How To Excel In Ship Charter Services

Mr. Donald Damina is the Deputy General Manager Protection Plus Services Limited, before now, he was the Managing Director Tiger Shipping Limited. In this weeks’ edition of Shippers’ Guide with Ifeoma Oguamanam, he navigates on the specifics of ship chartering services.

Read on.

What is a ship charter service?

Ship charter services is the service demanded by a person who has a need for a vessel, when a person has a need for a ship but does not have what it takes to acquire one, because aside from the fact that the cost of a ship is on the high side, the cost of maintaining a ship is far more expensive.

For someone who needs a ship once in a while when he considers the cost of buying a ship, maintaining it and licensing it with the documents up to date, he will opt for to charter a ship rather than buying it. Ships are berth at jetties, and to buy a piece of land at the water front is more expensive than any ordinary plot of land, so most ship owners do not have their own jetties and when their ship is not working it becomes very expensive to maintain their ship because the cost for berthing their vessel at a jetty drains most of what they have gathered.

That is why an individual may prefer a charter because the cost of documentation, running the maintenance, and paying for jetty can be very expensive, someone who does not get regular business cannot consider buying a vessel, even those who have business, in between the time they don’t have a job the daily payment to rent space to berth the ship depletes most of what they have saved.

What kind of vessel can be acquired on a charter?

It depends on what the customer wants, that is, the client, because virtually all kind of vessels can be hired, some body may need a tanker vessel because he has liquid to carry, another person might need a container vessel because there is dry cargo to carry from point A to point B, another person might require a fast moving boat because he wants to carry security escort, or it could be a vessel that can be used to survey an oil well environment.

So, it depends largely on the purpose for the ship because virtually all types of ship can be chartered. Some may need a tugboat for towing another vessel at sea. So it all depends on who needs the vessel and the function that the vessel is needed for even a ferry can be chartered to convey a group of people.

Now, if the vessel in question is to carry cargo, at what quantity? Is it a supply boat or a cargo boat, if it is a supply vessel you might need the type that can carry up to three containers at the same time.

What is the cost implication of chartering a vessel?

It depends on the size of the vessel, some vessels can be hired for as much as $10,000 per day, it depends on the size of the vessel and that depends also on the type of job the vessel is being chartered for, take for instance, a cargo carrying vessel, depending on its size can go up to between $25,000 to $30,000 per day, even tanker vessels for transporting fuel, depending on the size of the tanker and the quantity of the fuel, can also be hire at that amount per day

If it is a specialized vessel that work at sea rigs it can go up to $35,000 to $40,000 per day. So it depends on the type of vessel, its size and function of the vessel. You can also get a small vessel of $5,000 to $6,000 per day, to charter a tow vessel, to tow a vessel from say, Lagos to Port Harcourt; its cost will depend on the size of the vessel to be towed. That is how vessels are rated.

What are the things required from a charterer before he can charter a vessel?

If a person approaches a vessel owner to charter his vessel, the vessel owner wants to know the nature of the job, what kind of job the vessel is going to be used for, is it for security or cargo, he will want to know, if  it is for a surveyor at sea, you must have the requirements to do the surveyor work and  present the right license to do the job, he wants to ascertain that the job is a legal job and not an illegal job that could lead to the vessel being seized.

He will also want to know where the charterer came from; is he registered under any group or body, so that he does not give his vessel to a criminal or be made to go to the law court because the vessel has gone for an illegal job. The vessel owner will want proof of the genuineness of the job, before he releases his vessel and until he is satisfied with all the answers he will not release his vessel.

He will present the charterer with a questionnaire and he will have to answer all the questions, the answered questionnaire will be attached to a form that the charterer will fill to proof that he is a legally recognized operational organization and that he also wants the vessel for an authorized purpose, then he can now negotiate the cost for the charter of the vessel per day.

Another responsibility of the charterer is to fuel the vessel for the number of days the charter will last. He is responsible for fueling the vessel, putting oil in the vessel, water that the vessel and crew on board will use for the number of days that they will be on the job, he is expected to put the number of drums of engine oil that will be sufficient for the  number of  days for the job and if he has his men that coming on board, he will make provision for the necessities that they will need.

So, all these, are the requirements a charterer must meet, before he can charter a vessel from the vessel owner, he has to know the amount of fuel that the vessel  consumes in a day and how much fuel it will consume for the number of days that it is being hired.

So how is it financed?

Mostly, it is a bank to bank transaction, the charterer will advice his bank to pay into the account of the vessel owner, in marine business it is supposed to be pay before service but sometimes when you are on a long time  job of up to one month you may not be able to pay ahead, so there has to be a kind of mutual agreement to pay as the work progresses until the work is concluded, then the last balance payment is paid.

