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Negotiation

Firm offers, counters and subjects

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Between an enquiry arriving on a desk and a ship being fixed, there is a series of steps with its own vocabulary, and the words matter. An indication commits nobody. A firm offer can be accepted and become a contract. A fixture "on subs" is reported to the market as a fixture, but it is not one yet. Good negotiating depends mostly on knowing which step you are on.

The ladder

StepWhat it isWhat it binds
EnquiryA cargo exists, and the market is being asked what it would cost to carry Nothing. It has usually gone to several brokers at once.
IndicationAn informal view of the rate Nothing. It is information, and most conversations stop here.
Firm offerNamed parties, full terms and a time by which it must be answered The party making the offer, for as long as it is valid. The other side can accept it.
CounterA reply in the same form, with some terms changed The offer it answers has ended, and the counter is now the live offer.
Main terms agreedThe commercial terms are settled Everything except the open conditions and the detailed wording.
On subsAgreed, but with named conditions still open In practice the ship is off the market, but in law nothing is concluded.
Subs liftedThe conditions are declared met A clean fixture. Both sides are committed.
Details and charterpartyThe full wording, written on the agreed form The contract in its final form, recording what the recap already agreed.

An indication costs nothing, and that is its use

Most of what brokers exchange all day is indications: "What do you think for a Handy out of West Coast India in the second half of the month?" or "Where would you value this ship?" Nobody is committed and both sides know it, and that is why they share information freely. An owner will tell a broker what a ship is worth long before offering it.

The risk is treating an indication as a quote. A charterer who hears sixteen dollars a tonne informally and is then offered eighteen firm has received two honest numbers a week apart, but will remember only the first one. Always say which kind of number you are giving.

What makes an offer firm

An offer is firm when three things are true: the parties are named, the terms are complete enough to be accepted as they stand, and there is a deadline for the answer.

WE OFFER FIRM SUBJECT TO REPLY 1600 HRS SINGAPORE TIME TODAY:

ACCOUNT   : OCEAN HARVEST TRADING PTE LTD, SINGAPORE
VESSEL    : MV ALKA STAR, 37,500 DWT ON 10.20 M SSW, BLT 2016
            GEARED 4 X 35 T WITH GRABS, 5 HO/HA
CARGO     : 30,000 MT 5 PCT MOLOO CEMENT CLINKER IN BULK
LOAD      : 1 SB KANDLA
DISCH     : 1 SB KRISHNAPATNAM
LAYCAN    : 08/14 OCT
FREIGHT   : USD 18.50 PMT FIOST BENDS
LAYTIME   : 10,000 MT PWWD SSHINC LOAD / 6,000 MT PWWD SSHINC DISCH
DEM/DES   : USD 14,000 PDPR / HALF DEM BENDS
COMM      : 3.75 PCT ADDCOM PLUS 1.25 PCT
OTHERWISE : GENCON 1994 AS AMENDED
SUB       : SHIPPERS APPROVAL, OWNERS MANAGEMENT APPROVAL

Newcomers often miss the validity time. It exists because a firm offer has a cost for the owner: for those hours the owner has taken the ship out of other conversations and will not offer it elsewhere. That has a real cost for the owner, so the window is short, often minutes rather than hours in a busy market. It names a time zone because the two desks are rarely in the same one.

An offer that expires without an answer has ended. Nobody has to extend it, and nobody has a right to complain if it is not extended, although in practice a broker will ask. What you must not do is let it expire in silence while you wait for your client. Tell the other side that a reply is coming and ask for more time. Otherwise the owner will feel that the ship was held for nothing.

A counter kills the offer

This is the most important rule to learn early. Any reply to a firm offer other than a clean acceptance ends that offer. The original offer cannot be accepted later. The only live offer now is your counter, with its own validity time.

Two consequences surprise people. First, "accepted except" is a counter, not an acceptance, however small the exception. Second, once you have countered you cannot change your mind and take the original. If the market moved against you in the twenty minutes since, the other side may say the earlier number is no longer available, and it often will.

So a counter has a cost, and it is better to put everything you want into one counter than to send changes in three separate rounds. A negotiation that runs to eight exchanges over small points usually means someone has not decided what they really need.

