JOINT VENTURES, SHIPPING POOLS &

CONSORTIA

By Capt. Prakash Joag

JOINT VENTURES, SHIPPING POOLS &

CONSORTIA

By Capt. Prakash Joag

QUESTIONS
How is the consortium concept different from that of conferences ?
Is there any common ground between the two?
What is the advantage of COAs over CVs or TCs?
Why must one use extra caution while framing clauses for a COA?
What is the basic aim of a conference?
What is the basic aim of a consortium?
Compare gross income pooling and net income pooling
Can there be several consortia within on conference?

CONTRACT OF AFFREIGHTMENT (COA)

In one sense all charter parties are

COAs, all CPs being contracts of carriage

by sea, but we use the term Contract of
Affreightment to mean carriage of a
specific quantity of cargo covering more
than one shipment over a period of time

CONTRACT OF AFFREIGHTMENT (COA)

The main purpose of a contract of affreightment

(COA) is to oblige a carrier to lift a fixed or

determinable quantity of cargo of a specified type
over a given period of time.Usually, the COA is not
limited to one particular vessel, but operates as a
series of voyage charters.Freight is payable on the
quantity of cargo transported and the carrier bears
the risk of delay en route.

CONTRACT OF AFFREIGHTMENT (COA)

Advantage of a COA It allows the ship-

owner/operator an opportunity to use

substitute tonnage

A COA has options for flexibility in the

description of voyages, dates, quantities

and can be customized to suit the
cargo/cargo interests.

CONTRACT OF AFFREIGHTMENT (COA)

Usually the circumstances of a COA are such that timely

acceptance of the vessel nominated is essential in order that the

parties know where they stand.The COA rarely makes express
provision for timely acceptance of nomination to be of the
essence of the contract. However, owners advance consideration
of such a provision may be beneficial especially where vessels
are in high demand and have considerable earning power. A
clear breach of a condition by charterers will enable owners to fix
the vessel on a different contract quickly and with certainty.

CONTRACT OF AFFREIGHTMENT (COA)

As with many of the issues that arise under COAs, there

is little direct case law and the answers always turn on

the particular facts and circumstances of each case.
Whilst care is taken in drafting the COA to suit the
parties commercial interests, this is one area where the
commercial relationship between the parties to the COA
is often a good incentive for both sides to find an
acceptable commercial solution to any disputes.

BULK/ LINER PARCELLING

It costs more to handle small parcels than to handle big ones.

That is smaller the parcel size the more expensive to carry per
tonne of cargo. Some operators specialize in the carriage of
these goods, safe loading/unloading and carriage of these goods
segregation as well as scheduling of the cargoes and services
The service providers of parceling services negotiate the highest

freight rates and the most lenient possible terms for each
individual parcel and fix suitable tonnage to carry it at rates
which are low enough so that the expenses are lower than their
earning from the cumulative freights on the carriage of similar
parcels.
Freight Earned (Charter Hire Paid Overhead Marketing

Expenses) = Profit Margin

JOINT VENTURES
Ship-owners may find such partners in traders/merchants who may

need vessels for short durations.

Each such venture is a separate issue and the contract has to

envisage and provide for the requirements at each and every stage
of the venture depending upon the scope of the contract as agreed
to by the negotiating parties.
Contract has to be customized to provide some or all of the

following
Finance investment
Management
Training
Operational Support
Ship broking
Crewing
Marketing

SHIPPING POOLS
A shipping pool is the name given to a collection of similar types

of vessels under different owners placed under the care of one

administration which markets vessels as a single cohesive fleet
unit, pools their earnings and divides it amongst the individual
owners, under a pre arranged weighting system, each vessel
receiving their due share.
Objective of the pool is to provide the members a safety net in

times of freight market depressions without losing the freedom to

take advantage of periods of market buoyancy.
In order to survive, the pools must
Decide on an optimum number of members
Decide on the type of tonnage

SHIPPING POOLS
A shipping pool is just another method to reduce the risk of

losses and provide/secure employment to tonnage and to

maximize earnings and profits. To this end the activities and
functions of the shipping pool are:
Keeping in mind the short term expediency as well as the long

term over view to achieve forward fleet planning.

1. Zero idle tonnage
2. Minimum Ballast Voyages
3. Reduced waiting time for cargoes
4. Continuous and regular employment for the tonnage
through proper scheduling
5. Next cargo already fixed prior to completion of previous
cargoes
6. Maximization of space utilization, elimination of accepting
part cargoes.

