The Baltic Exchange is expanding its escrow service with an offering to mitigate counterparty risk during the chartering process. Amongst various uses, the service can support a chartering deal by facilitating and holding a security sum in a dedicated escrow account.
The security sum typically represents a portion of a charter hire amount, which is pre-agreed between a shipowner and charterer, and held as collateral. Crucially, the service provides assurance that contractual obligations are fulfilled before funds are released, and enables the conditional release of the agreed security sum on pre-agreed terms.
The offering, which is available to members and non-members, can be used for both Time and Voyage Charters. For Time Charters, security sums will be paid by the charterer into an escrow account for the duration of the time charter, to be released after vessel re-delivery.
For Voyage Charters, freight prepayments by charterers will be deposited into an escrow account as a security sum and released upon cargo discharge.
Shipowners can be assured that the security sum is retained by an independent and trusted escrow service provider for the duration of the charter hire, and can be called on in the event of non-performance during the hire period. The service offering would also help shipowners expand the pool of charterers that they can work with.
Charterers who are less familiar or new to the market can demonstrate their financial ability to pay the charter hire, while protecting their interests by having an independent escrow agent hold the monies instead of disbursing the funds directly to a shipowner before payment is due.
Dmitry Pismenny, who heads the escrow service, commented: “The chartering of vessels carries a degree of risk of non-performance for both shipowners and charterers. The stakes are higher when dealing with new or unfamiliar counterparties.”
“Our service offering can be flexibly applied to chartering deals and protects the interests of all parties. Whether it is a security sum to guarantee sufficient funds, a means for an intermediary to pay charter hire obligations, or a sum to cover incidentals during the hire period, having the Baltic Exchange hold the funds in escrow gives all parties confidence that the service will be delivered with the highest level of professionalism, reliability, and security,” Dmitry noted.