.95 MILLION RS. 7.80 CRORES

  8. Tanker Voyage Charter Parties Bare Boat chartering – Lease the hull and machinery of the ship for a long period of time Charterers act as if he was the Owners of the ship. Time chartering – enables the operator to cover their shipping requirements at a stable price other than bunker cost. Charter hire fixed for a particular period of chartering. Voyage chartering – Freight rate as per prevailing market rate. used for spot requirements. Ship management totally in the hands of owners. Consecutive Voyages and COA cover for a period of time but leaves the ship operations to the owners, as under voyage charter.

  9. OWNER (Revenue) CHARTERER (Transport) THE CHARTER PARTY (A contract) VOYAGE BAREBOAT TIME Consecutive voyage Trip Time Charter Contract of Affreightment

  10. Tanker Voyage Charter Parties • Voyage Charter Parties ASBATANKVOY – Association of Ship Brokers & Agents (USA) Inc. BP Voy 4 Exxon Mobil Voy 2005 Shellvoy 6

  11. ASBATANKVOY • Well known and often used which may have a number of additional or rider side clauses which were added by Charterers. • Rider clauses re-states the main clause in the charter party. • Unless rider clauses are carefully drafted and related to each other and to the clauses in the printed form there is scope for error, duplication, inconsistency and subsequent litigation.

  12. ASBATANKVOY – Charter Party • Part – I • Description and position of vessel • Laydays/Cancelling • Voyage • Cargo • Description of cargo • Rate/Billing • Laytime • Demurrage • Commission • General Average/Arbitration

  13. ASBATANKVOY – Charter Party • Part – II • Warranty • Freight and Deadfreight • Berthing, Pumping and Mooring • Dues and other charges • Ice • Cleaning/Grades • Advances • Bills of Lading

  14. ASBATANKVOY – Charter Party • PROTECTIVE CLAUSES • Clause Paramount • Jason Clause and General Average Clause • Both o Blame • War Clauses • Lien • Agents • Assignment/sub-let • Clean Seas • Arbitration

  15. Rider Clause – Conoco Weather Clause “Delays in berthing for loading or discharging and any delays after berthing which are due to weather conditions shall count as half laytime or, if on demurrage, half demurrage”

  16. Rider Clause – Cargo Retention Clause “In the event that any cargo remains onboard upon completion of discharge, Charterer shall have the right to deduct from freight an amount equal to FOB port of loading value of such cargo plus freight due with respect thereto provided that the volume of cargo remaining onboard is pumpable and determined by an independent surveyor. Any action or lack of action in accordance with their provision shall be without prejudice to any rights or obligations of the parties”.

  17. Rider Clause – Over Age Insurance (Cargo Insurance) “Any additional premium which might be placed on the cargo insurance by reason of the vessel’s age and/or condition shall be for Owner’s account, and Charterers shall be entitled to deduct the cost of any such additional premium from the freight”

  18. Rider Clause – In Transit Loss Clause “In addition to any other rights which Charterer may have, Owner will be responsible for the full amount of any in transit loss if in transit loss exceeds 0.3% and Charterer shall have the right to deduct from the freight an amount equal to the FOB port of loading cost or such missing cargo plus its pro rata cost of freight and insurance. In trasit loss is defined as the difference between gross standard vessel volumes after loading at the loading port and before unloading of the discharge port”

  19. Rider Clause – Notice of Readiness • It the vessel tenders notice of readiness during its acceptance date range, laytime shall begin, subject to all other provisions of this agreement, upon the expiration of 6 hours after the tendering of NOR or on commencement of loading, whichever occurs first. If the vessel tenders NOR before its acceptance date range the NOR shall not be effective until 0001 hour on the first day of such range, and laytime shall begin on commencement of loading or 6 hours after the effecitve tender of NOR whichever occurs first. If the vessel misses cancelling date and in the event of charterers not exercising option to cancel the fixture time will commence to count when loading commences.

  20. Tanker Time Charters • Introduction • Shipboard Personnel and Duties • Laws and Disputes • Liens and Sub Freight

  21. Tanker Time Charters • Introduction : Types of Time Charter : • Trip Time Charter - Short period, flexibility to charterers, commonly practiced veg.oil, chemicals,dry bulk cargo. • Time Charter - Voyage expenses, pumping at loadport and disport on charterers account.