SHIPPING POOLS

Finding optimum employment for the members of the tonnage pool

Small or medium size ship-owners may not be in a position to

exploit the commercial opportunities though aware of them. Joining

a shipping pool at the cost of sacrificing total independence it offers
a ship-owner the advantage of belonging to a larger market force,
thereby enabling him to take advantage of such opportunities.
Other Functions:
Advertising
Collecting market intelligence and market reporting
Cargo contracting
Hedging through chartering and freight futures
Consultancy to owners /operators

CONTROL OF THE POOL

A shipping pool may be controlled by

the members themselves.

Alternatively the shipping pool may be
administered by a body for the
purpose.
Achieve --- zero idle tonnage,

minimum ballast voyage, reduce

waiting time for cargo , Continuous
and regular employment, maximize
utilisation of vessel.

PROFIT/REVENUE AND CARGO POOLS

Gross pool income operating expenses = net pool income
Net pool income/ individual vessel weighting factor =

individual distribution
Liner Conference Pools Pool Members may collect the

earnings and incur the costs themselves and thereafter

pool their gross or net earnings into a common pool
account prior to receiving their entitled share of the overall
income
Gross Earnings Pooling Arrangement =- the individual

member bears his expenses himself and that has no effect

on the gross total earnings remitted to the pool
Net Earnings Pooling Arrangement There is little incentive for an

operator to restrain his operating expenses to a reasonable level

because the low cost, more efficient, operator subsidizes his less
efficient higher cost net earnings colleague.

CONFERENCE
UN defines it as generic term covering wide range of common
services and common obligations undertaken by ship owners
serving a particular trade.
A meeting of lines serving any particular route aimed at
agreements on uniform stable rates of freight and the provision of
services under agreed working conditions in the trade. It ranges
from very informal associations to a well developed organization
with a permanent secretariat
Their Aims are:
Control competition by eliminating avoidable competition
internally within the conference.\
Protect members through co-operation from external competition.
In case a closer co-ordination is required it leads to formation of
pools. Such pools may be cargo or revenue pools or a mixture of
pools
Advantages of conference reduce malpractices , rate cuttings and unofficial

rebating.

CARGO POOLING
Cargo pooling is a method whereby each participant is given a

share of the traffic(base on their past performance) which he is

entitled to carry.
The cargo pool may be devised for a list of certain commodities

partial pool comprising of commodities constituting the bulk

of the trade.
Total cargo pools where all the cargo is pooled and shared.
Revenue Pooling Conferences may also pool revenues. As

discussed earlier, the pooling of revenue may be on gross

income or net income basis and the revenue pooling may also
be a partial pooling or a total revenue pooled .
The effect of revenue pooling is that since the revenue is

shared in any way , the members avoid cut throat competition

to carry more remunerative cargoes instead of low freight
earning cargoes. Reduce malpractices, rate cutting and
unofficial rebating.

CONSORTIA

Consortium is an association of ship-owners and traders. It

implies that the carrier companies formed a separate

corporate body which operated as an independent entity to
the exclusion of the member lines own identity.
A consortium manages the ships and services of its

companies for the defined service or sector allowing the

members of the consortium to enjoy sufficient market share
in the trade as well as offering a good cost effective service.
Large size of the investment and risks involved in starting a

containerized service led to the idea of consortia.

CONSORTIA

Consortium is an association of ship-owners and traders. It

implies that the carrier companies formed a separate

corporate body which operated as an independent entity to
the exclusion of the member lines own identity.
A consortium manages the ships and services of its

companies for the defined service or sector allowing the

members of the consortium to enjoy sufficient market share
in the trade as well as offering a good cost effective service.
Large size of the investment and risks involved in starting a

containerized service led to the idea of consortia.

Vessel sharing agreement

Sharing of vessels, joint operations of vsls,

services, exchange / charter of vessel space

between Liner operators.
Shall not include inland carriage goods.
Arrangement will be for a period of time.
Shall not contain any price recommendation or
tariff imposed by the parties.
Shall not require any disclosure of confidential
information to each other.
Party can offer his own service arrangements
and pricing

Voluntary Discussion
agreement

Sharing of information but not binding.

Shall not include any inland carriage
Shall be for a period
Shall not contain any element of price fixing.
Shall not impose and loss or penalty
Can withdraw by giving notice.
Not required to disclose confidential information.
Allows to enter any party to the agreement or

offer his own pricing and services.

Competition commission of India has
exempted VSA from some section of the
Competition Commission ACT.