This document discusses the strengths, weaknesses, opportunities, and threats (SWOT) of time chartering versus voyage chartering. Time chartering provides fixed income but the charterer takes on more financial responsibilities and risks from delays. Voyage chartering gives more flexibility but the charterer takes on risks from weather and may not secure payment. Both approaches see opportunities in market volatility by hedging positions or trading freight futures. The conclusion is that the debate on the best approach continues depending on one's risk tolerance and business goals.
Time Charter vs Voyage Charter - 19 Nov 2014 - Capt. Richard Creet
1.
2. Considerations
Strengths, Weaknesses, Opportunities
and Threats (SWOT)
Understanding the market
Utilizing time chartering in a volatile
market
Scenario – examples
Conclusion
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3. Profile of the Charterer
- Beneficial cargo owner
- Time charter operator – trip or period
Financial and Operational
Management
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5. TIME CHARTERING
VOYAGE CHARTERING
Confidentiality and
control on access to
cargo.
Firm control over the
vessel and the voyage.
Access to varied
tonnage while being
asset light.
Voyage Flexibility
Source of income and
profitability. 5
Fixed income benefits.
Eliminate the risk of
weather delays
Firm control of
documentation when
payments delayed.
Direct access to the
BCO.
Stronger position on
Cargo Lien.
6. TIME CHARTERING
Sizeable capital
requirement prior receipt
of freight.
Long time-charter chain.
Financial responsibilities
that can extend to the
time charter operator
that are primarily the
fault of the ship owner.
Extensive investment of
time in determining
voyage feasibility etc
VOYAGE CHARTERING
Imprecise ability to
evaluate the loss risks due
to weather etc.
Delayed receipt of freight
payments.
Possible loss of
confidential information
to competitors on the
identity of cargo owners
and governing market
freight levels.
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7. TIME CHARTERING
Business opportunity with
no asset burden
Larger and more varied
tonnage base.
Secondary Trading in
Freight Futures and
Derivatives
High Revenue
opportunities in a volatile
market
Subletting opportunities
VOYAGE CHARTERING
Maximizing Revenue
which is otherwise
enjoyed by the time
charter operator.
Once again having direct
access to the beneficial
cargo owners for future
contracts/contacts
Beneficial Positioning of
owned tonnage
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8. TIME CHARTERING
Losses due to weather
and port congestion.
Integrity of the Cargo
supplier or Head
Charterer.
Inflexible ship owners.
Intermediate voyage risks
in vessel readiness
Market Volatility.
Especially spectacular
crashes in cases of long
term period chartering
VOYAGE CHARTERING
Practical difficulties in
managing cargo liens in
case of non payment of
freight.
Inability to secure
payment of large
demurrage claims from
marginal charterers.
Last minute cancellations
after long sailings to load
port, citing dubious force
majeure conditions.
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9. Baltic Indices – helping to track trends
Trade Patterns – seasonal and regional
Supply and location of Tonnage
Knowledge and access to information
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15. 15
Long term contracts.
Trip basis when market expectation is down.
Hedge positions by linking to the relevant Baltic index.
Short term volatility, option to redeliver vessel vs maximizing
profitability
Paper trade in freight against the physical. Allows time
charter operators to bid below market and break even levels.
Combined involvement in partial Ownership and Long Term
Period chartering. Ship Owners placing part of the fleet in
long terms period charters and a smaller portion of the fleet in
spot market positions.
18. Typically the time charterer is :
An opportunist.
Uses his extensive knowledge of the markets.
Combines his finely honed experience and
entrepreneurial spirit… to make money.
Is nimble and asset light.
Aggressive in his approach to making a success of the
venture.
Industrious and invests a large amount time for
preparation.
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19. On the other hand the voyage charterer is :
Primarily the beneficial cargo owner.
Prime focus is on the trade.
Has covered his position with a fixed cost in the
freight.
Risk averse.
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20. SO …..
TIME CHARTER
OR …..
VOYAGE CHARTER ….
THE DEBATE CONTINUES !!!
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