The Purpose of Shipbroker - Case Study Example

HАRTЕRING АND BRОKING QUЕSTIОNS STUDENT’S NAME: INSTITUTION: INSTRUCTOR’S NAME: DATE: Q1 (A) challenges facing shipbrokers in fulfilling their role The purpose of shipbroker is to enable the ship owner and the charterer to come together. It is obvious that broking business is all about being between the buyer and the seller. Most businesses involve broking especially the exchange of goods for goods. In this case the shipbrokers have the role of representing the ship owners and taking the business on behalf of them. For many years, they have played their role and have been successful in their broking services. When it comes to the roles they play for example, they represent the ship owners in negotiating with the charterer on behalf of them. The charterer in this case is the person or company or a partnership that intends to use the ship to carry their cargo. The shipbroker will therefore negotiate the terms and conditions of availing the ship to the charterer. Another role is to enhance the relationship between the cargo owner and the ship owner in the sense that the broker will ensure there is no disparity in terms of language and payment between the two parties, when the two parties seem to conflict, the broker acts as a mediator (Amir &Alizadeh, 2009). According to Bes, J. (1962), the challenges that the shipbrokers have been undergoing from way back includes language barrier, this is a common challenge that all the brokers undergo. You find that from the readings, language is an important aspect that enhances negotiation. Language barrier will lead to poor communication and hence inability to settle the deal. Shipbrokers deal with business people from diversity and hence they have to master their language, this is a challenge because failure to negotiate due to language has resulted to loss between the ship owner and the cargo owner. The other challenge comes with the change in technology whereby most business activities are done through internet. Since most people are technologically advanced, it is a challenge to the shipbrokers because they lose many customers due to the fact that online transaction does not demand the buyer and the owner to meet and therefore the ship owner will avoid the broker so as to relieve themselves from extra charges needed by the shipbroker (Lars & Gorton, 2009). Technology advancement has become a threat to many brokers because they also have to learn how to negotiate using internet or else they will lose their way of earning money. The process of negotiating between the broker and the cargo owner is a complex situation that involves the ability to persuade the cargo owner that they can trust the ship owner and vice versa. This is a challenge because not all cargo owners would accept to negotiate with the shipbroker, instead they will demand to negotiate with the ship owner. Therefore the ability to win the trust of cargo owners is a problem that is considered a challenge by the shipbrokers. In some other cases, the ship owner may refuse to pay the broker after negotiating with the cargo owner and carrying out all the transactions, this has been a challenge for them since most ship owners are not trusted anymore (Alan Edward . 2012). Q1 (B) Base your answer to part (a) discuss the implications for shipping companies Challenges in leads to implication in most cases, for example the challenges encountered by the shipping companies have implications for the future performance. The roles played by the shipbrokers have been the reason for the flourish of ship companies for the past years, failure to consider the challenges encountered will be an impact that will lead to a down fall in the shipping business. Taking for example the challenge of inability to negotiate due to language barrier, if the shipping company does not consider this as stumbling block to the shipbrokers, it will impact on their future business due to the fact that there is an increase in the number of businesses carried in the shipping company and it requires shipbrokers who have the technical knowhow on how to negotiate. This means that they should be equipped with language skills and also they should be trained on how to handle different types of clients. Also the technological advancement is becoming a threat to shipping companies; most companies have gone for the online transactions. Let’s take a case whereby the ship owner prefers to use internet to carry out their negotiations but does not have a broker, the ship owner will therefore experience difficulties in negotiating with the chatterer because they do not know how to convince and win their loyalty. It is therefore an obligation to the ship companies to have their brokers knowledgeable on the technological advances (Mandaraka-Sheppard, A. 2013,pg 69). Since the shipbrokers play a greater role in ensuring that the negotiation and transaction between the charterer and the ship owner is successful, the challenges they encounter discourages them from their business. For example they play roles such as ensuring that there are agents who will be responsible for loading and offloading the cargo from the ship, they are also responsible for ensuring that transaction is accomplished, they also ensure the safety of the ship and the cargo by providing all the necessary requirements for the save transport of the cargo, they also ensure that the ship is in a good condition and that it will deliver quality service to the charterer. Ship companies are under competition since it is as usual case for every market and therefore the efforts of the shipbrokers determine the competitive nature of ship and cargo business. Disillusioned brokers may therefore begin to withdraw from this service and some may go against the rules and conditions from the Baltic code. Therefore the ship companies will run at a loss since the brokers may decide to take advantage of the situation and conduct fake negotiations so that they can benefit (Manolis G. 2011). It is important for ship companies to consider the well fare of the shipbrokers in the sense that they cannot conduct business without them and therefore the terms of payment should be as agreed. Q2 How do the activities of the port agents influence a shipowner’s revenue/cost under a voyage charter? Port agents represent the ship owners in such a way that the charterer will look for a ship from the port agents. They organize the ship availability to the charterers and from there the charterer will deal with the shipbrokers on the case of cargo. The port agents carry out activities such as receiving the charterers and giving them information on the types of ships available and whether the ships are in good condition to accomplish the wish of the cargo owners. Bundock, M. (2013) depicts that the port agents are the third party in this case because they determine the level of competition in the market and therefore hey influence the ship owners positively. In other case the cargo owners may use the port agents to transport their good on behalf of them, this occurs when the cargo owner decides to use the port agents to run all their activities ranging from organizing for the transfer of and offloading of the cargo. According to Seatrade organizations (1984), when it comes to the ship owners and the port agents, there is a relationship between the two such that the ship owners will not conduct their business without the help of the port agents. Let’s take an example of a cargo owner who needs a ship to carry their cargo, the cargo owner in this