Neptune Atlas

Commission

How ship broker commission works

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A ship broker's commission is a percentage of the freight or hire, paid by the shipowner. That single sentence carries the structural fact newcomers miss: the owner pays every broker on the fixture, including the charterer's.

1.25% per broker

The convention, per broker in the chain, out of freight, deadfreight and demurrage. Two brokers and 2.5% address commission make a 5% fixture, which is the stack the worked TCE example nets out.

How much is a ship broker's commission

The convention in dry cargo is 1.25 per cent per broker, and the total on a fixture is the sum of everybody in it:

None of these figures is law. They are what the fixture says, and the commission clause is negotiated with everything else; 1.25 is simply the number the trade reaches for first. A long chain does not multiply forever either, because an owner reading 6.25 per cent of the freight in deductions starts asking what each layer did for it.

Who pays the commission

The owner, out of the freight or the hire, for every broker on the fixture. A charterer's broker is appointed by the charterer, works for the charterer, and is still paid by the owner: the commission is a deduction from the money flowing to the ship, not a fee invoiced to the principal who gave the instructions. The trade's shorthand for a rate is built on this. A freight quoted free in and out says who pays for cargo handling; a commission stated beside it says how much of that freight never reaches the owner.

Address commission is not the broker's money

Two deductions wear the word commission and only one of them pays a broker. Brokerage is the broker's remuneration. Address commission is a deduction in the charterer's own favour, historically a contribution to the charterer's office costs, in practice a discount on the freight stated in a form the trade accepts. It is written "2.5% address" in the recap and it goes to the charterer, not to anybody's broker. What a ship broker does makes the same point from the broker's side: quoting an owner a rate without stating the address commission overstates what the ship will earn.

Is commission paid on demurrage

Normally yes. The standard clause wording makes brokerage due on freight, deadfreight and demurrage, so the commission follows the money the voyage actually produced: short-shipped cargo that is paid for anyway carries it, and so does demurrage once the laytime is exceeded. Despatch does not, because despatch flows the other way, from the owner to the charterer. On a time charter the same idea applies to hire, and commonly to a ballast bonus where one is paid. A fixture can say otherwise, which is why the recap states what the commission is due on rather than leaving it to convention.

When commission is earned and paid

Earned on the money it attaches to, paid when that money is paid. In practice the owner remits brokerage after the freight or each hire instalment is received, or the paying side deducts it at source where the fixture says so. The point that matters commercially: a fixture that fails before freight is earned normally produces no commission, which is the whole economics of broking in one line. A broker can work a cargo for three weeks, lose it on subjects, and be owed nothing; firm offers and subjects is where that risk lives.

Where the commission is recorded

In the charterparty, as a clause naming each broker and their percentage, and in the recap before that. Being named in the clause is the broker's protection: the commission is a term of a contract between owner and charterer, and the clause is what a broker points at if an owner pays late or not at all. Chains make this worth checking on every fixture, because who is who on a fixture decides whose freight the deduction comes out of when a disponent owner sits in the middle.

References

What a ship broker doesThe job itself: two lists nobody publishes, a market with no screen, and a commission earned only when a deal concludes. Who is who on a fixtureA dozen parties, several of them called the owner and two of them called the agent. Who instructs whom, and who you may telephone. The fixture recapThe e-mail that says what was agreed. Written in minutes, read by a tribunal years later, and the contract until the charterparty is drawn. How to calculate laytime and demurrageWhere the clock starts, what stops it, how the demurrage figure is actually worked out, and why most claims are lost on the paperwork rather than the merits. Time charter equivalentFreight per tonne means nothing next to hire per day until you divide it by the voyage. This is the arithmetic that does it.

Neptune Atlas

The Neptune Atlas voyage estimator and the free TCE calculator net commission out of the freight before the daily figure, because a TCE quoted gross of commission overstates the voyage by the whole brokerage chain. On the fixture record the commission terms sit beside the rate they apply to, so the recap that goes out says what was actually agreed. Every paid plan starts with 7 free days. A card is needed to start them, and cancelling before they end costs nothing.

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