What is the impact of the 4.75% third‑party commission on the net profitability of the charter contract?
Short answer
The 4.75 % third‑party commission is taken out of the gross charter price of US $14 250 (per‑day, per‑ton‑day or per‑vessel – the news does not specify the unit, but the calculation is the same).
Therefore the net amount that Diana Shipping will actually retain is:
[
\text{Net rate}=14 250 \times (1-0.0475)=14 250 \times 0.9525\approx \boxed{US $13 567}
]
In other words, the commission reduces the charter’s gross earnings by 4.75 %, shaving roughly US $682 off every unit of the gross rate.
1. How the commission works
| Item | Gross | Commission (4.75 %) | Net |
|---|---|---|---|
| Gross charter rate | US $14 250 | 0.0475 × 14 250 = US $682 | US $13 568 (rounded) |
The commission is a cash out‑flow that must be paid to the broker/agent that arranged the time‑charter. It is not a “tax” or a cost of the vessel itself; it is simply a market‑driven fee for the placement service.
2. Quantifying the impact over the contract’s life
The charter is slated to run from 15 Aug 2025 until a date somewhere between 20 May 2026 and 20 Jul 2026.
To illustrate the magnitude of the commission, we can calculate the total amount that will be lost under the two possible end‑dates.
| Contract length | Days (approx.) | Gross earnings (14 250 × days) | Commission (4.75 %) | Net earnings |
|---|---|---|---|---|
| Shortest (15 Aug 2025 → 20 May 2026) | 279 days | US $3 967 250 | US $188 442 | US $3 778 808 |
| Longest (15 Aug 2025 → 20 Jul 2026) | 337 days | US $4 801 250 | US $228 058 | US $4 573 192 |
The numbers above assume the $14 250 figure is a *daily** rate. If the figure is per‑ton‑day or per‑vessel, the same percentage‑based reduction still applies; the absolute dollar impact would be scaled accordingly.*
Take‑away:
- At the low‑end (≈ 279 days) the commission costs the company about US $188 k.
- At the high‑end (≈ 337 days) the commission costs about US $228 k.
In both scenarios the commission is a modest, predictable expense relative to the total charter revenue (≈ 4.75 % of the gross), leaving a sizable net cash flow for the vessel owner.
3. Effect on net profitability
- Margin compression – The 4.75 % commission directly reduces the top‑line revenue that can be allocated to operating costs (crew, fuel, insurance, depreciation, financing) and ultimately to profit.
- Cash‑flow timing – Because the commission is usually paid up‑front or on a regular (e.g., monthly) basis, it reduces the immediate cash available for the vessel’s day‑to‑day expenses, though the net cash flow remains positive.
- Profitability still strong – Even after the commission, the net charter rate of US $13 567 is still well above typical operating cost benchmarks for an Ultramax dry‑bulk vessel (crew, fuel, port‑call, insurance). Historically, an Ultramax can generate net operating margins of 8‑12 % of the net charter rate. Applying a 10 % margin to the net rate yields an approximate US $1 357 per day of profit, which is still a healthy figure.
Illustrative profit estimate (using the shortest contract length):
[
\text{Daily profit (≈10 %)} = 0.10 \times 13 567 \approx US $1 357
]
[
\text{Total profit (279 days)} \approx 1 357 \times 279 \approx US $378 k
]
The commission therefore reduces the “gross” profit potential by about US $188 k (short contract) but does not overturn the overall profitability of the charter.
- Strategic consideration – The commission is a market‑standard cost for securing a high‑value time charter. It is factored into the shipowner’s pricing models and is unlikely to affect the decision to accept the charter, provided the net rate remains attractive relative to the vessel’s cost base and alternative deployment options (e.g., spot market, other long‑term contracts).
4. Bottom line
- The 4.75 % commission cuts the gross charter rate from US $14 250 to roughly US $13 568 per unit (day/ton‑day/vessel).
- Over the contract’s life, the commission translates into a cash out‑flow of roughly US $188 k–US $228 k, depending on whether the charter ends in May or July 2026.
- Net profitability is still robust because the net charter rate comfortably exceeds the vessel’s operating cost base, leaving a healthy margin after the commission is deducted.
Thus, while the commission is a non‑trivial expense, its impact is limited to a predictable 4.75 % reduction in revenue and does not materially jeopardize the overall profitability of the time‑charter agreement.