COUNTER, SUBJECT REPLY 1730 HRS SINGAPORE TIME:
- FREIGHT USD 16.75 PMT
- LAYCAN 10/16 OCT
- DEM USD 12,000 PDPR
- ALL ELSE AS OFFERED

In that message, ALL ELSE AS OFFERED is important. It says the other twelve lines are accepted and only these three are in dispute. That narrows the argument and lets both clients see the gap. A counter that repeats every term from the start encourages both sides to reopen terms that were already agreed.

Subjects

When the commercial terms are settled, the deal goes on subs (on subjects): it is agreed, but it depends on conditions that are still open. The ship comes off the market and the desk reports it as fixed on subjects, but nobody is committed yet. There are broadly two kinds of subject: real conditions, and conditions that work more like an option. Treat them differently.

SubjectWhat is outstandingHow to read it
Sub stemConfirmation that the cargo will be available at the load port on the dates A real condition, usually cleared quickly. It fails when the shipper cannot supply the cargo in the window.
Sub shippers or receivers approvalA party outside the negotiation must accept the ship A real condition. Ask how long it takes at that terminal, because it can be anything from an hour to several days.
Sub management or board approvalThe other side's own internal sign-off Usually real on a large fixture, but sometimes a polite way to keep the right to withdraw. Judge it by who you are dealing with.
Sub detailsThe full charterparty wording The widest subject of all. Until the details are agreed there is generally no binding contract, and this subject can end the whole deal.
Sub charterers approval of the vesselAn inspection, vetting, or a check of the ship's record A real condition, and worth tying to a deadline: an approval with no end date lets that side withdraw at any time.

The key point is that a subject held by one side is an option for that side alone. Whoever holds the subjects can withdraw at no cost, while the other side is committed in practice. That is why a broker should ask what each subject really is, who lifts it, and by when.

Lifting, and the deadline

Subjects are lifted when the party holding them declares them met. Once all are lifted, the fixture is clean, both sides are committed, and the recap becomes the record of the agreement.

The recap should state a time for lifting, and this is very often left out. SUBS TO BE LIFTED LATEST 1700 HRS 03 OCT turns an open-ended option into a deadline. Without one, a ship can sit idle for four days on a deal that was never going to happen. If the other side will not put a time on it, that tells you the deal may not be firm.

Be precise about what a lift means, too. Subjects are lifted in full, never in part. A message that says the subjects are lifted except for one is a request to change the deal, and you should answer it as one.

Failed on subs

Deals often fail at this stage. This is normal. The cargo did not appear, the receiver would not accept that ship, or the internal approval did not come. Two habits are worth building around it.

Report it. A fixture that goes on subs and then fails is reported to the market as "fixed and failed". If you hide it, competing brokers keep working on a cargo that is no longer available, and they find out anyway.

Keep the record. A failed negotiation is one of the most useful things a desk owns. It shows what that charterer wanted, what it was ready to pay, which ships it refused and why, and it is the first thing to read when the same client calls again next month. A negotiation that only ever existed in an e-mail thread is one nobody will be able to find in six weeks.

Keeping the numbers straight while it moves

In a live negotiation, a handful of numbers change several times an hour across two or three parties. The mistakes that cost money are almost never errors of analysis. They are an out-of-date demurrage figure carried into a counter, a laycan that changed on one side of the chain but not the other, or an owner quoted a rate the desk had already improved.

The habit that prevents this is simple: after every exchange, write down the current state in fields rather than in prose, and make that the document both brokers work from. When the deal is concluded, that record is most of the recap already written.

For the whole sequence from the first enquiry, see how to charter a ship for your cargo.

References

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 up. How to read a cargo enquiryThe e-mail that says a charterer needs something moved, read field by field, and why an enquiry is not an offer. Laycan: laydays and cancellingTwo dates with opposite jobs: the earliest date a charterer must accept the ship, and the latest date after which they may refuse it. Chartering terms and abbreviations, A to Z177 chartering terms and short forms from a circular, an enquiry and a recap, each expanded and defined in a sentence or two.

Neptune Atlas

A fixture in Neptune Atlas moves through negotiating, on subs, fixed, failed and completed. From the first counter onwards it holds the vessel, the cargo, the parties, the rate and its basis, the laycan and the demurrage figure as fields. A negotiation that fails stays on the book as a failed fixture instead of disappearing, and that is the record a desk wants the next time that charterer calls. 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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