Shipping Terminology Explained - Part 1

Alright audience, here are some of the terminology used in the shipping business that I've learned over the years and would like to share with any interested beginners:

Shipowner: The Person or Company that owns the ship.

Charterer: The Person or Company that charters the ship (books the charter). A Charter is like a lease in much the same way as a car is leased, a ship is chartered.

Broker: A Broker or Shipbroker is a Person or Company that is a middleman between the charterer and the shipowner. A broker's job is to negotiate terms of the charter booking. A chartering agent is a shipbroker that negotiates the terms on behalf of the charterer. An owner's broker is the shipbroker on behalf of the shipowner.

There are also sale and purchase brokers that broker the deal of selling and buying of ships.

Brokers earn by taking a commission from the shipowners for every deal they successfully close. The commission is usually a percentage of the freight rate or hire and demurrage (more on this later) costs.

relationship between a shipowner, shipbroker and a charterer

Laycan: The number of days between which shipowners must give a Notice of Readiness (NOR) to the charterer. Usually includes the term SHINC. Between these dates e.g. Laycan 1 Aug/3 Aug, the charterer must load the ship. If the ship arrives at port before the laycan dates, the charterer does not have to load it, and if the ship arrives after the stated laycan dates, the charterer can cancel the charter booking.

SHINC: acronym for Sundays and Holidays INCluded. Normally sundays and holidays are included in the laycan time period. its opposite is SHEX.

SHEX: Sundays and Holidays Excluded. Meaning that sundays and public holidays will not be counted in the laycan time period.

Charter Party: CP is a document containing terms and conditions between a shipowner and a charterer when a charter is booked.

Fixture: When a charter is booked and the vessel is 'fixed' ie it is booked between two dates for the charter.
A sample fixture is given below:

Sample Fixture of a vessel

NOR: Notice of Readiness. In an NOR, the shipowner notifies the charterer that the ship is at the port of loading and ready to be loaded with cargo.

Demurrage: If the loading or discharging of the cargo takes longer than a specified period of time as allowed by the Charter Party agreement, demurrage become due by the charterer to the shipowner. Rate of demurrage is calculated per day and on pro rata basis. The reverse of demurrage is despatch, where the shipowner pays the charterer for use of the vessel before the laytime is over.
Usually 48 hours are given for loading of the cargo on the vessel, and 24 hours for discharging. If loading or discharging is stopped due to rain or vessel being shifted, it is not counted as part of the given 48 or 24 hours respectively. In all other conditions, if the 48 hours for loading or 24 hours for discharging are up, demurrage starts being due.

Sample Demurrage

The dangers of wrong loading

The sensational news about MV Mol Comfort breaking in half on 17 June 2013 while transporting cargo from Singapore to Jeddah has become quite well-known in shipping circles.

Different explanations are being offered for the cause of the vessel break. Some believe the vessel was carrying 'dangerous equipment' as part of its cargo and it may have exploded causing the ship wreckage while others say that it was due to wrong loading of the containers.

It has been hypothesized that the vessel broke in half because she was loaded with heavier containers at both ends and lighter containers in the middle thus putting extra strain and pressure on the vessel's structure during rough seas.

Still vessels are supposed to be sturdier and should be able to withstand heavy weights especially considering that the buoyancy of the water counteracts the heavy weights of the containers. Nevertheless, whatever the cause of the vessel break, whether it was improper loading or metal fatigue, perhaps a repeat can be avoided by implementing proper container loading protocols.

Perhaps by weighing containers using big spring scales or hydraulic scales, loaders can judge the weight of cargo inside the containers and load in such a way that would evenly distribute weight across the vessel.

Incoterms Explained

Incoterms are terms and conditions agreed upon by the buyer and seller of goods. They establish an agreement between both parties regarding who is responsible for the goods once they leave the warehouse or pickup point and who will pay for the incurring charges.

For example Ex-Works indicate that the buyer will responsible for the goods once they leave the warehouse. The buyer will also be responsible for uploading charges, freight, duties, customs, any incurring taxes all the way upto the delivery at destination.
Should anything happen to the goods in transit, the buyer will be responsible.

On the other hand, DDP (Delivery duty paid) places most of the responsibility on the seller. The seller pays for the uploading charges, any freight charges, loading on the vessel, handling charges, any customs, taxes or duties are paid for by the seller. The goods are also the responsibility of the seller until they reach their destination.

Below is a chart showing the cost borne by each party along with the different types of agreed incoterms at each stage of delivery of cargo from pickup to drop off.

Intro to shipping by Shahan Arshad Khan

This blog is intended to be about introduction to the world of shipping and freight forwarding. It will also feature news related to shipping worldwide as well as shipping trivia.