Marc’s shipping company has been involved in the movement of freight via road ac
ID: 393840 • Letter: M
Question
Marc’s shipping company has been involved in the movement of freight via road across the US and Canada for over 10 years. Personnel employed in top management at the company include a chief mate, second officer and a first engineer all of whom were actively employed in the trade prior to taking early leave to work in the company owned by a coworker of theirs.
Recently a decision was made by the board of directors to engage in shipping operations. The cross water movement has become an area of high interest and would add an extension to the list of services offered by the entity.
Marc’s transport services Inc. however does not possess the capital to purchase a ship to start the new arm of their operations. However, the current clients they serve will undoubtedly allow them to bring in significant amount of revenue year round as the commodities moved across the states are predominantly bulk cargo with demand for the quality and quantity extending beyond the borders.
1. Advise your Principal on the most appropriate type of charter and the right size ship that would be fitting for the cargo consignments over the period.
2. Advise Marc’s Transport Services Inc. of the appropriate type of charter they need to get into clearly outlining and explaining the recommended type. Explain the role and responsibilities of Marc’s Transport Services Inc. and the prospective ship owner in the charter arrangement. Also include two advantages and two (2) disadvantages of the choice made.
3. Summarize two other charter options giving the premise on which they were rejected.
Explanation / Answer
Answer 1:
Advice for our Principal on the most appropriate type of charter and the right size ship that would be fitting for the cargo consignments over the period are as below.
Time Charter – We would like to propose the most suitable charter for this case is the time charter. The Time charter provides the suitable platform for the new entrant like Marc’s shipping company to explore in the ship business and try their approaches for the commercial targets they are looking in the shipping business.
The Time charter provides the opportunity to hire the ship vessel for the agreed time period, in which the ship vessel will be managed by the owner only but port selection and route decision will be as per the charterer party. Thus the charterer party can use the ship vessel as per their shipping plan so that they can serve their customers as per their shipping demand. In this case the charterer will be liable to pay for the operational chargers like port chargers, fueling charges and rent of the ship vessel to the owner.
This proposed time charter will help to select the right size of ship that would be suitable for the Marc’s Transport Company.
The size of the ship will be purely depends upon the forecasted demand of the Marc’s company and the number of customers they are targeting to serve. In case the existing customer demand is higher, they can opt forgoing to two small ships so that they can explore two different setups like port and routes based on the grouping of the customers.
Benefits:
The key benefits will be such that the Marc’s company needs not to invest for purchasing of ship vessel and they can try to explore their business on the rent basis. Once they are on the success path, then they can plan for their investments based on their capability and forecasted demands.