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The Role of A Shipbroker

An Article by Stuart S. Danoff

Back in the sailing ship days ships were built, sold and purchased in very few geographical areas of the world. The community of ship-owners was small, often with owners being masters of their own ships and fully responsible for the commercial as well as operational management of their trading vessel(s). It was not until the early 1900 's that shipbroking became a universally recognized service necessitated by the expansion of the shipping industry from London, which was at that time the center of the market, to smaller but equally important maritime centers located in Oslo, Paris, Tokyo, New York, Hamburg, Madrid, and Hong Kong.

The advent of modern telex and automatic telephone services worldwide has allowed for a better flow of information about vessels available for sale and charter. This, together with the establishment of a code of ethics by a group of highly competent shipbroking firms located within the maritime centers noted above, became the basis of the industry today. "Word of Mouth" negotiating became the mode of business intercourse between brokers who endeavored to establish an ethical affinity to keep the motto "his word is his bond".

A shipbroker's principle must be one of knowledge, integrity, experience and trust. Literally anyone can call themselves a shipbroker, which is the reason why most owners and charterers prefer to entrust their interests to reputable, established brokers.

Brokers specialize in one or more categories of the business, the most common of which are:

The Owner's Broker: These brokers are appointed by owners to secure charters (vessel or cargo) for their tonnage. Their main interest is to favor and protect the owner by negotiating the best terms and revenue.

The Charterer's Broker: Under instruction from the charterer, the broker is expected to widely circularize his order for tonnage (or part of a vessel) in an effort to secure a most favorable fixture for the cargo interests, i.e., lowest cost

The Cable Broker: Having neither an owners' tonnage to represent nor an order direct from a charterer, these brokers endeavor to insert themselves as "middlemen" into a shipping transaction.

The Sale and Purchase Broker: Owners'/Charterers'/cable brokers need be well versed in the intricacies of chartering. However, the S & P broker requires knowledge of ships (technical and classification) as well as a broader base of ships' valuation ranging from newbuilding costs, second--hand market values and demolition prices worldwide. As above, the S & P broker usually works to represent one party (either buyer or seller) in a deal.

Other categories of ship brokers are specialists whose interests are within one or more specific areas of the business such as: the Tanker Broker, Newbuilding Broker, Specialty Broker (Container and Ro/Ro), Grain Broker, Bunkers Broker, etc.., to cite but a few.

Why Use A Broker?

Market information is catalogued by the exchange of reported fixtures or ship sales between brokers on a daily basis with such information gleaned through individual networks. The knowledge brokers acquire through direct and third party reports of transactions consummated daily allows them to be well informed. The experience and knowledge brokers have about the background of principals, cargo particulars as well as charter parties/memoranda of agreement make them most valuable to a shipping transaction.

As a rule the major shipping companies who are either owners, charterers or both usually have experienced staff to keep abreast with data and market particulars of interest to their specific needs. Some of this information comes from one or more brokers delegated by their company. Smaller owners and charterers attempt to become familiar with the market by their own direct contact. The danger here is that decisions relating to market levels may not be accurate leaving the least informed principal involved in the transaction at a disadvantage.

Owners/sellers use brokers in order to get the highest prices for their ships. Charterers and buyers utilizing the brokers to protect their interests receive a service paid for by the owners/sellers. Does the "do-it-yourselfer" benefit from entering the market on his own? Whilst the owners/sellers save the commission (1.25 percent of the daily hire

On this note, it need be stated that brokers work on a "no cure/no pay" basis for the principals they serve. In order for brokers to be well informed, and to keep their clients equally well informed, they must incur high communication costs which can only be offset by consummating fixtures or sale transactions. Experienced owners and charterers take full advantage of competent brokers. Relationships between brokers and clients take considerable time to develop.

To become a broker takes up to five years of training, requiring an apprenticeship and junior broker program. At the present time as markets grow, shipping centers change. Miami, the gateway to Latin America and the Caribbean Basin, has become a major shipbroking center. Principals may now benefit from shipbroking services located in the same time zone and close proximity as their offices which heretofore were only available in Europe and the Far East.

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