Fri, Oct

First refusal


First refusal. In negotiating for the fixture of a vessel a shipowner's shipbroker may attempt to obtain a FIRM OFFER from the charterer or the charterer's agents within a stated time limit.

The shipowner may also make a FIRM OFFER to the charterer, also valid within a time limit. In the first case, the shipowner is considered to have the first refusal of the cargo being offered.

Such a procedure may be followed when shipowners prefer to fix their ship for consecutive charters simultaneously so as to reduce the risk of an idle ship between charters. As soon as they are in the position of having the option of first refusal of one cargo they will try to obtain-through their shipbrokersthe first refusal of the next cargo. If successful they are in a position to fix the ship well forward.

It will mainly depend upon the owner's expectations about the future trend of the freight-market, whether such a forward-planning strategy will be followed or not. If the open, "spot market" rates are likely to rise, the owner may defer fixing his ship for the next charter and allow it to run "prompt". This is a question of corporate decision-making and company policy in the ship owning company, and also a function of decision makers in the chartering or operations department of the company. The "prompt", spot market approach does possess considerable financial risk.