Every single day in a chartering office is full of interesting stories. The other day I was sitting at my desk busy to find the next cargo of a vessel which was opening within the next days. The phone rang. On the other line, I heard the voice of my close broker: “Hey my friend, I have the right cargo for your ship coming from a close charterer. They are paying 21 dollars for a cargo of steels going from Mersin to USG” he said and after this, he added “oh and don’t forget the total commission will be 5%”. I hang up the phone, ran the calculations and prepared an offer which I sent in a few minutes in order to fix the cargo. 5% commission is already high I thought, but anyway since the time charter equivalent was fine, I did not make any comment on this point. After almost an hour, I received the Charterer’s counter with my broker’s comment that the freight was accepted by the Charterer! WOW, that is great I thought, I am very close to fix the vessel.
I then started to review the full terms and was surprised when I reached the bottom of the offer which mentioned: “Commission: 7.50% to be deducted from freight and paid directly by charterers to brokers.” What is this 7.50% commission? Who are the brokers and how did the commission reach such high levels%? I immediately called my broker to clarify the situation. He advised that he could work the business via a specific broking channel only and the other broker was asking for a full commission of 2.50% without accepting any split or decrease on its commission. Firstly, I tried to explain to my broker that this is unfair since he initially offered the business with 5% commission, he did not mention anything about the other broker while the charterer was supposed to be close to him. Then I tried to negotiate on a lower commission but he did not accept. He mentioned that since the other broker was not willing to accept a lower proportion, he was not also willing to take a worse position. Finally, I tried to increase the freight but the Charterer was not willing to increase same and he also blamed me for “back-trading”. After all this mess, the business failed since the brokers were not accepting any cut on their commissions and the charterers did not agree to pay a higher freight!
Is this situation rear in your everyday shipping life or have you come across similar situations in the past?
Dealing with brokers is really very useful and can make our working life easier. Brokers explore interesting opportunities and can bring the principals closer. They can also share their experience on various occasions and help principals with the charter party terms. However, there are not a few cases that the brokers’ involvement can spoil a promising fixture. Think about a fixture with a broking chain of 3 brokers or more. Not only the commission paid to intermediaries might be too high but also the communication will be very difficult and misunderstandings or errors may arise. Also, in such cases, the pride of each broker and their ego, which is very strong, may not allow them to see the overall picture for the benefit of their principal but they are just trying to find ways on how they will take advantage against the other brokers and how to make more money for themselves.
For this reason, a few shipowners or charterers choose to appoint an exclusive broker since they believe that the exclusive broker will better protect their interests. But is this really the case?
Here is another real story: In the past, I used to work in a company that used an exclusive broker to market its ships and the situation was even worse. The exclusive broker was trying to establish an even stronger position by increasing its commission and keeping the shipowner hidden behind the scene and not bringing the company in contact with other people so as to be protected from the other competitive shipbrokers. The only thing that mattered for them was how they would increase their commission. Therefore, in almost every fixture, the commission was higher than 5% while they acted like being the principals. One day, the shipowner realized that the costs of keeping an exclusive broker was higher than any benefits and decided to open its doors to the competitive market.
Brokers have their own battle during which they are trying to strengthen their ego and reputation as well as to increase their own profits. In most cases, where one broker approaches another to fix a vessel/cargo, the main reason that they can't conclude a business is their greediness (unwillingness to reduce their commission) and their ego, of course. The saddest thing is that during such a battle between two shipbrokers, the real losers are the charterer and/or the shipowner. In order to overcome this issue, OpenSea has established the most transparent marketplace and fixed commission of just 1% which is lower than the commissions traditionally offered in the market. Maybe, that is the case why an increasing number of chartering professionals uses our service regularly, for their personal benefit.