Options clash

Huge differences in the approach to tanker chartering options between Sovcomflot and AP Moller-Maersk emerged in a London high court this morning.

Sovcomflot appears to have frequently granted options to charterers but the practice was unheard of in the offices of the Danish shipping giant.

Expert witness, Jens Huttemeier, who spent 44 years with AP Moller, including heading its products operation and being director of its crude tanker department, told the Sovcomflot corruption trial the Danish owner took a very different view to options depending on whether it was an owner chartering tonnage out or a charterer hiring tonnage in.

As an owner the strategy was to never grant options, but as a charterer a wide range of options was insisted upon to the point that a vessel would not be chartered if AP Moller did not get its way.

He told the court his colleagues in AP Moller “wore two different hats” depending on which side of the transaction they were on.

Many owners gave options to get business but AP Moller never did, he said.

But when it came to chartering, options were insisted on as “free of charge” benefits that could be used to its advantage or discarded depending on how the market moved.

Huttemeier, who retired in 2006 after an entire career at AP Moller, told the court in his witness statement the vast majority of 50 Sovcomflot charters he examined either contained options to extend the period or wide redelivery windows such as six to nine months that amounted to the same.

The witness is appearing for the defendants in a high profile trial in which Sovcomflot is suing its former director general Dmitry Skarga as well as Russian businessman and private shipowner, Yuri Nikitin, claiming bribery and fraud lay behind uncommercial charters and ship sales.

(Click here to read earlier exclusive reports from the Sovcomflot corruption trial as well as the interlocutory judgments in full.)

Huttemeier said he made no distinction between “uncommercial” transactions and those “not on market terms” that a reasonable shipowner would have concluded.

But he was reluctant to say that even if a deal was 10%, or even 50%, below the market rate it was “uncommercial.”

He told the court it was simply impossible to say that an owner who took a particular view of the market had made an uncommercial deal.

“He may not have made the best deal, or with hindsight a particularly good deal, but if it was made for reasons that are not irrational the fact that he would with hindsight have made a bigger profit does not seem to me to make a transaction uncommercial,” explained Huttemeier.

Huttemeir said there could be circumstances where there was a rationale behind even a very low rate.

The witness indicated the owner was often more important than the vessel in determining the rate in a chartering transaction.

Huttemeier, however, disagreed with an earlier expert witness for the defence, Colin Pearce of Causeway Tanker Consultancy, who had said the granting of options was only commonplace in the very depressed shipping markets of the 1980s and 1990s when charterers had market power.

Pearce came under detailed cross examination from Simon Bryan, QC for Tagir Izmaylov, former president of Novoship, about chartering deals involving numerous vessels and how the transactions compared to freight indices prepared by Clarksons, ACM, Gibsons and other shipbrokers.

The trial continues.

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