The debate that no one wants to have

Captain Pappu Sastry from NEPA Projects & Investments on owner/charterer relations.

Very much like a marriage, a charter party is a joint venture between owners and charterers to carry cargo from A to B. The IMO and BIMCO and all regulatory bodies inundate owners with positive and negative through notices and regulations related to the industry. The P&I clubs have their rule books made for owners and the BIMCO documents are reasonably balanced to some extent but not always practical and ultimately are amended sufficiently to favour owners.

The owners have groups and committees where they can make their collective voices heard. When the market is high they complain about poor crew quality leading to time andmoney loss, (loss here means a smaller gain than had been anticipated) and when the market is low they complain about the money they earn. The dry cargo charterers on the other hand are a highly disinterested group of people who tend not to work with each other, not share knowledge amongst themselves and are protective about their own niche trades or clients. In a market where cargo is king, the charter or rather in this context operator who has the cargo is somehow considered and treated like the traitor. The vital link between them is the disheartened broker who tries his best to make the deal at any cost, sometimes with least regard to whether it is a balanced and fair arrangement which will last the duration contracted for.

The debate that no one wants to have is: Are owners really the eternal victims or do they just love to play the role?

From the outset the credit goes to anyone who can identify a first class dry-bulk charterer nowadays, so let’s continue with the assumption of an aspiring first class dry bulk charterer or operator. Some owners in desperate times agree to fix with any name, with or without a background check, which is the same as jumping off a ship in hope of a mermaid saving them. In the best of times for owners, they make all the amendments necessary to charter-party terms so risk lies away from them while they reap maximum benefit from the carriage of cargo.

The charterers or aspiring first-class operators are normal human beings, with some common sense in most cases, making a small profit out of doing this voyage with some cash flow issues but sustaining it to pay in time and ensure all this worked out smoothly so the cargo is transported with least amount of hiccups; all this just so that they protect the small profit calculation. If everything goes well, they will put the owner’s name and ship’s name in the background so that the reference they get for good performance will be ‘we did not have any issues with them’ or ‘we will possibly be alright to fix with them again’. Every shipowner at least has an asset, the dry cargo charterers practically need nothing more than a small amount of capital and knowledge to start an operation. Owners somehow lose track of this fact when they ask for way too much from a charterer. Every time owners want to protect themselves from any kind of risk, they consider placing it on charterers is fair.

Consider the usual fact that operators will fix a cargo for a particular freight and then possibly time charter your ship for a fixed rate, that is how much risk any operator is willing to take and that probably makes him a small profit – All Going Well, Weather Permitting and Without Guarantee. Then owners ask them to be responsible for costs irrespective whether they reach Friday or Monday within a Laydays and Cancelling period which is a reasonable risk for an operator to take. It goes further thereafter and Operators are at times expected to take over all cargo claims in some ports. At times they need to pay a lump sum for piracy insurance plus costs but also take up all piracy risks including masters discretion to avoid the piracy area on a voyage from India into Red Sea.

The operator as per one wonderful clause is expected to take over and pay for costs for all Ebola risks even if agreeing an affected port in the charter party.

They will also pay for additional fumigation risks related to perishable or quarantine cargo, including crew accommodation in hotels if necessary. They are expected to pay extra war risk insurance premiums as per owners insurers as well as calculating and paying crew bonuses in a war zone with various assumptions. They may be allowed to trade vessel to CIS/China range but be Asia Gypsy Moth free when completing the call.

Then there is the risk of nuclear radiation to the ship falling squarely on operators even if there is an agreement to transit the Japanese coast. There is also a duty expected from operators to invariably ensure that the vessel’s bottom is clean when redelivered without accepting a lump sum payment even if such redelivery is to a bleak and remote port agreed in the charter party. As we go further into details, the list of charterers responsibilities and pitfalls they have are endless in this ‘joint’ venture.

Most of these scenarios have BIMCO clauses that save the owner and place the onus on the charterers to comply and pay. If this is something that is all agreed by operators out of compulsion or otherwise, I cannot possibly see how the owners feel confident they have covered all bases just because they have no risk at all, on paper. In all probability they are still complaining about fixing way below a charter rate that is not enough to pay operating costs and finance costs; irrespective of how much they have made in the better days to order more ships which led to more finance costs.

Owners are not expected to treat all charterers alike because they are really not alike; they are expected to choose the right one to treat right. With all due respect, the more risk they place away from themselves the more they jeopardise the chances of any good intentioned charterer actually being able to perform.

Good faith in any such joint venture, like marriage, demands that owners and charterers create a platform for each other to perform as per the charter party. There is always an existing proforma and some rider clauses to blame but anyone who wants a smooth marriage never makes a one-sided deal and expects that their partner will perform irrespective of changes in situation and without support of the other partner.

The debate I do not want to have is – who is the husband here?