  22. Tanker Time Charters • Shipboard Personnel and Duties • Duty to maintain- Due diligence by owners to maintain and restore the vsl to required condition, charterers right to putoff the vsl. • Limits of trading period- Charterer’s option. • Final voyage-Redelivery, where & when. • Trading limits-WIWL

  23. Tanker Time Charters • Shipboard Personnel and Duties • Laydays/Canceling-Charterer’s option. • Owners to provide-All provisions, wages, Ins.etc • Charterers to provide-Generally for dry cargo. • Rate & Payment of Hire-Delay in payment, tanker withdrawal clauses and etc. • Instructions and Logs-Performance monitoring. • Directions and conduct of vessel’s personnel

  24. Tanker Time Charters • Shipboard Personnel and Duties • Bunkers-Supply of quality bunkers. • Supernumeraries-Representative on Board. • Sub-letting-Liabilities from mal-performance. • Loss of vessel-Total loss or Constructive loss. • Off-Hire – Shelf time form specifies the time. • Periodical dry docking-Area of dry docking.

  25. Tanker Time Charters • Shipboard Personnel and Duties • Performance clause-Speed, bunker consumption and port stay. • Salvage-Apportionment of expense • Lien – Each party’s rights of lien. • Exception – Unplanned repairs & breakdown. • Injurious cargoes – Explosives.

  26. Tanker Time Charters • Shipboard Personnel and Duties • Laying up – Charterers and Owners to consult. • Requisition by Govt. • Protective clauses – Both to blame collision clause, New Jason clause, Clause Paramount. • TOVALOP & ITOPF – P&I Club Insurance. • Law and Litigation – English law.

  27. Tanker Time Charters • The Law & Dispute : • Withdrawal – • Frustration. • Repudiatory Breach. • Exercising a right. • Set-off – Holding deduction against hire. • Speed and Consumption-Tolerance clause. • Off-hire-Loss of money, deduction of money.

  28. Tanker Time Charters • Lien for sub freight : • Prepayment of freight due to risk of shortages,delays etc that may affect delivery. • Lien on the cargo, freight and subfreight in the bill of lading • Lien is regarded as the floating charge against the assests of the head charterer.

  29. CHARTERING COMMERCIAL MANAGEMENT Post fixture. Port Operation Fixture Negotiation Chartering.

  30. CHARTER PARTY C / PARTY CLAUSES NEGOTIATION FINALISATION OF C / PARTY SIGNING OF C / PARTY.

  31. CHARTERING VOYAGE CHARTER – ONE/TWO LOADPORT/DISPORT COA – TOTAL QTY/TKR (OWN/ CHARTER) TOOLS MKT. TREND TIME – PERIOD CHARTER FREIGHT DEMURRAGE C/HIRE FREIGHT DEMURRAGE LAST FIXTURE

  32. FIXTURE NEGOTIATION ENQUIRY OFFERS COUNTER CONCLUSION VOYAGE CARGO PARCEL SIZE LOADPORT DISPORT LAYDAYS LAYCAN TIME CHARTERING TYPE OF SHIP DURATION TRADING AREA CARGO SPL.REQUIREMENTS TIME CHARTER DESCRIPTION T / C PARTICULARS SPEED/CONSUM. PERIOD – RATE EXCEPTIONS -CP VOYAGE DESCRIPTION-SHIP PARCEL SIZE FREIGHT DEMURRAGE C / PARTY.

  33. POST FIXTUREOPERATIONS FREIGHT COLLECTION ARRANGING FUNDS AGENCY ARRANGE- MENT CO-ORDINATION WITH CHARTERER CO-ORDINATION WITH SHIP

  34. WHAT IS TANKER CHARTERING? • A PROCESS INVOLVES NEGOTIATIONS BETWEEN SHIP OWNERS & A CHARTERER (OIL CO.) FOR HIRING A SHIP (TIME/VOYAGE OR COA BASIS) FOR CARRIAGE OF CRUDE OIL/POL AT MOST COMPETITIVE RATES, TERMS & CONDITIONS. • FREIGHT RATES ARE INFLUENCED BY VARIOUS INTERNATIONAL SUPPLY DEMAND FORCES & OPPORTUNITY COSTS. • INTERNATIONAL FREIGHT MKT. HAS NEITHER FLOOR LEVEL NOR ANY CEILING. • DIRECT NEGOTIATIONS OR THRU BROKERS MOSTLY ON EMAIL/PHONE/FAX WITH PROPER DOCUMENTATION/AUDIT TRAIL/RECORDING.

