ITIC: Broker Follow-up Vital in Fluctuating Markets
Thursday, December 12, 2013

ITIC says that the failure of shipbrokers to follow up on time-sensitive messages can have serious financial consequences, particularly in fluctuating spot markets.

In its latest Claims Review, ITIC cites the case of a ship fixed for a trip time charter for two voyages, with an option for a third. The option was to be declared by the charterers on completion of loading for the second voyage. The fixture had been negotiated through brokers in two different offices of the same company. The third trip option was exercised by charterers on a Friday afternoon, and the broker who received the message forwarded it to his colleague in the other office. Unfortunately, that broker did not immediately pass it on to the owners.

The ship completed the second voyage on the Sunday, but it was not until Monday that the message declaring the option was passed on to the owners. On the following Wednesday, the owners argued that, because they had not received the notice until the day after loading had been completed, the declaration was invalid. They therefore expected redelivery of the ship on completion of the second voyage.

The spot market at the time was extremely volatile, but rising. Therefore the owners wanted the ship redelivered. The charterers, on the other hand, clearly wanted to retain the ship to maximize the profit from the final voyage. The market changed again, however, and after a week the owners confirmed that they would allow the third voyage. But the business available to the charterers was by this stage less profitable than at the time they had declared the option, and they subsequently claimed lost profits against both the owners and the brokers.

The brokers argued that the majority of the delay was caused by the unreasonable conduct of the owners in refusing to agree to the third voyage. A settlement was ultimately agreed, with the brokers’ contribution reflecting their delay in passing on the message, but not the subsequent fall in the market.

In another case handled by ITIC, a shipbroker fixed an extension of a charter in direct continuation, but forgot to include the charterer’s ‘subject to 24 hours reconfirmation’ in the negotiation. The owners subsequently claimed that the subject was not part of the negotiations they had seen and considered themselves fully fixed. The charterers failed to perform the extension and redelivered the ship to the owners, who then fixed the ship to a different charterer for a shorter period and at a lower rate. The owners brought a damages claim against the charterers, who in turn brought a claim against the shipbroker. ITIC settled the claim for $140,000.

ITIC said, “Time-sensitive messages should always be followed up with a telephone conversation to ensure that they have been received and acted upon.”

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