Charterparty Claims

1
ITIC Forum 2008
The German KG and the Role of the Ship Broker
Falk Fischer
2
The Germans like to be understood and liked by
others, yet secretly take pride that this can
never be. Xenophobes guide to the Germans
ITIC Forum 2008
3
Development of the German Merchant Fleet
MERCHANT FLEET GERMAN FLAG YEAR Ships 1.000
GT Ships 1.000 GT 1970 2.578 7.485
2.578 7.485 1980 1.900 11.833 1.540
7.866 1990 1.410 7.518 922
4.005 2000 1.850 19.924 717
6.536 2005 2.575 40.879 508
7.577 2006 2.729 49.946 603
11.475 2007 3.011 58.751 574
11.248 2008 3.220 65.899 546 12.668
ITIC Forum 2008
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Newbuilding Activities of German Owners
Orders Deliveries
ITIC Forum 2008
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Key Involvement of the SP Broker (1)
e The SP Brokers involvement often begins
well prior to the formation of a new single ship
company e They may initiate the process by
developing a ready concept for purchase of
newbuildings, newbuilding resales or second hand
tonnage acquisition e Tailor-made projects may
include timecharter-back or bareboat employment
with purchase options/obligations e Detailed
market analysis and ship evalutations form an
essential part of the service to customers
(Shipowners and KG finance markets)
ITIC Forum 2008
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Key Involvement of the SP Broker (2)
ITIC Forum 2008
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The German KG
Special financing concepts for ships were known
already in times of the HANSE (14th century)
Nowadays the Kommanditgesellschaft is the
predominant form of a financing Partnership for
sea-going ships
What exactly is this KG?

• a limited partnership
• of individual investors
• participating in a single purpose company

ITIC Forum 2008
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The German KG Model as applied to Single Ship
Companies
a MS LILIANA GmbH Co. KG
e Ship is purchased with investors capital and
bank loans
e ADVISORY BOARD (Beirat) representing investors
may monitor the management of the company
ITIC Forum 2008
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Tonnage Tax

• e Instrument applied in many countries to promote
  shipping industry,
• yet in varying forms
• e In Germany tonnage tax is not a tax in the
  strict sense but a procedure to determine profit
  for taxation
• e Owner of the vessel (KG) can apply for
  tonnage tax if
• KG management and ship management are seated in
  Germany
• and ship is employed in international trade
• Tonnage tax system will then be applied for 10
  years
• (regardless of actual profit)
• Example
• 6.500 TEU Container vessel with net tonnage of
  about 43.300 would have a calculated taxable
  profit of EUR 66.572,35 per year.

ITIC Forum 2008
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Chances and Risks of the Shipping KG for the
Contracting Parties
e Transfer of many of the financial risks of
operating a vessel to private investors, whilst
retaining commercial control and
gaining financial flexibility e For a Limited
Partner the risk is usually limited to the amount
of his/her single investment in the KG e A
long term investment for the private investor
with nearly tax-free returns
ITIC Forum 2008
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The Role of KGs in the Global Shipping Market

• about 1/3 of the worlds container fleet is
  owned by German KGs
• German Shipping Market possesses the worlds
  largest feeder vessel fleet
• numbers of KGs for other types, especially
  Tankers, are increasing
• German Merchant Fleet is 3rd largest world-wide

By the end of 2007 almost 3000 vessels employed
in international trade were registered in Germany
and tonnage tax was applied to almost all these
vessels

Germans like things that work. This is
fundamental. Xenophobes guide to the Germans
ITIC Forum 2008
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Sales Prospectus and Liability
The prospectus is an important basis for the
investors decision For certain investment
offers in closed end funds issuing a prospectus
is obligatory
Issuers may be liable for incorrect, incomplete
or missing prospectus!
Good outlook for employment of the newbuilt or
purchased ship is essential This is why a
prospectus may explicitely refer to experience
and connections of a particular SHIPBROKER
and/or POOL MANAGER
ITIC Forum 2008
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The KG and the Broker Some Aspects to watch out
for (1)
Dynamics between KG partners may also shift the
Shipbrokers role into focus, especially if the
vessel turned out to be less profitable than
expected
Owners Broker

• - Rising Bunker Prices / Problems with Fuel Oil
  Quality
• e Importance of using appropriate Bunker
  Escalation / Speed and
• Consumption Clauses
• Uncertain parameters in vessel description prior
  to delivery and with increasing years of
  operation
• e Insert suitable performance clauses in long
  term C/P providing for sufficient
  flexibility

ITIC Forum 2008
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The KG and the Broker Some Aspects to watch out
for (2)
Charterers Broker

• Who is the named Owner/Carrier in the C/P or
  B/N?
• e.g.
• - Registered Owner (GmbH Co. KG)
• - General Partner (GmbH)
• - Shipmanager or Pool Manager
• - Bareboat Charterer
• - Time Charterer
• - other
• Is the named Owner/Carrier operative?
• Remember
• Once the vessel is sold the KG will usually be
  wound up subsequently

ITIC Forum 2008
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The KG and the Broker Some Aspects to watch out
for (3)
Pool Manager
Pooling Agreements are now potentially subject to
review under EU competition rules, depending on
- Share of relevant pool in a defined
market, - Powers conferred on pool manager -
Contents of pooling agreement e For details
see ITIC Intermediary Edition September 2007
ITIC Forum 2008
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What will the Future bring?
Long term KG business prognosis is growth due to
the increasing availability of equity
ITIC Forum 2008