  35. WHAT IS TANKER CHARTERING? • A BRIEF NOTE GIVING FIXTURE RECAP ON MAIN TERMS THROUGH EMAIL/FAX IS EXCHANGED BETWEEN PARTIES AS EVIDENCE OF CONTRACT • AS PER INTERNATIONAL INDUSTRY PRACTICE, CHARTERINGIS NOT A TWO BID PROCESS (I.E.TECH.& PRICE) BUT ISACOMPOSITEBID SYSTEMINVOLVING TECHNO-COMMERCIAL EVALUATION OF MULTIPLE PARAMETERS LIKE SPEED/DEAD FRT./YEAR BUILT ETC. HAVING ITS VARYING IMPACT ON COST • CREDENTIALS OF SHIP OWNERS IS CHECKED THROUGH IMB/ BIMCO/BROKERS BEFORE NEGOTIATION • CONSIDERABLE FINANCIAL EXPOSURE FOR BOTH – CHARTERER & SHIP OWNERS.

  36. CHARTERING INVOLVES • ENQUIRY FOR VOYAGE CHARTER VESSEL – CARGO, PARCEL SIZE, LAY DAYS, LOAD/DISPORT, ETC. • ENQUIRY FOR TIME CHARTER VESSEL – TYPE OF SHIP, DURATION, TRADING AREA, CARGO, SPEED, BUNKER CONSUMPTION, PUMPING RATE ETC. • NEGOTIATION BETWEEN SHIP OWNERS/CHARTERERS THROUGH BROKERS BY ANALYSING MARKET TREND THROUGH VARIOUS INTERNATIONAL REPORTS LIKE CLARKSONS, DREWERY, BITR • FIXTURE RECAP ON SUBJECT TO MANAGEMENT / LOADPORT DISPORT APPROVAL

  37. CHARTERING INVOLVES (CONTD.) • LIFTING SUBJECTS AND CONFIRMATION. • POST FIXTURE ACTIVITIES LIKE VOYAGE INSTRUCTION, SURVEYORS/AGENTS APPOINTMENTS ETC. • SIGNING OF CHARTER PARTY – VOYAGE OR TIME CHARTER. • SHIPPING OPERATIONS INVOLVING PAYMENT OF FREIGHT, DEMURRAGE, DEAD FRT., DEVIATIONS, OCEAN LOSS AND PERFORMANCE ANALYSIS.

  38. ATTRIBUTES OF CHARTERING ACTIVITY • SHIPPING MARKET- HIGH VOLATILITY. • SUSCEPTIBLE TO SUDDEN GEO-POLITICAL CHANGES LIKE WEATHER, WAR, OPEC PRODUCTION, SCRAPPING / NEW BUILDINGS ETC. • “TIME”IS OF ESSENCE. HIRING OF RIGHT SHIP AT RIGHT PRICE AT RIGHT TIME. • SOUNDTECHNO-COMMERCIAL KNOWLEDGE - A MUSTFOR CHARTERING TEAM. • COMPLETECONFIDENTIALITY & INTEGRITY • SENSITIVE TOSAFETY & HUGE LIABILITY FOR OIL POLLUTION.

