Brokerage Commission

What it does

Brokerage commission is the remuneration of the shipbroker who negotiated and arranged the fixture, expressed as a percentage of the freight or hire and, in time charters, payable over the life of the charter. Unlike address commission, which functions as a rebate to the charterer, brokerage genuinely pays for the broker's service in bringing the parties together and concluding the deal.

The clause identifies the broker, the percentage, and the basis and timing of payment, and it is usually the owner that pays the brokerage out of the freight or hire it receives. In time charters the commission is typically payable on hire as and when earned and paid, so the broker is remunerated progressively over the charter rather than in a single lump sum at the outset.

Commercial effect

Brokerage is a cost of doing the fixture that, like address commission, reduces the owner's net return below the headline rate, and it must be factored into the economics. For the broker, the commission clause is the basis of its entitlement to be paid for the work of fixing the ship, and its drafting determines how secure and how continuing that entitlement is over a long charter.

A particular issue in time charters is what happens to brokerage if the charter is cut short, since the broker may expect commission over the full anticipated period. The clause and the surrounding practice address whether brokerage continues to be payable on hire actually earned or extends further, which can matter to the broker if the charter ends early, and it is read with the hire payment and any early-redelivery provisions.

Owner's perspective

The owner, which usually pays the brokerage, treats it as a cost of the fixture and factors it into the rate, wanting the percentage and basis clearly defined so the deduction is predictable. It wants brokerage payable on freight or hire actually earned and received, so that it is not paying commission on sums it has not itself collected.

The owner is also attentive to the position if a charter ends early, preferring brokerage to track hire actually earned rather than committing it to pay commission for a period during which the ship is no longer on hire. It negotiates the brokerage terms alongside the payment and redelivery provisions so that its commission cost remains tied to the revenue it actually receives.

Charterer's perspective

The charterer is usually not the payer of brokerage, but it has an interest in the clause because the broker is part of the fixture and because the commission arrangements form part of the overall deal. It wants the brokerage terms clear and consistent with the rest of the payment provisions, so there is no confusion about who pays what to whom.

Where the charterer has its own relationship with the broker or where competing commission claims could arise, it wants the clause to identify the broker and the entitlement precisely. It treats brokerage as part of the negotiated package and ensures it dovetails with the address commission and payment terms so that all the commission flows are accounted for without overlap or dispute.

Negotiation points

• The broker entitled to commission and the percentage payable.
• Whether brokerage is on freight, on hire, or both, and the basis of calculation.
• The timing of payment, especially on hire as earned over a time charter.
• What happens to brokerage if the charter is terminated or cut short early.

Common variations

• A stated percentage brokerage payable to the named broker on freight or hire.
• Brokerage payable on hire as and when earned over the charter period.
• A clause addressing brokerage continuation if the charter ends prematurely.
• Brokerage and address commission both defined in a single commissions clause.