Address Commission

What it does

Address commission is a commission, expressed as a percentage of the freight or hire, that the owner agrees to allow to the charterer or a party nominated by it. Despite the name, it functions in practice as a rebate or discount off the headline rate, returning a slice of the freight or hire to the charterer side rather than paying for any service in the way brokerage does.

The commission is normally deducted as freight or hire is paid, so the owner receives, and the charterer pays, the rate net of the address commission. The clause states the percentage and the basis on which it is calculated, and it is read with the freight or hire payment provisions, since it directly reduces the sums actually flowing to the owner under those clauses.

Commercial effect

Address commission affects the true economics of the fixture by reducing the effective rate the owner receives below the headline figure. Because rates are often quoted before commission, the address commission must be factored in to understand the net freight or hire, and it is a routine part of comparing fixtures and calculating what the owner actually earns and the charterer actually pays.

As a deduction taken as payments are made, it also interacts with the payment mechanics and with any other commissions such as brokerage. The clause is straightforward in principle but commercially material, since over the life of a charter the commission can amount to a significant sum, and it is part of the package of payment terms negotiated together.

Owner's perspective

The owner treats address commission as a cost of the fixture that reduces its net earnings, so it factors the percentage into the rate it is prepared to accept. It wants the basis of calculation clear, whether on gross freight or hire and how it applies to items such as deadfreight or demurrage, so that the deduction is predictable and matches what was agreed.

The owner accepts address commission as market practice in many trades, particularly where the charterer is a substantial counterparty, but it negotiates the headline rate with the commission in mind so that the net return is acceptable. It wants the commission provisions consistent with the payment clauses, so the deductions taken as freight or hire is paid reflect exactly the agreed percentage and basis.

Charterer's perspective

The charterer benefits from address commission as an effective discount on the freight or hire it pays, and it wants the percentage and basis clearly stated so that it receives the full benefit as payments are made. It treats the commission as part of the net cost of the fixture and negotiates it alongside the rate rather than in isolation.

The charterer also wants the interaction with other commissions and with the payment mechanics to be clear, so that address commission and any brokerage are both correctly accounted for. It ensures the basis of calculation covers the elements it expects, and it aligns the commission terms with the freight or hire payment provisions so the deductions flow through automatically and correctly.

Negotiation points

• The percentage of address commission and whether it is on freight, hire, or both.
• The basis of calculation, including how it applies to deadfreight and demurrage.
• How and when the commission is deducted from payments.
• The interaction with brokerage commission and the payment mechanics.

Common variations

• A stated percentage address commission deducted from freight or hire as paid.
• Address commission on freight, deadfreight, and demurrage alike.
• A fixture quoted gross with address commission deducted on payment.
• A rate negotiated net, with the address commission already reflected.