Articles

Can Investing in Vessels for Charter be Profitable?

by Elena T. Manager

In today’s age, different industries have managed to thrive, while others have expired. One important concept in investment that has helped various markets is chartering. For those unfamiliar, chartering, in general, is compensating rights and authority of use over land and/or marine vehicles for a period of time or distance.  

Chartering vessels is a typical activity in the maritime industry. It allows cargo transport for businesses without the expense of buying and investing in private shipping vessels. Charterers, however, may use their chartered vessels in various ways to earn profit: 1) to deliver freight; 2) to transport or house people, or 3) to charter to third party businesses or individuals at rates higher than rental rates. 

One of the most common questions posed by this business activity is on its profitability. Before we answer that, you will need to know about the terms used in chartering, and types of chartering, after which, we will apply simple investment concepts to determine profitability.  

Freight rates 

Cargo vessels for charter have freight rates.. Freight rates refer to the price at which cargo will be transported. Freight rates for marine vessels have several determining factors; namely, the size and weight of cargo, type/s of cargo, and the points of delivery and pickup, and their distances. A very important thing to note is that freight rates are lower when transporting more cargos. Additionally, various laws are enforced in cargo transport which will affect freight rates.

Charter party and Charter Types

A charter party is a legal document containing the terms agreed upon by the shipowner and charterer.  The first type of chartering is hiring the vessel for a certain period of time or time charter. The other is hiring the vessel under predetermined distances and per ton or lump sum basis which is called a voyage charter. 

There are two ways of executing a time charter. The first is where the shipowner still manages the chartered vessel, but the merchant controls the employment. The other is called the demise or bareboat charter wherein the charterer assumes legal responsibilities of the owner for the agreed period of hiring.

Applying investment Concepts

When you decide to buy your own vessels for charter, you will need to prepare capital and utility expenses for the upkeep which will be expensive just as in any other large-scale businesses. However, here are three investment concepts that you will have to utilize to make your chartering venture profitable.

Compounding

Initial expenditures are foreseeably great, but given that you have identified or established a pool of potential patrons, compounding will be the easiest step. Say you have already established your vessel charter, by compounding your earnings, you will be able to upscale your venture either by upgrading your vessels or purchasing new units.

Stocks

Stocks are shares on certain ventures. If you decide to invest in a chartering business, you will essentially be a part owner. Having other business partners, assuming they have credibility and connections in your market, is a low-risk high-return investment. Make sure to invest in credible companies as they have more experiences, and are prepared with mitigation and contingency plans.

Bonds

As we are almost at the peak of capitalism, giant companies are expanding worldwide; hence, placing the cargo shipping industry at its prime. If you decide to purchase bonds from a chartering company, you will essentially be a creditor and will earn interests, apart from being safer in case of bankruptcy or severe deficits as opposed to stockholders.

 Essentially, chartering is profitable given that you find the right vessels and apply a well-studied businesses strategy. 


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About Elena T. Junior   Manager

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Joined APSense since, June 21st, 2017, From 73344, United States.

Created on Nov 27th 2017 10:42. Viewed 250 times.

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