case is a new business person and does not have any information about the market and the prices of ship business. The only way the new cargo owner will succeed is by seeking a port agent who will be responsible for providing information on the terms and rules of ship business to the cargo owners. In this way the port agents will have influenced the ship owners revenue in the since that the ship business will be accomplished. Also the port agents are responsible for safe delivery of cargo by ensuring that the ship or the container being transported is under high security, this also influences the ship owner revenue as a fact that port agents bring customers to the ship owners and hence the ship owners will benefit. Port agents also carry out the obvious responsibility of ensuring the type of cargo being ferried so as to avoid fraud and transport of illegal cargo. Therefore the port agents will organize for the inspection of the cargo. Also the port agent will ensure that the transactions are done appropriately and as stated this will enable the ship owners and the shipbrokers to conduct a formal business rather than to encounter fraud as a result of trusting the cargo owners. For the ship owners to get money they depend on the information from the port agents. The activities that the port agents undertake are for the sake of ensuring that the ship companies conduct a legal business and that the information circulating within the ship companies is appropriate they therefore play the role of controlling the businesses of the ship companies. Q3 Advantages and disadvantages of using bare-boat charter party and time charter party in the tanker sector in terms of business risk management. Advantages of bare-boat charter party The first advantage that accompanies the use of bare-boat charter party is due to the benefit of having to use the ship for the period specified and agreed between the ship owner and the cargo owner. It benefits the cargo owner since he will have all the time to carry out all his businesses without being disturbed. Also in the event of using the ship, the cargo owner can conduct many businesses which will earn them more money (Brodie, P. 2013,pg 86). Since the charterer has the responsibility of having the owning the ship for the specified period of time, he will therefore have the advantage of managing the transport of the cargo. This will enable the charterer to choose the amounts of cargo to carry by the use of the ship. This is an advantage other than having the ship owner in charge of what should be done with the ship. Another advantage focuses on the appointment of employees who will be responsible for loading, offloading, transporting and ensuring that the cargo are in safe condition to be transported. This is an advantage rather than having the ship owner organize everything for the charterer and they may end up disputing because of this fact. Therefore the responsibility of the charterer is only to ensure that they accomplish all the transactions and that the ship is returned in good condition as per the stated time (Julian & Cooke, 2014). The charterer is also responsible for assigning a broker to represent them, this is an advantage because the broker will do his work under the rules and stipulations from the charterer and not the ship owner, they therefore agree on the terms of payment and the broking service. It is important to note that the broker will not be responsible for the damages of the ship; he only deals with his work of broking and the rest responsibility lies on the charterer. Disadvantages When it comes to risk management and business, it is obvious that a good entrepreneur has to be a risk taker; however in the case of ship companies the bare-boat charter has some disadvantages. For example; the bare-boat allows the charterer to remain the owner of the ship for the specific time, let’s take for example an occurrence of theft whereby the ship will be damaged this is a risk to the ship owner, even through the charterer is responsible for the damage it will still remain a loss to the ship owner because the time taken to compensate the damage will be long enough to make more money by the ship owner. It is also a risk to give the title of possession of one’s assets to the charterer this is because of the losses to be encounter in terms of finances. Sometimes the ship may not be in good condition and may end up disappointing the charterer and hence the loss will lie on the ship owner for giving out a damaged ship. Also giving responsibility of the ship to the charterer is a risk on the fact that they will not take of the ship as if they own it despite the fact that they are responsible for any damage. When the ship owner does not trust the charter it becomes a disadvantage because in many cases from the readings, we find that some charterers have negative objectives and they will end up exploiting the ship owner. Therefore it is difficult to find a trusted charterer and this is achieved through seeking advice from the port agents which is an extra cost. Also the charterer may refuse to stick by the terms and conditions of chartering which is a challenge to the ship owner as well. Advantages of using time charter party Time charter is only responsible for the transport of his cargo, he therefore gains the possession of the ship at the time they are transporting their cargo. They therefore control the transport process only. This is an advantage because they are only responsible during transportation of their cargo and that they can control it. Also since the management of the ship is a responsibility of the ship owner is another advantage because the ship owner will be liable for the damages that the ship will encounter. The ship condition is a responsibility of the ship owner and this reduces the risks the time charter has to be liable. When the ship is on voyage the ship owner is responsible for the ship maintenance, repair, the crew in the ship and all the aspects that relate to maintaining the ship which is an advantage to the time charter. Time charter is less costly because the only time the ship is needed is during transporting of cargo, it therefore does not require that the charter will have to purchase the ship. As long as the ship owner is willing to lend them a ship for their voyage is enough to cater for the business at hand. It is therefore advantageous to use time charter that to own a ship which requires expenses to maintain it. Disadvantages When it comes to risk, the first risk goes to the ship owner in the sense that the ship may be damaged severally since the charterer is not responsible for the maintenance of the ship. Medlock, D. (2014) aserts that this is costly on the side of the ship owner because he will have to ensure that the voyage is safe and that the ship returns in good condition which is not always accomplished. This is because the ship owner may not be available during the voyage and hence their representatives may not be responsible in maintaining the ship. The second risk goes to the charter party in the sense that they may not accomplish their voyage due to the condition of the ship. In some case, the ship owner may ignore the maintenance responsibility which is a risk to the charter party because their cargo will not reach the expected destination if they experience ship damage .also when the ship is not in good condition it may subject the charter party to insecurity when they are transporting their cargo, this may lead to loss of the cargo (Ryburn, B. 2014 pg 135). Reference list Read More