  39. FLOATING OF ENQUIRY EVALUATION OF OFFERS FREIGHT NEGOTIATIONS FOR CRUDE/PRODUCT VESSELS POST FIXTURE WORK COORDINATION WITH SUPPLIERS/LOADPORT/DISPORT/SHIPOWNER/SHIP & STATUTORY AUTHORITIES FREIGHT MARKET ANALYSIS PAYMENT OF CHARTER HIRE/FREIGHT /DEMURRAGE, PORT DUES,CANAL DUES ETC. DEMURRAGE & OCEAN LOSS ANALYSIS. TANKER PERFORMANCE APPOINTMENT OF SURVEYORS /AGENTS AT FOREIGN/INDIAN PORTS. ARRANGEMENT OF BUNKER SUPPLIES ETC. FUNCTIONS – CHARTERING & SHIPPING FOLLOWING SENSITIVE ACTIVITIES ARE INVOLVED:

  40. BASIS FOR FREIGHT NEGOTIATIONS • SHIPPING FREIGHTS ARE NEGOTIATED IN TERMS OF WORLD SCALE RATES WHICH INDICATES MARKET TREND AT THE TIME OF NEGOTIATION. • BALTIC EXCHANGE LONDON PUBLISHES WS RATES FOR ALL PORTS ALL OVER THE WORLD ONCE IN A YEAR WHICH IS A BASE RATE. • BOTH SHIP OWNERS AND THE CHARTERERS NEGOTIATES FREIGHT RATE AFTER ANALYSING MARKET LEVEL (FOR SPECIFIC ROUTES) BASIS FOLLOWING INTERNATIONAL PUBLISHED REPORTS : • LTBP AFRA - LONDON TANKER BROKERS PANEL AVG. FRT. RATE ASSESSMENT • BITR – BALTIC EXCH. INTERNATIONAL TRADE ROUTES • CLARKSON INTELLIGENCE WEEKLY/ DREWARY & BROKERS

  41. BENEFITS OF IN-HOUSE CHARTERING • DIRECT CONTACT WITH VESSEL OWNERS WORLD OVER • BETTER CONTROL/FLEXIBILITY. • SAVINGS ONADDRESS COMMISSION : - 2.5% ON FREIGHT PAYMENTS TO SCI OR - 1% TO TRANSCHART. • FREIGHT OPTIMIZATION- FLEXIBILITY OF COMBINING CARGOES THROUGH SYNERGY WITH THE OMCS.

  42. BENEFITS OF IN-HOUSE CHARTERING CONTD. • SELECTION OF RIGHT SHIP MEETING THE SPECIFIC REQUIREMENT OF PORT/CARGO. • GRADUAL GROWTH OF PROFESSIONALISM IN CHARTERING & SHIPPING IN OMC -ENHANCED INTERNATIONAL CORPORATE IMAGE AS CRUDE BUYER & CHARTERER LIKE BP, SHELL, CHEVRON & ESSO. • TIMELY FEEDBACK TO INT.TRADE DEPT. ON FRT./ DEMURRAGE RATES WHILE BUYING SPOT CARGOES. • STANDARDISATION OF COMPANY SPECIFIC C/PARTY CLAUSES.

  43. Pre requisites… • BOARD APPROVAL OBTAINED FOR ADOPTING OMC’S ‘SHIPPING POLICY’ HAVING A BLEND OF IOC/SCI PROCEDURES OF NEGOTIATIONS/ APPROVALS. • PANEL OF BROKERS FINALISED • INSA & DG-SHIPPING HAVE BEEN APPROACHED FOR REGISTRATION AS CHARTERERS • REVISION OF LAM – DELEGATION OF AUTHORITIES THROUGH FC FOR APPROVING PROMPT / HIGH VALUE INTERNATIONAL NEGOTIATIONS WITHIN THE DEPT. HAS BEEN PROPOSED • TRAINING OF PERSONNEL ON CHARTERING & SHIPPING IS IN PROGRESS

  44. Pre requisites…. • EXPERIENCED CHARTERING OFFICER FROM SCI ON DEPUTATION TO OMC. • SEPARATE ROOM FOR CHARTERING DESK, SPACE FOR C & S DEPT. • MOBILE & ISD FACILITY WITH APPROPRIATE HIGHER LIMIT OF REIMBURSEMENT. • IT SUPPORT FOR DEVELOPMENT OF SOFTWARE PROGRAMMES ON VOYAGE ESTIMATION, DISTANCE TABLE ETC. • SUBSCRIPTIONS TO INTNL. MAGAZINES, PERIODICLES AND MARKET REPORTS.

  45. CHARTERING PROCEDURE

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