Before we start, do click here for yesterday’s first installment to bring you up to speed.
We should start this section by examining the paradox built into every period time charter – the shipowner tries to fix his ship at a rate higher than he expects the market to sustain for the duration of the charter, to someone who is both willing and able to pay that rate despite taking losses on it. It follows that the owners’ ideal time charterer is wealthy and stupid. Everyday experience, however, tells us that “A fool and his money are soon parted”, so such charterers, if they exist at all, will soon be out of business. Nonetheless, all owners persist in looking for this unicorn.
Experience over the past couple of decades has shown us that other ways of pulling off the same trick, such as FFAs, present very much the same risk of counterpart default, but rely on notional standard ships, so unless you happen to have exactly such a ‘commodity ship’, you will lose out on any non-standard features of your ship that might let you earn more, so frankly we may as well stick with time chartering unless we are doing something really clever with COAs, and really clever things with COAs are only slightly more common than unicorns.
4. The really really bad charterer – the confidence trickster
There are a few people in this lovely business of ours who are real crooks, as opposed to just being called crooks. They go in for what, amongst shore based gangsters, is called ‘long firm fraud’ – building up your trust to the point where you give them credit, then – wham!
For example, the fellow who fixes your ship for a trip at a nice rate, pays your first installment of hire, promises to pay the delivery bunkers, loads your ship with cargo for Neverland on ‘Freight Prepaid’ bills of lading, bunkers your ship in the United States and then scarpers with the freight.
He has a million dollars and more. You now have to:
· Pay the bunker supplier and any other suppliers to your ship, because under US law they have maritime liens over your ship;
· Complete the voyage to the discharge port, appoint and pay an agent, and pay for the discharge of the cargo, because the bills were signed “For the Master”, and you are bound by them;
· No, despite what it says in Clause 16 of the NYPE, you don’t have a lien on the cargo, because the cargo owners bought it without notice of your lien.
You are, in fact, stuffed. This is a pretty good way for an owner to go bust. And yes, it can also happen in tankers. It actually does happen, every year.
5. The charterer who is running out of money.
This is much the more common case. The market has not gone as the charterer hoped, and if he is really unlucky he may even have sublet your ship to the sort of spiv described in section 4, above.
Your charterer can now do one of two things. He can keep going and hope that life gets better, or he can contact you and ask to renegotiate, offering either a lower charter rate or early redelivery, cargo free, at somewhere reasonably sensible.
This puts the owner on the spot, because he also has bills to pay. He can take one of two choices.
If he insists on ‘the due performance of the contract’, the charterer may run out of money and leave the owner in just the same position as the really really bad charterer, with cargo onboard that he has to deliver at his expense, and the charterer’s bills to pay out of his own pocket. This risk may be worth running but the owner should at the very least think carefully about what he can do to secure his position, if the charterer does default.
It may in fact be much better to take the charterer’s offer and agree an early redelivery at a sensible spot. It may even be wise to suggest this to the charterer, rather than run the risk of being stuck up a river in Neverland with cargo to deliver to someone.
Sadly, our industry seldom thinks this way. Our response to such a situation tends to be to insist on our rights, and to demand that the charterer ‘fulfil their obligations’ even when they cannot.
An example comes to mind – years ago, I worked for the charterer of a ship which was on a liner run and was due to finish and redeliver in Hong Kong. It came to my notice that the owners hadn’t paid their bank, or indeed some other people, for a while, and that a warrant for the arrest of the ship had been issued in Hong Kong. So I phoned the owner’s office, and was put through to the owner’s daughter. I told her that there was a warrant for the arrest of her ship, and offered to remove our remaining cargo and give redelivery in Kaohsiung, because the cost of forwarding the balance of cargo on our next ship was not much different to the sum of the charter rate, bunkers and port dues.
Was I thanked? Not a bit of it. I was told that I was fifty sorts of crook, they insisted on ‘their rights’ under the charter, including redelivery in Hong Kong, and sure enough, their ship was arrested and sold.
Next: The Ugly