Shipowners and brokers working in the spot tanker sector are becoming frustrated by charterers that fix vessels subject to approvals and then attempt to renegotiate rates if the market falls in the interim.

Several highlighted the “charterers management approval” detailed in subjects as the tool that they claim is now being misused by some of the biggest names in tanker chartering.

They said instances of such misuse have ramped up following a dramatic spike in tanker rates last October, when a clutch of vessels were fixed but failed at rates of Worldscale (WS) 300 and above — only for ships to then be secured at WS 100 less for the same cargoes.

'Pervasive'

Tanker players said the misuse had become "pervasive", adding that it contradicted accepted good practice.

Before a legally binding charterparty contract is signed, ships are commonly fixed by charterers subject to the physical cargo stem being confirmed, suppliers and receivers’ approval given and charterers management approval secured.

Subjects usually last for 48 hours, although owners say there is increasing pressure from charterers to extend this.

Management approval is seen as a final stamp by the charterer that they wish to do the deal once the stem and suppliers and receivers' approval are all in order, one tanker market player explained.

But the practice is increasingly being used as “the ultimate get out”, one tanker owner said.

Owners report that once they have agreed to fix their vessels on subjects, they are then either being asked for a lower rate, or the ship is failed and the charterer then fixes with another owner who is prepared to accept a cheaper rate.

“They put their ships on subjects and then wait for the excuses two days later,” one broker wrote in their weekly report.

Tanker owners and brokers said the practice makes a mockery of shipbroking's code of ethics of “my word is my bond”.

“It’s unethical and 100% not in the spirit of what was agreed when both parties went on subjects,” one owner's broker said. “Deals fail, it happens and is accepted. Renegotiation of rate though — it's not on.”

Brokers argued the practice is costing shipowners millions of dollars.

They said an owner’s hands are effectively tied when the vessel is on subjects, while for the charterer it is a “zero risk and cost option”.

Offenders

Owners and brokers were keen to speak about the issue but coy about being named. However, they were quick to record who they see as the worst offenders.

Charterers said highly bureaucratic organisations tend not to renegotiate, while French energy giant Total was named as a repeat offender along with other majors, largely with the exception of ExxonMobil. For traders, they commented: "It goes with the territory."

TradeWinds contacted several large tanker charterers for comment, including Total, but they either failed to respond or declined.

Some tanker market players said the tactics simply reflected the volatility the sector had experienced over the past few months.

But others suggest the practice is here to stay.

Several market players questioned why, in today’s world of instantaneous communications, it should take two days to clear a ship.

There were also veiled threats from owners that they would be less inclined to deal with charterers who are prone to fix-and-fail once markets bounced back. Some said they already avoided offering deals to certain big names.

But another owner’s broker suggested the younger generation coming into the business have more of a trader mindset, and are less bothered by the practice. People in shipping tend to have short memories when it comes to chartering, he added.