Of course, it will not be a cash transaction; it will be bank cheque, draft or mutual agreement between the charterer’s accountant and vessel owner’s banker. It is not done in cash, you either authorize your bank to pay or you issue a cheque which is cashed when the job is concluded.

 Can you give us a step by step process of chartering a vessel?                             

First and foremost, the charterer gets a contract which shows that he has a job to execute , he takes the authorized job document and goes to the vessel owner that has the right vessel for the job, he negotiate with the ship owner on the terms of agreement of how much it will cost to hire the vessel, per day.

He can insist on knowing the condition of the ship, that is, if it has been active at sea daily, after which he takes the ship on sea trial and this is to convince the charterer that the ship is in good condition even though it has not done any job for up to a month. A test trial will be conducted. In absence of a sea trial there must be a clear record from the vessel owner to proof that the vessel works almost every day, so its movement is registered.

This convinces the charterer that he is getting a vessel that will not stop on the way. The charterer also will wants to know the condition of the crew on board the vessel, after this you inspect the document, first of the vessel and the document of the crew, to be sure that they are qualified to be on board and pilot the vessel.

Does the vessel have documentations and safety measures at sea up to date, like the insurance policy of the vessel and the insurance policy of each of the crew members must be up to date before proceeding. This is the basic essentials.

What are the government bodies or policies regulating this business?

For now in our own waters, depending on your channel, there are two bodies Nigerian port Authority (NPA) and Nigeria Maritime and Safety Agency (NIMASA), when you are at high sea, the vessel must be cleared with NPA and NIMASA.

NIMASA is the government body that regulates any vessel in Nigeria, when a vessel is coming through the shore it must pass through the approval of NPA, for it to be in the shore area. So you discover that you have to clear with the ports authority on what is called “the in and out movement” of the vessel to the high sea or to the jetty or out of the jetty.

Whether the vessel is at sea or at the jetty, NIMASA has the right to come there and find out if the vessel is authorized to be in Nigerian waters and if her documents is up to date to be in Nigerian waters, also, if the vessel complies with our water regulations as it relates to International Maritime Organization (IMO) standards. So NMASA regulates Nigerian vessels in compliance with international standards.

What are the obligations of the ship owner?

He is to make sure that the vessel is fit to go to work. The charterer has paid a lot of money to charter the vessel, so the vessel should be able to deliver, if the vessel has fault and it affects the operations, the ship owner has to take responsibility. If for instance, the generator packs up or the engine is not working, it is the responsibility of the ship owner to fix it.

If the ship owner fails to deliver as at when due the charterer can penalize him for delay or so the ship owner has to quickly provide another vessel to continue the job while he takes care of the machinery or vessel that failed. It is not the charterer’s responsibility if the ship develops fault while on a charter. It is the ship owners responsibility to make sure that he has the necessary spare parts, that is, the serviceable parts available and the right technical men to fix the engine to be up and running within the shortest possible time.

If it is still not up and running it is the responsibility of the ship owner to address the machinery problem. It will also be important to include this in the agreement of the charter; that should the vessel hired fails who provides a replacement of vessel, is it that the charterer can select another vessel from the fleet of the vessel owner. So, this needs to be stipulated, to avoid being penalized by the charterer.

Can this business be said to be a lucrative business?

Yes, marine business is highly lucrative, with high risk, it is lucative because of the dollar value rates, when converted to naira, it also involves a lot of risk which is not everybody that can take the risk.

For the ship owner that wants to go into this type of business, what capital base do you think is adequate?

A lot of things are involved, is the ship owner acquiring a brand new ship or a fairly used ship, if you are acquiring a used ship, then you will need professional advice, the professional will have to be a broker, he examines the ship and advices the buyer on the state of the vessel, if it can be used for hire services, he tells the ship owner the current worth of vessel and advices him on the cost of maintaining and running the vessel. If he buys it without seeking professional advice he might run into a very big loss trying to bring it to functional level.

Some fairly used vessel can cost up to a million dollars, if it is brand new, the value is higher depending on the type and size of the vessel, for a fairly used vessel the older it is the lower the cost and the newer the vessel the higher the cost, at between $3million to $5million.

If it is a new vessel depending on the size and the type, if you want it built for you, depending on the size and the type you want built for you, it could go up to as much as $30 million to $40 million per ship.

The standard international practice is that when you are acquiring a new vessel you pay 10 percent of the total amount and after the vessel has been delivered, you will now be required to pay the balance, which can be spread into months depending on the agreement. Although Nigerians have abused this privilege more than once, that is why they are required to pay the balance of 90 percent immediately.

So, with $1million to $5 million you can buy a vessel to start up your business, if it is a big vessel of about 25 years to 30 years, it is about $1million approximately.